15 Ways to Maximize Agency Profits

Editor’s Note: The following post was originally published in March 2014, and has been updated for comprehensiveness. 

Growth is the easy part. Retaining it, and making it profitable, is the real challenge for agencies. As the demand for digital services increases, many agencies are offering new services and/or are unsure how to attract and retain a profitable client base.

This is where these 15 tips come in handy; use them to maximize your agency’s profits.

1. Provide Performance

The job of any marketer is drive leads and sales. Therefore, the best way to control pricing and demand higher rates is to have a direct, and measurable, impact on your clients’ bottom lines. It’s much easier to sell services when the costs can be justified based on new leads, customers and revenue achieved as a result.

If you don’t have a data visualization tool to automate your reporting, check out Databox. The platform streams all data from dozens of integrations into one customizable dashboard. If you’re not sure which KPIs matter most, Databox offers several templates to guide your reporting based on channel and goals.

2. Develop Scalable Processes and Services

Scalable processes and services help your team become more efficient over time by defining responsibilities, setting performance expectations, and giving professionals the knowledge and tools needed to excel.

Put standard processes in place for key service and management areas, such as business development, client onboarding, invoicing, project management, etc. The less time invested in daily operational tasks, the more resources can be devoted to profit-generating activities.

3. Reduce Business Development Time

Put processes in place to identify early on whether a prospect is an ideal fit for your agency, before wasting too much time on a proposal. (Tip: We use Marketing Score for this initial assessment and vetting process.) Then, seek ways to streamline quoting, presentation and closing activities.

Time spent on business development costs the agency money, and reduces the account profitability in the early going as you recoup the business development investment. For example, if an employee making $70,000 per year (or about $30/hour) spends 40 hours to nurture and close a new client, that’s approximately $1,200 in agency costs, plus any sales commission (if you use commissions).

Now imagine if you could cut business development time by 50% or more? The agency saves money, increases profits and spends that time delivering value and results to the client instead of courting them.

4. Achieve Financial Stability 

Remove desperation from the equation with financial stability. If you’re struggling to make payroll and pay bills, then you’re more apt to make decisions to meet short-term, not long-term, goals. Often times, this means taking on an unprofitable account simply to have the cash flow needed to stay afloat.

5. Know When to Say “No”

Understand account efficiencies, and the profitability of specific types of accounts and projects. Then, learn how to say “no” to clients and new business when they aren’t a fit with your agency’s services or culture. Clients that eat up time and resources drain all the profits that good, stable accounts produce. Remember that not all business is good business.

6. Get Paid for Planning

One of your most valued services is strategic planning. Yet, instead of charging more for it like they would in a value-based pricing model, agencies often give strategy away for free to win business. Don’t devalue your services in this way.

If prospects or clients want plans for free, they will never truly appreciate your agency’s services and knowledge. This is one of the primary reasons why RFPs are so detrimental to agency-client relationships.

7. Establish Value-Based Pricing

Similarly, establish value-based pricing. Get paid proportionally for those services that have a higher perceived (and actual) value—regardless of the amount of time incurred. For example, you can often put a premium on highly strategic activities, like a crisis communication plan.

Use supply and demand in your favor, and base pricing off what clients are willing to pay.

We use point pricing at PR 20/20. In this agency pricing model, a point is a fixed unit of value. It’s the agency’s value metric.

Point pricing ensures clients get the full value of every dollar spent, regardless of how much time it takes the agency to deliver. Points provide total transparency into pricing, progress, performance and resource allocation.

Each project is assigned a fixed-point total (e.g. blog post = 3 points) based on value creation rather than hourly estimates. The point totals are standard across all clients and are determined using the Fibonacci sequence (i.e. 1, 3, 5, 8, 13, 21 . . .).

The point pricing model is built on the philosophy that if you can define the scope, which is possible with nearly every marketing agency service, then you can standardize the service and assign a set point value.

Check out Point Pricing for Agencies to learn more. Point Pricing for Agencies is a three-course, online series starting in January 2018 (Early Bird pricing ends Dec. 15, 2017). The sessions feature more than a dozen exclusive resources, including pricing strategy documents, worksheets and templates that your agency can use to establish, launch and evolve its own point pricing model.

Each session explores the concepts and processes behind the point pricing system, and gives agencies the knowledge and guidance needed to switch to points, or improve existing point pricing systems.

8. Build Brand and Reputation

The stronger and more recognizable your brand, the more you can charge. It goes back to prospect perceptions, and supply and demand. This is why it is so important to invest resources in your agency’s own marketing and thought leadership. Commit to content generation, social media and traditional networking.

For a great example of agency branding and growth, check out what Bob Ruffolo and the IMPACT team are doing. They’ve made significant investments in repositioning the agency, and have had incredible success driving traffic and leads through their website.

9. Understand Service-Delivery Costs

Know what it costs to produce services per hour, per person. Due to salary differences, it costs more if a senior-level employee does the work than if completed by entry-level talent. Use this knowledge to ensure that work is delegated appropriately to achieve maximum profitability throughout the agency.

10. Attract and Nurture Entry-Level Talent

Likewise, invest in recruiting and developing entry-level professionals. Keep in mind that the amount that someone is paid does not have a direct correlation to the quality of their work and value they can provide.

The more qualified talent is at the lower level, the greater value they will deliver to clients and the greater the profit levels achieved by the agency.

11. Move to Campaign-Based Contracts

Campaign-based work is more profitable over time than stand-alone projects. This is mainly because account teams become company experts, who can more aptly and efficiently navigate industry complexities and client nuances.

For example, a whitepaper can be completed much quicker if the copywriter is already knowledgeable on the intended industry topic, or a strategy can be completed faster if the consultant has a firm grasp on the company history, review processes and internal implementation structure.

12. Fill Talent, Technology and Strategy Gaps

Become indispensable by filling talent, technology and strategy gaps. Clients see tremendous value in services they do not have the knowledge or resources to deliver internally. In turn, they are willing to pay more. If your agency has capabilities that are scarce and in high demand, then you are in a strong pricing position.

For example, look at agency partner programs, such as HubSpot’s (learn more), that provide advanced training and tools you can use to evolve your team and services.

13. Track Time and Efficiency

The biggest factor related to cost is time; therefore, understand how it’s being used. Use a time tracking software to figure out where time is going and inefficiencies lie. Once you figure out why your agency is unprofitable, identify ways to eliminate waste.

14. Focus on Retention

Make account retention the focus. In keeping and growing existing clients, you significantly reduce business development time and achieve account efficiencies. Consider metrics like customer lifetime value, client happiness indexes and churn rates to keep a pulse on the health of your campaign accounts.

15. Diversify Revenue

Seek out opportunities to make higher margins doing less work. Consider diversifying your revenue sources through publishing, education and software development or reselling. These streams can supplement your service revenue to achieve higher profitability margins.

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