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Pricing, profit and performance: how to grow your agency in 2021

Pricing, profit and performance: how to grow your agency in 2021

As part of Agencies4Growth Festival, Peter Czapp, director at the Wow Company, shared three top tips for agency growth in 2021.

Czapp is the director of Wow, an accountancy practice that specialises in helping agencies build profitable and sustainable businesses. He also set up The Agency Collective, a community that helps agency owners solve some of the big challenges of growth and offers insights on how to make the most of the lean fiscal year ahead.

He has shared insights from Wow research, years of agency relations and conversations to help you find your winning formula.

Devilling the details

Czapp advises agencies to drill into the detail of their revenue plans. More of the same is unlikely to deliver in 2021. “Often, when I actually ask agency owners what their plans are to make money and drill down into the detail, I‘m often left disappointed,“ he says.

Agency owners should consider gross percentage profit, and to be sure to weigh it against costs, including staffing.

He says: “Do you have a plan next year that shows you month-by-month exactly how you will make money? The really smart agencies are looking at gross profit percentage by department. And the reason this is important is that it helps them work out where they are over and under-resourced . It helps them work out which of offerings are more or less profitable.

In building this plan, agencies will need to find their profitability sweet spot.

“We ran some research a few years ago that showed broadly speaking, the larger the projects, the more profitable they are. A quarter of a million-pound project is not 10 times the work of a £25,000 project.”

So, finding those just-big-enough projects is key. One agency found its sweet spot on digital transformation projects between £20,000 and £50,000. “The agency felt that less than £20,000 wasn‘t worth getting out of bed fo; for others, it is £10,000. This agency found that anything above £50,000 was too technically complicated. They found that out the hard way.

“I‘d encourage you to think about where that sweet spot is for you. Are you able to measure profitability by project, by client, by department, by individual members of your team?”

Traffic lights

Czapp suggests aligning stats with strategic objectives, perhaps even assigning them a traffic light system to measure success.

“In your agency dashboard, balance leading and lagging indicators.” Leading indicators express when something is going to happen, while lagging indicator says when something has already happened. “Cash in the bank is a classic lagging indicator, it might give you a sense of comfort to know that you‘ve got six months of overhead as cash in the bank. That‘s a history lesson. It doesn’t tell you what is going to happen.“

When it comes to growth, it pays to think a little outside of the box too. Revenue growth and sales stats are tried and trusted staples of measurement, but Czapp urges for the addition of interviews conducted to any dashboard. The best agencies need to be looking for the best talent, which Czapp labels a keen indicator of growth.

The hard part, he notes, is getting staff to actually look at performance reports and respond to them (a meeting helps).

Pricing time

To be the best in the business, agencies need to work out their focus.

“The agencies that either specialize in a niche, or a specialist product, grow quicker and make more money; the ones that do both grow the quickest. If they are genuinely creating a situation where they have no competition, or hardly any competition, then they can charge premium prices. The reverse of that is when you find yourself with lots of competition.”

Timekeeping is vital too. This is where profit can be made and lost. Avoid free work when possible and be disciplined in billing clients for hours spent, says Czapp: “Charge for everything you do.” This includes scoping, project management and account management.

Pricing comes to the fore here, too. For those charging hourly rates, all staff are either priced equally or valued by tier. In smaller agencies, common pricing is more common but Czapp warns that agencies may be selling themselves short and that they shouldn't be shy to charge for their talent."

And finally, access where you create value and charge for it. Czapp recalls: “I chatted to an agency owner recently and she said, ‘look, here‘s our profitability graph’. It jumped up at one point where they just started charging for project management. They added 20% on with project management.“

He concludes: “It really was as simple as that.“

For more insights, inspiration and celebration of the advertising industry, tune into this week’s Agencies4Growth festival.

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