Money Issues

Hey agency owner — measure what matters

Want more money in your pocket -- measure what matters. Many agency owners want their agency to be more stable, more profitable and more predictable.  The truth is -- you can have all of that but it doesn't happen by accident.  You've heard the expression "if you want it to matter, measure it" and that's absolutely true. Here are some metrics you should consider tracking on a consistent basis as you grow your agency. Weekly: Timesheets completed (all time, billable and non-billable): Your goal should be 95% or better.  This means yours too, agency owner. Monthly: Gross billings: No specific metric but measure it against your annual goals. AGI: No specific metric but measure it against your annual goals. AGI ratios: Your AGI should be spent in this approximate ratio 55-60% People (all expenses tied to your staff. Salaries, benefits, payroll taxes etc.) 20-25% Overhead (Day to day operating expenses like rent, travel, professional fees, etc.) 20% Profit (EBITA) Profitability by client (It’s reasonable to shoot for a 10% minimum) AGI/FTE (your goal is $150K in AGI for every FTE) Write up/offs (are you adding profit to jobs or writing off time. Track both) Billable % (Overall staff billability should be 75% or higher) Utilization – what you actually billed (Overall staff utilization should be 60% or higher) Quarterly: Employee Satisfaction (On a scale of 1-10, how likely are you to recommend working at the agency to a friend?) New revenue ratios (70% of new revenue should come from current clients) New clients/sales: No specific metric but measure it against your annual goals. Average spend per client (you should set a minimum acceptable quarterly spend) Annually: Client retention (Goal should be 80% or higher) Employee [...]

Hey Agency Owner — Do You Have a Handle on Your Agency’s Financial Picture?

Do you have a reliable, regular handle on your agency's future and agency financial picture? On any given day – agency ownership is akin to riding a roller coaster – the highs are exhilarating and the lows are terrifying. While the highs and lows are triggered by a variety of factors (clients, technology, employees, etc.) the net result of those highs and lows are almost always financial. It’s pretty tough to be excited about owning/running a business that isn’t making any money. And yet, many agency owners I meet don’t really have a handle on their company’s financial picture. As the results from Hubspot’s Agency Pricing & Financials Survey show, 15% of respondents don’t even know what their average profit margin is, which means they’re out there, operating in the dark. I’m equally concerned about the agencies that reported 41-51+% profitability. I see the financials of over 250 agencies (from 1 FTE to 300 FTEs) a year and I’ve never seen an agency’s profitability exceed the low 30s. My guess is that either those respondents don’t understand the term profit margin or their books are a mess. Bottom line – there are some metrics that every agency owner needs to understand and track. It’s how you know when you hire, if you’re prices are appropriate and if you’re making any money. Every month, you should be tracking: AGI (Gross billings minus cost of goods sold) How the AGI is being spent (Between loaded salaries, overhead and profit) Profitability by client (are you paying for the privilege of working for some clients) AGI per FTE (Goal should be $150K per FTE, anything less than 100K is serious trouble) Estimates to actuals – how accurate are your [...]

Hey Agency Owner — Are Your Prices Competitive?

How does your pricing align with other agencies? What KPIs are other agency owners tracking? What should my profit margin be? How many clients do I need to make $X per year? What sources generate the best leads? These are conversations we have in the AMI network meetings all of the time.  They're not just about curiosity -- it's about best practices and making sure you aren't missing an important insight or leaving money on the table. Whether you're a part of an AMI network or not -- this is information you need to know.  To help agencies better understand how to price, manage, sell, market, and deliver to clients, HubSpot conducted a survey with more than 750 agency executives responding to our questions. This data, along with industry expertise from Tim Williams, Karl Sakas, Jason Swenk, myself, Peter Levitan, and Lee McKnight, Jr., was combined in their first agency-focused research report: The Agency Pricing & Financials Report. (download it here). I think you'll find it very eye-opening.  I was not surprised to learn how many agency owners aren't tracking the financial metrics that need to be on their radar screen every month.  Take a look and let me know what you found most surprising.

The 4 Most Common Financial Mistakes that are Costing Your Agency Money

Whether you like it or not, there are several financial mistakes being made in your agency today that are costing you money. You’re in business to make money, so every step you can take to prevent these mistakes is worth it’s weight in gold, literally.  Most of these mistakes happen slowly over time and just eat away at your profits little by little.   This solocast is all about these money draining mistakes and what you can do to plug any holes you may have. In this solocast I will cover:     Gross Billings vs. Adjusted Gross Income How agencies lose money when pricing Why scope creep leads to little or no profit Why your agency needs to issue change orders and how to turn this into a process Why you need to use the one page business plan How to know if you need a better new business plan (hint: you probably do) Why you need a tax advisor not a tax preparer Drew McLellan is the Top Dog at Agency Management Institute. He has also owned and operated his own agency over the last 20-years. And all through the year, he straddles the fence of working in his agency and working with 250+ small- to mid-size agencies in a variety of ways. He works with agency owners in peer network groups, teaches workshops for owners and their leadership teams, teaches AE bootcamps, and does a lot of consulting. Because he works with a lot of agencies every year — he has the unique opportunity to see the patterns and the habits (both good and bad) that happen over and over again. He has also written two books and been featured in The New York [...]

Agency best practices — what to do when your client is stalled

Short of losing out on work, I'm not sure there's anything more frustrating then when a client is stalled on a project.  You know how it goes.  Client calls with their hair on fire.  You move heaven and earth to get the resources ready to help them solve their crisis and you're knee deep into the work when you get the call.  "We have to hold tight for a minute." Which of course, turned into 2 months. Or worse -- you don't get a call.  But you are waiting on something from the client (web content perhaps?) and you wait.  And wait.  But the client is stalled and not telling you. The worst part isn't the delay. It's that every day of the delay costs you money.  And it costs you even more money when they're ready to go again. You have to get your head back into the work, you have to go back and re-read the creative brief, and you often have to bring the team back together to get everyone back on track.  On top of all of that -- you need to shift work to accommodate the old project because when they come back -- they're always in a hurry to get it done. Ideally you can discourage clients from disrupting the flow of the work.  But even if you can't -- you shouldn't be penalized for a client not having their act together.  I get it.  Sometimes it's not your client but someone else inside their organization and sometimes, stuff just comes up.  But you know what -- you're running a business and it's tough to do that when clients behave in an unpredictable and unreasonable manner.  Which is what all [...]

Agency Best Practices: Cover your agency in case your client pulls the plug

One of the most annoying and expensive aspects of running an agency is when you do a lot of groundwork on a project and then the client pulls the plug before you've been paid. The phrase is actually an American idiom which originated in the 19th century.  Back in 19th century America, toilets had plugs so to flush a toilet, you needed to pull the plug. And that's sort of what it feels like when you get that call from the client, saying that something has changed and the project (or the project's budget) is going away.  You can almost see your profits going right down the toilet.  But it doesn't have to be that way.  Not if your contract/scope of work protects you. For most agencies, we invest a significant amount of time/energy on the front end of a project, knowing we'll recoup our time/costs by the time the work is complete.  That works great when there no complications.  But there's almost always a complication! There are some things you can do to protect your agency but the time to do them is before you start the work. First — be sure you are getting 50% of the project fee up front.  Build payment milestones by date, not by deliverable (otherwise, they can stall on approvals etc. to delay payment).  In addition, here’s some language you should consider incorporating into your contracts/scope of work documents: Most of the work we do on your behalf is front-loaded, which simply means we do the lion’s share of the work on the front end of the project and recoup that investment throughout the billing milestones. We know it would put a strain on your budget to require you to [...]

Understanding Agency Finance and Business Valuation with Donya Powell

A lot of agency owners are accidental agency owners. Do you remember the day that you looked around and realized that you were running a business? For many agency owners, that wasn’t really the plan. And even if it was – we’re not prepared for it. We grew up in either the account service world or the creative world and avoided anything that even smelled of math or agency finance. But now, as agency owners, we need to have a handle on what is going on in our agencies from the financial side. Where do I stand financially and how can I improve my agency’s financial health?   My podcast guest, Donya Powell is a CFO who works with agencies both big and small, helping them with everything from succession planning and selling their agency to financial dashboards, budgets and tax strategies. In our conversation, Donya and I cover a lot of ground, including: Misconceptions agency owners have when valuing their business Donya’s spreadsheet for assessing your financial picture during retirement Understanding agency finance your agency’s normalized EBITDA (earnings before interest, taxes, depreciation, and amortization) Factors that severely impact your agency’s value in a negative way What you may need to change in your agency’s books Things on the financial statement that agency owners often ignore that they really need to pay attention to What financials agency owners should be looking at every week, month, and quarter Budgets: can modern, project-based agencies use them? Mistakes agencies make in regards to taxes and tax strategies to take advantage of How to know if your agency is structured as a corporation in the correct way Things to think about when planning the selling of your agency Factors [...]

Understanding Customer Value-Based Pricing as a Pricing Strategy with Ron Baker

Everyone in the agency business has a deep hatred for two aspects of your business. The billable hour and the timesheet. My podcast guest, Ron Baker, believes agencies should do away with both. (I disagree with him on the timesheet and you’ll hear why in our conversation). Ron’s philosophy is built around the concept of customer value-based pricing. He’s a huge value-based pricing advocate and a CPA but he’s no ordinary CPA. He and his team are committed to price certainty in all professions, including agencies.  He wants to help you have a conversation with your customer to determine the value of what you're creating, so that you're pricing the customer, not your services or the scope of work. Ron and I help you understand what your customers are trying to achieve and how to assign a value to the work you do to help them get there.  We answer many customer value-based pricing questions like:   Why Ron believes that the billable hour and the timesheet need to go Customer value-based pricing: the differences between different pricing plans Ways to add in additional value that isn’t more “stuff” How to start a value conversation The typical agency objections of value-based pricing and why they’re false How to succeed at the transition to value-based pricing Other kinds of mistakes agencies make when shifting towards value-based pricing The major benefits for focusing on value and the customer Action steps that agencies can take when deciding whether or not to utilize customer value-based pricing Ron Baker is the founder of VeraSage Institute, a leading think tank dedicated to educating professionals internationally, and a radio talk-show host called The Soul of Enterprise: Business in the Knowledge Economy. Ron [...]

How to Prevent Internal Fraud from Happening in Your Agency

Internal fraud. Two words that strike fear into the hearts of any agency owner. It’s not a subject that we want to talk about but it’s a real danger for agencies. And while most agency owners think that it could never happen to them, I know from my experience with hundreds of agencies that it can and does happen to the best of us.    But have no fear, by following some very simple best practices around your accounting systems and the people you trust with your money, you can take great strides in making sure the right checks and balances are in place inside your agency.   Take a listen to this solocast where I detail out: Common ways internal fraud is committed and ways to prevent it from happening How agencies are targeted with email scams The ways agency employees embezzle hundreds of thousands of dollars from agencies The systems you need to put in place to prevent fraud Drew McLellan is the Top Dog at Agency Management Institute. He has also owned and operated his own agency over the last 20-years. And all through the year, he straddles the fence of working in his agency and working with 250+ small- to mid-size agencies in a variety of ways. He works with agency owners in peer network groups, teaches workshops for owners and their leadership teams, teaches AE bootcamps, and does a lot of consulting. Because he works with a lot of agencies every year — he has the unique opportunity to see the patterns and the habits (both good and bad) that happen over and over again. He has also written two books and been featured in The New York Times, Entrepreneur [...]

BABA_Popover05