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How much will you owe in taxes for this year?

In my mind, as you read that sentence, you were thinking “Are you kidding? I just paid THIS year’s taxes. Why are we talking about 2019 taxes already?” Which of course is my point. If you’d like to pay less tax than you did this past year, you can’t wait to until late December to put some strategies in place. I find that most agency owners have very conservative tax preparers. They’re much more concerned about making it easy for them than they are in actually giving you good advice about how to structure your business in the most tax advantageous way. I had a CPA like that and paid through the nose for years. Fortunately, I realized the mistake I was making about a decade ago and have cut my tax liability to a fraction of what I used to pay. There’s no reason why you can’t do that too. We will talk tax strategies in our owner workshop this fall (October) if that’s of interest. Whether you join us or not — it’s time to evaluate your tax prep pro. If he/she isn’t actively meeting with you every quarter to review your financials and look for ways for you to protect yourself from unnecessary taxes, it’s time to go shopping. We all have to pay taxes but it shouldn’t add up to more than we need to pay.

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Sharing Agency Performance Goals—It Changes Everything

If you’re operating your agency with the goal of achieving the performance metrics of 55/25/20 recommended by the AMI, it’s easy to see in any given month just how well the agency is performing. Those three numbers should be the basis to guide your decisions on everything from personnel to pencils. Setting goals is great, sharing agency performance goals though, that has the power to change everything. One of the most important questions agency owners should be asking themselves is a simple one: How many of your agency staffers understand or are even aware of those numbers and how they drive a healthy, sustainable enterprise? Is it just a few—perhaps your finance person and your number one key executive? That’s the most common answer, and it’s also a big mistake. As an owner, if you’re hesitant to educate everyone in the agency about the numbers, you’re literally managing with one hand tied behind your back. Here’s how sharing agency performance goals changes everything, empowers your team, and sets an exciting path for the future. Sharing Agency Performance Goals—Financial Transparency Fuels a Growth Mindset In coaching sessions I have with agency owners, one of the first things I want to uncover is the owner’s comfort level with financial transparency. If the owner is new to AMI, I’ll take them though the metric; 55 percent of adjusted gross income (AGI) is the target for the agency’s fully loaded compensation, 25 percent utilized for overhead, and 20 percent profit. For those who already know the formula, I work to understand just how deep this foundational knowledge runs throughout the agency. As an agency owner for 30+ years, I get the hesitancy about “opening the kimono.” A common concern [...]

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How Agencies Can Benefit from Tax Planning

Is tax season really over? While the filing deadline for individual and corporate taxes has come and gone (unless of course, you’ve extended), from a strategic standpoint, tax season may be over, but the need for tax planning is really an omnipresent one. There’s always a sense of relief once taxes are filed. It’s an annual chore that, dare I say, nobody loves to do. But everyone I know loves when it’s done. They like getting it checked off their list so much that very few clients want to talk or think about taxes or tax planning for the rest of the year. That is, until tax time comes around again. But that is, in my opinion, a mistaken. In fact, paying attention to your tax situation outside of tax season is worth more than you might think. A few people I know even made it their hobby to figure out ways to pay less in taxes. I’m not suggesting you must go that far. But you should have a good understanding of why the traditional “tax season” doesn’t mean anything to you and your agency business and how agencies can benefit from tax planning. The Misnomer of “Tax Season” Other than getting your own taxes filed at the beginning of each year, “tax season” is a misnomer for anyone outside of the tax preparation industry— where the term got coined in the first place. Tax season is really tax FILING season. Which is an important distinction, so you know where your focus should go. Yes, it’s important to get your tax return filed on time. But keep in mind that filing is the end of a year-long cycle where you should be seeing results [...]

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How to Calculate Advertising Agency Commission Rates

I have been teaching the AE Bootcamp and Advanced AE Bootcamp for over a decade, and one of the things that always surprises me is how few AEs understand how to calculate advertising agency commission rates on media buys. When the rate calculation is incorrect, it can cost your agency a good chunk of the very thin margin of profit you can earn when you plan and buy media. Media commission rates aren’t some random markup. It’s fair and reasonable compensation for all of the work your agency does to plan and properly buy a client’s media.  And after the buy, the agency has to reconcile every single spot or ad to make sure the client got what they paid for. It’s very labor intensive, and without the proper oversight — many agencies can lose their shirts by missing out on the commission. Back in the good old days, it was simpler because there were fewer channels, but today, it’s a very sophisticated and complicated skill, and every agency should be properly paid for doing that work. This is why it is critical that everyone in your agency understands how to calculate the commission properly using the correct rate. When (since the very first ad was placed back in 1920) an agency says they get a 15% commission, what that means is 15% of the gross buy. To calculate that, you take the net cost of the media and multiply it by 17.65%. That grosses up the media 15%. While it doesn’t sound like a lot, it adds up quickly. Let’s say your agency places $1 million in media in a year.  If you mistakenly multiply that $1 million by a rate of 15% (meaning [...]

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Your boat can only carry so much weight

Agency owners are, for the most part, some of the bravest people I know.  They have put everything on the line to start/own their agency and every day, they face and move past tough decisions. But if there’s an Achilles Heel for most owners, it’s the staffing issue, especially if your agency has hit a rough spot. It’s ironic but in a typical agency, the higher a person’s salary, the less billable client work they do. They’re running a department, doing admin work or chasing after new clients more than serving your clients. I’m not suggesting their work isn’t valuable. It just isn’t billable. What balances that out is that most of your younger, less expensive employees are very billable. Their billable hours cover the non-billable hours of the more senior staff.  If you look at all of the hours your agency employees (including the owner) works — you need to be at 60% billable overall.  Most agencies struggle to get into the 50-55% range.  Which is why you aren’t making the kind of money you’d like to make. Unfortunately, many of you are out of proportion. You’re over-staffed in general and in particular, you’re top heavy. You might have a large leadership team or multiple owners. On top of that — you’ve got an employee or two (or more) who have been with you for a very long time. You’ve given them regular raises and now, if you’re honest with yourself, they’re overpaid.  Odds are, their skills sets and energy aren’t really what they used to be. But you feel a loyalty to them and so they stay. You’ve been okay with a net profit that’s nowhere near the ideal range and you’ve stayed [...]

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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 [...]

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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 [...]

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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, most agencies are still having to ask ‘what is a reasonable profit margin?’ when it comes to website 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 [...]

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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 [...]

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