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Hey agency owner — what’s your succession plan?

When I look an agency owner in the eye and ask, “what’s your business succession plan?” it’s amazing what I see in their eyes. I work with 150 or so small to mid-sized (1 employee to 150 employees) privately held agencies every year.  These are smart business owners who are successfully running profitable businesses that provide a great life for themselves, their families and their employees. These are people who make lots of right choices every day.  And yet most of them (and you) have not faced the succession plan issue dead on. I think for many agency owners it feels so far down the road that they don’t worry about because they’re focusing on hotter issues. I can’t tell you how wrong you are, if that’s what you’v been thinking. If you actually want some control over your own exit strategy — you should have a good idea of how you’d like it to play out at least a decade before you’re ready to hang it up. Yes, a decade.  The sooner you decide how you’d like your business succession plan to go, the sooner you can make decisions that increase the likelihood that it will happen the way you want. I’ve seen agency succession plans play out in many ways over the years but the truth is, you have a limited number of options. You can sell your agency to an outside buyer You can sell your agency to an employee or group of employees You can just decide when you want to be done and lock the door on your way out You can be forced out by partners You can die at your desk and leave your heirs to sort it out [...]

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2015 Salary survey results tell an interesting story

Business trends including changes in salaries and benefits can make or break an agency’s profitability from one year to the next. That’s why we conduct a comprehensive annual salary and benefits survey and we’ve just wrapped up our 2015 edition (you can buy the 40-page final report here). The results are quite insightful.   First a few facts about the respondents: 1,537 respondents Agency size ranged from 1 employee to over 150 employees All regions of the US and Canada were represented although there were not enough Canadian responses for statistical validity Salary Observations: Most salaries either held steady or rose in the 2015 results. One area that that saw its salary range decline or at best, hold steady was the CEOs salary. As agency salaries increase and the ability to increase billable rates or project pricing has not – it appears as though some CEOs are robbing from themselves to increase the pay of their key employees. The media department also took a hit in some cases. This may suggest that as agencies buy less traditional media (it seems like agencies are either specializing in this or hiring it out more and more) they are trimming some of their more expensive employees and keeping those middle-income team members. Copywriters and content writers also saw a healthy increase in salaries, ranging from 5-10%. Interestingly art directors and graphic designers did not see that same kind of increase; in fact in most categories they stayed steady with their 2014 salaries. The most significant increases came in the digital departments, with programmers leading the way. The average increase in this department was 10+% over the 2014 salaries. Benefits Observations: Clearly, agencies value their employees and try very [...]

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Hey agency owner – how do you monitor and measure your agency’s financial health?

We’ve talked about the advertising industry’s love for gross billings. But again, gross billings is a misleading metric. So much of your result is impacted by the kind of services you’re offering your client and what the cost of goods for those services is.  Clearly we need to find a better way to monitor and measure the financial health of agencies. Medium asked me to look at this issue further.  If gross billings is not the right benchmark, what is?  At Agency Management Institute, we teach agency owners to look at AGI or adjusted gross billings.  This number is vital to tracking your agency’s health.  Have you used AGI to monitor your agency’s business?  What has your experience been?  If you don’t, what do you used to measure your agency’s financial health?  I want to hear your experiences.

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Hey agency owners – how do you bill your clients?

In the past, agencies billing by the hourly billing made sense, but times have changed.  The way business is delivered, the way clients see their agencies and the way agencies see themselves is significantly different.  The good news is that there are options that make much more sense for the way agencies operate today. iMedia Connection asked me to explore this topic and to talk about the alternatives to the old school way.  Does your agency still run on billable hours?  How does that impact your ability to offer solutions to your clients?  How does it impact your client relationships?  Let me know…

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Advertising agency owners take money out of their own pocket to stay overstaffed

I have found that most agency owners are very generous people. They love the people they work with and want to create an amazing working environment. They are also very slow when it comes to firing an employee – whether it’s because the person isn’t performing at the right level or because billings have dropped and they just don’t need that person any more. All of that is lovely. But, you are literally taking that money out of your own pocket when you make that decision. I can’t tell you how many times an agency owner has lamented to me, “I know I should let Carl go but he’s putting two kids through college.” Yup – and you are taking money that should be going into your kid’s college fund (or your retirement or investment account) and handing it to Carl’s kids. Even more than that – by not firing an employee, you are putting your entire agency at risk, for the sake of this one person. Your responsibility is to run the agency in a fiscally sound manner so that the agency survives the ups and downs of cash flow, clients coming and going and other economic factors. I saw way too many good agencies just close their doors in the last recession because the agency owner stubbornly held onto too many people and didn’t trim overhead expenses fast enough. One ratio that can help you stay in alignment is a rule of thumb we use at Agency Management Roundtable with our agency clients. On average, for every $100,000 - $125,000 in AGI (adjusted gross income = your gross billings minus your costs of goods sold) you should have one full time equivalent. If [...]

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The 5 Best Ways Agencies Can Save Money on Legal Fees This Year

As a lawyer who advises ad and marketing professionals, I’m regularly reminded by clients that excessive legal fees are not a fun way to spend marketing dollars. This is understandable, and to me it’s also a somewhat welcome point of view. If that sounds like an unusual perspective coming from “legal,” hear me out: it is always less costly in the long run to have a proactive approach to the legal matters that regularly arise in the business of marketing. Making a smart investment up-front in some solid legal infrastructure saves your agency the important commodities of time and money later. So, what are some of these “smart investments” that allow agencies to save on pricey legal fees? Have a Model Agency-Client Contract in Place – Note the use of the term “model,” which is a deliberate choice over the more popular term “form.” This is because while I am decidedly “anti-form,” your agency likely has (I last I hope it has) some consistent business practices that apply to every client, such as intellectual property ownership, payment milestones, and liability limitation. Your clients are not commodities, and neither is the work you do for them, so I advise against approaching your dealings with them with a fill-in-the-blanks form. Instead, save time by having model contract terms and conditions developed one time, and modify or customize them client-by-client, or by project, as you have the need. It’s also my experience that the absence of model contract language makes it more likely that the agency will just skip the step altogether and start the work with no contract – one of the easiest ways an agency can cost itself extra money on excessive legal fees if the [...]

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How Much Money do Marketing Agencies Make?

How much money do marketing agencies make? Learning how to move your advertising agency to value based pricing means you’ll need to talk a little differently to both your internal staff and your clients. It’s going to take some effort and time to make the shift.  Earlier I talked about why value pricing should matter to agencies and how you can help clients understand the value of it. Agencies that have made the leap offer these words of advice: It’s easier to move prospects and new clients to value pricing, so start there. Once you help clients understand how it works to their advantage, they’ll be ready to try it. Be prepared – you will undervalue yourself in the beginning. You’ll get better at it. Not only is it better externally, but your staff will get a boost from being paid what their work is worth, rather than an hourly rate. It begins to change the way clients view the agency. It takes us out of the procurement realm and makes us more of a consultant/partner. This takes time. It took us over two years to completely make the shift. But it was worth the effort. Use your value based pricing position as a way to sell against other agencies.  Create a page on your website or in your RFP deck that explains why hourly pricing is to the client's disadvantage. (see my blog post from earlier this week for some of the reasons).  Explain that you decided to move your advertising agency to value pricing because of these disadvantages. With new clients -- simply change the way you price projects or programs. Rather than breaking down the project by job functions or number of [...]

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Value Pricing Strategy for Advertising Agencies – It’s Time

Value pricing strategy for advertising agencies?  Yes -- the time has come. At several of our AMR network meetings, we've had Ron Baker, author of Implementing Value Pricing come speak.  Agency owners are fired up after being exposed to Ron's ideas and leave, ready to either start or continue their transition to value pricing. The billable hour was introduced by a law firm back in 1919. So were locomotives, dial telephones and prohibition. Trains and phones have certainly evolved thanks to changes in both society and technology, and prohibition was such a bad idea, it went away entirely. And yet the billable hour remains. One could argue that in many agencies, it's evolved and now we talk about a blended rate or a modified compensation model. But by and large, most agencies still bill their clients by the hour. And it's time for it to go the way of prohibition. Away. The argument has raged on for years. Agency leaders and clients both know that every agency hour is not spent in the same way or worth the same amount of money. In hour one, an account executive comes up with the strategy that will propel the client into market domination and in hour two, the same account executive writes a memo, reflecting back the action steps identified on a recent phone call. Same professional. Same client. But hardly the same work or the same value. Our industry is slowly coming around to the idea that an hour is not like any other hour and we need to start selling our value, not our time. Here are some of the more recent events that suggest we're heading in the right direction: Coca-Cola has innovated a [...]

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The One-Time-Only Rule (OTO)

I have never met an agency owner who believes they don't leave money on the table when it comes to a change order request.  No agency is great at change orders and most -- are abismal. You have to get a mindset when you are working with changes. When the work has been approved by the client and he/she has signed off, you can move to the next step. Inevitably, somewhere along the way, there will be changes which impact the budget, the amount of time/effort put into the work, potentially out of pocket costs like printing, and the delivery timeframe. The only way -- let me repeat that -- the only way to maintain the same level of profit that you budgeted for at the outset is to create a change order request. If the client wants to change the work, you need to prepare a change order that is the authorization to modify the budget (and potentially the timeline)  for the change/work. Once the work is approved, going back and re-doing the work is a billable situation. Imagine that you are remodeling your bathroom. The original plan that you signed calls for one sink. After you see the single-sink you decide you’d really like two sinks. Does the contractor say, “Hey! No problem. We’ll get right at that and put in the second sink”? Well, partially correct. He will agree to make the change, but you’re going to have to pay additional dollars to take out the new-old single sink and install a new countertop with two sinks. And, you can bet your life on it, a good contractor will have you sign for the additional work and funds required before he resumes [...]

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Do your AEs bristle at the word sales?

Be honest agency owner, you know that your account executive team is great. But sometimes they struggle when it comes to actual sales. Enter our account executive sales training workshop. 67% of an agency's new business revenue comes from existing clients (on average).  The people who are (or sadly -- are not) going to bring in those additional dollars are your account executive team.  They interact with their clients every day.  They propose new work, they know when the client has hit a barrier (and maybe needs some marketing help to leap over it) and they drive that client's activity. Sounds like sales to me.  But if your AEs think and behave more like relationship managers, you're not alone.  When surveyed, agency owners had these frustrations about the people on their account team: Sometimes they behave like they work for the client, not the agency They don't know how to listen for problems we can help solve They don't understand the business of owning or running a business They don't think new business or sales within our existing clients They let the client lead too much Sound familiar?  That's why we developed our Account Service Advanced Training workshop.  We spend two days teaching GOOD account service people how to really help grow their agency's AGI, reputation, new business (both from existing clients and brand new) and their network.  We talk numbers.  We talk strategy.  And we talk sales. When the participants leave the executive sales training workshop, sales is no longer a dirty or scary word.  They come back fired up and excited to stretch their wings. But don't take our word for it.  Here's what some past participants have had to say: “My AE [...]

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5 Mistakes that cost agency owners money.

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