As accountants specialising in creative businesses, The Wow Company has worked with hundreds of creative agencies over the years, from start-ups to £5m turnover. Wow regularly looks at what its top performing clients are doing, so we asked its team to share their unique insight into how to create a super-profitable agency.
Step six: What is super-profitable?
We hope you’ve enjoyed our previous five steps to becoming super-profitable. The final step is about making sure you keep track of your progress. What are the effects of the changes you’re making on your profitability? How often do you review it and with whom?
Are you thinking profitably?
Creating a dashboard for your agency with the key profit measures clearly visible will help you think about the profit you’re making in your agency. If numbers aren’t your thing, it’s important that you work with someone who can help you make sense of the important figures that drive profitability – it might be your accountant, business coach or mentor. For larger agencies, maybe now is the time to hire a finance director, perhaps part-time initially, to help increase your profits. We often hear agency owners talk about how bringing in finance expertise has paid for itself 10 times over - you see the impact straight away.
Let’s talk tech
If you’re not already using Xero for your accounts, it’s definitely worth checking out - it’s the most popular accounting software amongst creative agencies. Project management apps such as Streamtime and WorkflowMax will also help you increase your profits.
Also, review what you’re using already. All too often we see agencies spending a lot of time and money implementing project management systems, but then fail to make full use of them, as employees don’t fill out timesheets properly or agency owners are too busy to produce reports and review profitability. Are you making the most of the technology you’re currently using?
How profitable are your Big Cs?
In step two we spoke about how the most profitable agencies unlock the hidden profits within their existing clients. To do this they need to: Calculate, Cherish, Classify and Connect. Each area relies on the happiness of your existing clients.
One popular way to measure the happiness of clients is the Net Promoter Score (NPS) system. It’s simple – ask your customers one question ‘How likely is it that you would recommend us to friends and family?’ and get them to answer on a scale of 0-10.
Anyone marking 0-6 is classified as a ‘detractor’ and will have a negative impact on your business. Those marking 7-8 are seen as ‘passives’ and unlikely to recommend, so it is the 9-10 promoters that are your Holy Grail. These clients spend more money, stay with you longer, tell their friends about you and so have a much greater lifetime value.
% of promoters – % of detractors = your NPS score
Through implementing each one of the Bigs Cs successfully you should see your NPS score increase, as well as your profits.
Get your whole team involved
Increasing profit shouldn’t just be the responsibility of the directors. Wow’s top-performing clients are masters at engaging their teams in helping to increase profitability. Often, this starts with educating them about the impact of how they spend their time. Do they understand the impact of scope creep on the bottom line? Are they incentivised to work efficiently and deliver projects profitably? Are they even aware of whether a project they’ve worked on has been profitable or not? Sharing some of the information you have about profitability will help them understand what they can do to help achieve the objectives of the agency.
Benchmark yourself against the best
The Wow Company works with hundreds of creative agencies across the UK, from £0-£5m turnover. With access to financial data from so many agencies, we’re able to collate information anonymously and share key trends, stats and averages to allow you to benchmark yourself against your peers.
When it comes to increasing profit, we know what the UK’s top-performing agencies are achieving in terms of gross profit and net profit percentages. We know the average revenue per head, how long it takes agencies to get paid, pricing data and a whole load of other useful stats. And the good news is that we share all this data for free, to help you benchmark yourself against the competition and work out what you need to do to increase your profit. Everything you need to know is here: www.thewowcompany.com/benchpress
Top tip for more profit: Have you read all six steps to becoming a super-profitable agency? You can catch up on all the great insight and tips shared over the past six months on The Drum’s website. Search for ‘super-profitable’ to catch up on what the UK’s top performing agencies are doing to increase profit.
Looking to increase your profits?
If you’d like to discuss the difference a proactive accountant could make to your profitability, call Wow on 0845 201 1580 or email firstname.lastname@example.org