Many agency owners believe that to grow your bottom line, you have to grow your top line, your # of FTEs and your client volume. That’s just not the case.
View Video Transcript
Hey everybody. Drew McLellan here from Agency Management Institute. This week I’m coming to you from New York City. There’s a topic that I’ve been wanting to talk to you about and that is the correlation or lack thereof between your top line revenue and your bottom line profits. For many agency owners we assume that to grow our bottom line we have to grow our top line. And the reality is that’s just not true. There are lots of other ways for your agency to be more profitable. So I have an agency owner that I’ve worked with for many years and he decided probably five years ago that he didn’t want a huge agency. He had been growing adding more people, adding more accounts, and it got to the point where it wasn’t fun for him anymore. He didn’t know everybody who was working for him and he didn’t like the layers. And so he decided to make a conscious reduction. And what he did was, he started with his clients and he looked at his clients and he said, we’re going to get smarter about which clients we actually serve. Any client that does not earn us at least 10% profit we’re going to fire or we’re going to increase the prices so we can get them to 10%. So that allowed him to reduce the number of clients they served. They also got very targeted around what kind of clients they served. They niched down so that they could charge a premium price rather than a commodity price. All of that allowed him to reduce his head count. He didn’t need as many bodies anymore because they were serving fewer clients but at a higher profit margin. And for the last couple of years what I’ve watched is, his bottom line has increased and grown not only in terms of the dollars, so he’s taking home more dollars than he used to, but also obviously the percentage levels of his profitability has skyrocketed compared to what it is. So it’s very counterintuitive. You don’t have to grow your agency larger to make more money. The other thing I think that you need to think about is managing to the metrics. So, we’ve talked a lot in some of these videos and we certainly talk a lot about it in our workshops and other places about the financial metrics that matter for an agency owner. And when you actually manage your business to that it allows you to avoid things like being overstaffed or paying more then you need to for out of pocket expenses. Lots of things around the way you manage the money, once it comes in, dictates how much of it you get to keep. So, I want you to make more money but I also want you to keep more of what you make. And don’t think that the only way to do that is by increasing the number of clients you have or the number of folks that you have in-house. There are a lot of ways for you to increase the bottom line and growing the business can mean many things to many different agencies. There’s nothing wrong with aspiring to have a larger agency, to have more bodies, bigger clients, nothing wrong with that at all. But I’m telling you that many of the agencies inside the AMI world are super small by agency standards, ten employees or less. And they’re bringing home double-digit profits because they know that it’s not about the top line, it’s all about the bottom line. I’ll talk to you next week.