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 [...]

How to Manage Small Business Finances as an Agency Owner with Jason Blumer

As an agency owner, there’s one thing you learn quickly: It’s not necessarily how much money you make, it’s how much money you keep. And much of that has to do with having a tax strategy that works for you, your family and your agency.   “The money that matters most is the money you get to keep and spend,” says my guest Jason Blumer. Jason is a virtual CPA who specializes in working with agencies. He challenges his clients to grow their agencies while at the same time keeping more of the money they make. From tax strategies to employment benefit plans to the metrics that matter, Jason touches on all aspects of an agency’s financial life and some best practices for protecting what you’ve worked so hard to earn. Join Jason and I as we dig deep into small business and agency finances with: How Jason and his team got into the agency niche Mistakes agencies and agency owners make regularly Why going virtual doesn’t automatically save your agency money How to legally save your agency money in taxes in ways that make sense for your agency How to manage small business finances at your agency Employment benefit plans which benefit agency owners P&L and AGI numbers to know Why you shouldn’t be struggling to make payroll if you have a strong value proposition Why being a successful creative director doesn’t mean you should open your own agency Why you need to be willing to sacrifice services, clients, and your team How to know whether the metrics that you’re tracking are worth tracking Things most if not all agencies should track Why you should outsource your accounting Jason’s recommended resources Jason Blumer is [...]

How to Make a Profit Doing Website Development with Brent Weaver

Most agencies offer some level of web development – whether you do it in house or outsource it. Unfortunately, few agencies have actually figured out how to make a profit doing web development. Scope creep, unexpected technical snags and constant client changes make it tough to build a profitable web department. But it doesn’t have to be that way. My podcast guest Brent Weaver from uGurus is dedicated to helping agencies and web dev shops actually build a sustainable and profitable business focused on creating websites for clients. Brent and I will help you learn what it takes to make money in web development by explaining: Why agencies have a hard time making money creating websites for clients How to make a profit doing website development and design Why bad discovery leads to scope creep Why you should spread discovery over multiple meetings rather than one long meeting Why you need to niche down to find the quality and quantity of clients that you need Why you need to treat your website (and your clients’ websites) like a kid Working with your clients to develop a web strategy that fits their budget Establishing a communication pattern with your clients Not letting clients delay because a website isn’t perfect How to focus on the right platforms How to know whether to bring web-dev in-house or use a partnership What agencies need to know about the web to capitalize on the opportunities out there Brent Weaver became obsessed with creating websites when he was 15 years old. He realized he could create and share information with anyone in the world with the click of a button. His first business was a web design agency turned marketing firm. [...]

5 Key Agency Metrics Every Organization Should Be Tracking & Why They Matter

You know my drill – you’ve taken a huge risk in starting or buying an agency. I want to make sure you get the rewards that should accompany those risks. Most agencies have a few KPI (key performance indicators) or agency metrics they track. Unfortunately, most agencies track the wrong ones, like gross billings. I want to make sure you're measuring what actually matters -- the agency metrics that really give you insight into your agency and help you run a more profitable business. In this solocast, I walk you through the five agency metrics that every agency owner should be tracking and why they matter. Why you have to measure inside your agency The AGI/FTE ratio: why you should be aiming for this to be $150,000 (and why many agencies struggle to reach this goal) Measuring over/under on projects: how often are you over, how often are you under, and by how much? Why you need to look at profitability on a client by client basis (and how to know when to fire a client due to profitability) Why you need a minimum standard AGI for all your clients Why you absolutely need to use timesheets inside your agency (and why this doesn’t mean you should bill by the hour) Drew McLellan is the Top Dog at Agency Management Institute. For the past 21 years, he has also owned and operated his own agency. Drew’s unique vantage point as being both an active agency owner and working with 250+ small- to mid-size agencies throughout the year, give him a unique perspective on running an agency today. AMI works with agency owners by: Leading agency owner peer groups Offering workshops for owners and their leadership [...]

Understanding Your Agency’s Value and What You Can Do to Boost that Value with Henry Corona

What is your agency worth? How do you know? What’s involved in an agency valuation? Once you understand your agency’s value, you can decide what tactics you need to take to improve that number. Staffing, technology, training, expansion and compensation. These are just a few of the elements that play a role in the valuation of your agency. My podcast guest Henry Corona has been providing agency valuations, consultation on M&A deals and coaching agency owners on how to increase the value of their shop for decades.  He has an extensive knowledge of agency value and helps owners focus in on what they need to be looking at if they want to sell somewhere down the road.   Henry and I help you make sense of it all with: Henry’s transition from the film business to the advertising business Mistakes agency owners make that hinder their ability to sell their agencies Where agencies need to be investing Why tracking hours is critically important What to do about employees that cost your agency money Why your agency should have a profit sharing system Understanding your agency’s value and what it means AGI numbers you need to know What diminishes the value of an agency Charging brain surgeon prices vs. charging nurse prices Training clients so they don’t feel like they’re getting the “B Team” What agency owners can do right now to improve on the ideas from this episode Henry Corona graduated from Grinnell College in Iowa, moved to Los Angeles, and earned an MA in Economics from UCLA. He worked as an Economist for the Rand Corporation, and while at Rand, Henry earned an MBA in Finance & Marketing from USC. Upon graduating, he joined [...]

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 [...]