As your agency grows, it’s easy to get caught up with the day-to-day running of it and lose track of profit. Here is how you can make profit a habit in your agency.
Have a plan
Have a plan for making profit. Produce a forecast for the next twelve months that shows all revenue and costs. How much money would you like to make? What would you need to do to achieve this?
Set targets
Set targets and measure progress against them each month. You should have a monthly meeting to review your progress where you look at your up-to-date financial information. Make sure this meeting includes a reconciled balance sheet; profit & loss and cashflow statement. If you don’t know your way around these reports, we can teach you. Where are you winning? What do you need to tighten up on?
Track Spending
Anyone that is spending on behalf of the company should have a budget and be tracking their spending against it. Install habits into your team that once they expense an item, then upload the receipt and tracking their spending immediately. We love ReceiptBank for this.
Billing Capacity
Calculate your billing capacity. This is the total amount you could bill if all your resource was fully utilised. To do this, take each person’s daily rate and multiple it by 21 working days in the month. If some team members only do chargeable work for a percentage of the time, factor that in. Don’t forget to include regular freelancers in this equation too. Now, once you’ve calculated this figure, take a look at your revenue for the past six months and see how far short you were. Get curious about why the gap exists – where is the profit disappearing to in your agency?
Tracking profit
It’s likely that much of that lost profit will be due to inefficiencies in the way you run projects. Start tracking profit by client, by project, and by department. Share these stats with the people who can affect the results and encourage them to seek out ways of doing tasks more efficiently.
Review your pricing
When was the last time you reviewed how much you’re charging? If you’ve not done it already this year, put your prices up for new clients. All your other costs are going up, so if you don’t match these with a price increase, your margins will be squeezed. For existing clients, speak to them about putting their fees up too. Explain the difference between what they currently pay and what your new clients pay – ask them how they’d feel about closing the gap.
Would you like some personal advice on how to make profit a habit in your agency? Give us a call 03 9008 5422.