Article

Annabelle Smyth
Annabelle Smyth 12 December 2016

8 Steps to Improve Your Agency’s Profit Margins in 2017

How will you take your agency to the next level in 2017? And how do you increase your agency's profit margins in the New Year? The path isn't always as straightforward as it seems. Here are 8 steps you can take to boost profit margins and make an impact in the New Year!

Agencies are currently and will be facing unprecedented challenges in 2017. More clients are taking their advertising and creative in-house, while more agencies are competing for a shrinking number of clients.

In fact, a 2015 Labor Billing Rate Survey Report released by 4A found that senior executive billing rates fell by as much as $139 an hour between 2011 and 2015. Perhaps the biggest factor in this decrease comes from the fact that more and more online ads are automatically purchased and sold exclusively online. This tectonic shift in ad buying has created enormous pricing pressures, forcing agencies to lower their billing rates.

On top of that, clients are becoming accustomed to lower rates, making them less likely to invest more in agency work. A sturdy by the Association of National Advertisers found that there’s a chasm between what clients are willing to pay, and what agencies think is a fair rate for their services: 72% of clients believe their payments are fair, while 40% of agencies think they are selling their services well below what they’re worth.

How can you combat these trends and reach your goals in 2017? The following 8 steps will help your agency decrease inefficiencies and grow profit margins, without raising your rates.

1. Take an Honest Look at Your Current Profit Margins.

The path toward achieving your goals begins with a sobering look at where you currently stand. Be meticulous, and be brutally honest. Your current profit margins will serve as a baseline, so you know where you are as well as what it will take to get you to where you want to be.

2. Set a Goal for What You Consider a Healthy Profit Margin.

If you’re like many agencies, your margins could definitely use some work. But what constitutes a healthy profit margin? You have to decide that for yourself, but remember to set a goal that is actionable, achievable, and realistic.

3. Track Your Time. All of It.

In the agency world, time is your biggest asset. To be sure you aren’t squandering it, track every minute. You need to know who’s spending time doing what for which client. Time-tracking software can help you dig into all the details of how your agency really spends its time. The results will be both surprising and enlightening.

4. Calculate Your Inefficiencies - Assign a Dollar Amount to Them.

Once you’ve been time-tracking for a while at your agency, it will begin to be clear where your inefficiencies are. Assign a dollar amount to all hours spend (based on employee wages, benefits, operational costs, etc.) and calculate exactly how much money you’re wasting on these inefficiencies.

5. Calculate the Cost of Employee Training and Turnover.

Employee turnover is one of the biggest costs of running an agency, and it’s one of the most difficult to track. Make sure you know exactly how much time you spend finding talent and training new employees.

6. Eliminate Scope Creep.

One of the biggest timewasters is something called “scope creep”. It’s what happens when a project gets revised and expanded out of control to the point where you’ve spent way more time on it than you intended. Instead, eliminate scope creep by setting clear expectations with clients and team members. Improve your project management skills so you can identify scope creep and do something about it before it becomes a problem.

7. Cut Out Unnecessary Status Meetings.

Meetings are notorious for wasting everyone’s time. We simply don’t need multiple meetings just to check the status of the project--that’s a task that can be handled on a project management platform or other means of digital communication.

8. Use Templates to Reduce Inefficiencies.

It’s important to know how you’re spending your time, not just what you spend time on. One way to work smarter instead of harder is through the use of templates. For example, templates can be used for service estimates, proposals, and project steps. Instead of creating everything from scratch, every time, use templates instead. It will reduce inefficiencies by automating repetitive tasks and streamlining your processes.

The New Reality of Agencies: You Must Cut Inefficiencies to Improve Margins

The most effective way to improve your profit margins is by cutting costs and eliminating inefficiencies. It’s going to be a challenge, but with perseverance and hard work you can reach your goals and continue running a successful agency in 2017.

About the Author: Annabelle Smyth is a freelance writer with Workfront. When she is not writing, Annabelle is committed to learning more about helping businesses and marketing professionals succeed with their project management goals.

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