Is 55-25-20 wrong?

Hey everybody. Drew McLellan here from Agency Management Institute, this week coming to you from London, England. You know, I've been getting a lot of questions lately about the 55:25:20, and if that's changing because of the increased cost of employees. So just a reminder, 55:25:20 is how we spend AGI. AGI is gross billings; minus all of our cost of goods, including contractors or independent contractors, freelancers, whatever you want to call them; and what's left is adjusted gross income or AGI; and that's the money an agency gets to spend on itself. That money gets spent in three big buckets: people, overhead, and hopefully some profit. So, the people bucket, 55% of your AGI should cover all of your loaded salaries, so salaries and benefits. 25% should cover your overhead, and every agency should be able to consistently drive 20% profit to the bottom line. And that's before taxes and bonusesand all the other things that you do with profit.

So, because employees have been costing so much money over the last couple years, I've been getting a lot of questions about, "Hey Drew, is the ratio going to change?" And my answer is "No*," but with a asterisk. So for some of you, because you are working hybrid or remote or you are in a smaller market, you're able to control your overhead costs. And the real magic of the 55:25:20 is protecting the 20. And the real magic of the 55:25:20 is protecting the 20. So, if you want to steal from overhead and say, 60:20:20, I'm good with that all day long. But what happens is, most of you have a very consistent overhead and it sits for most of you, between 20% and 25%; unless you're doing something unusual, like office build out or something like that. But those two numbers, the 55 and the 25, I'm okay with you playing with those numbers. So really, if you think about it as 80:20, and how you spend the 80, if you want to spend it on 70% of your staff and only 10% on overhead if you can figure out how to do that or you want to spend it at 65, you know, 15 however that is; the key is, you I want you to protect the profit number. That's the number that should never change. And I don't care if it's a recession. I don't care if you're 3 people or 300 people. You should always be shooting for 20% profit and protect that number. Steal from overhead if you want to but stop stealing from profit. Okay?

I'll talk to you next week.