From dealing with demanding clients and tight deadlines to managing complex projects and constrained resources, running a successful agency is a tough business.
In fact, the latest Benchpress – Profit & Growth report 2023 by the WOW agency – found that the average gross profit of £1m+ agencies has dropped to 40%. According to the report, a healthy agency should aim for a gross profit above 50%.
We’ve pulled out the top six lessons you can learn from the top-performing agencies.
1. Work out what’s making money (and what’s not)
Those agencies which measure gross profit by project are likely to be the most profitable.
To calculate gross profit, first, you need to track time and costs against your projects, clients, and services. Then, you can analyse your revenue by project/client/service vs. the cost to deliver the project/client/service.
Gross profit = revenue – direct expenses – cost to deliver
Understanding which projects, clients and services are most profitable can help you make better decisions for growth.
2. Track projects in real time
The most successful agencies track their projects in real time. This way, they can spot if things are starting to overrun and get things back on track.
If you’re just ploughing on, you will lose money – and may as well not have taken on the job. Monitoring in real time will keep you within timings and budget.
3. Achieve operating profit above 20%
Aiming for an operating profit above 20% (once you’ve paid yourself) will put you in a strong position, giving you a platform to invest in your growth strategy.
Agencies often cite ‘if it wasn’t for that one job’ or ‘if only we hadn’t taken on that one client’ as reasons for not reaching their target profits. This is when they then start normalising single-figure operating profit.
4. Track your utilisation
The familiar bane of creatives is completing their timesheets. But time is what you’re selling, so it stands to reason you need to understand what this is costing.
And the most successful agencies were those where the directors did less client work – demonstrating the impact of working on the business rather than in the business.
Read Agency utilisation rates: everything you need to know
5. Look to your tech
Agencies that use spreadsheets for project management had an average utilisation rate for non-director roles of 66%. Those using software had an average rate of 75%. That’s a big difference. For a team of 10 chargeable staff at £100ph, that would be an extra £174k of profit per year!
And the most popular software used by these agencies? Synergist 🙂
6. Focus on planning for growth
Agency life is fast paced and it can often be easy to get caught up in the whirl of day-to-day activities. But adding in some structure, strategy, and planning will help your agency move from surviving to thriving, keeping workloads manageable, jobs on time and on budget, and profits where you want them to be… growing.
