I imagine you’re reading this post because you want to help your PR or communications firm reach industry profitability standards. If you haven’t read them yet, I think you’ll find Part 1 and Part 2 helpful.
As in those posts, I’m raising a series of questions related to how your agency approaches profitability. Your answers to the questions contained in these posts will help determine if, when asked the critical question “Got (Agency) Profitability?”, you can answer with a resounding “Yes!”
1) When clients call the agency to propose a new initiative and want to know if it’s covered by the current budget, which level staffer do they call? If it’s not you, is that staffer trained in how to handle this situation? That’s important, because most clients want to believe that all new initiatives are covered by their existing budgets. Perhaps the client avoids calling you, the agency owner-leader, because you’ll likely explain that it’s not covered, and why. (There’s nothing inherently wrong with the client contacting a staffer at level lower than you with this question. You just must be sure that said staffer is trained in how to handle this inquiry effectively.)
2) To that end, the staffers who take these calls should be comfortable: A) Asking if there is a separate budget allocation for this new initiative; B) Discussing what’s in, and not in, the current scope-of-work; C) If there isn’t a separate budget, inquiring which current agency activity does the client feel might be jettisoned to accommodate the new activity; and D) If the client hasn’t considered that point, proposing the activity which the agency believes can be excised so that the new activity can be implemented.
In my opinion, the agency should always know which of its activities are delivering the goods and which can be eliminated. This allows you to be best prepared for the “We have ideas for new initiatives” chat, as well as the dreaded “We have to cut our budget” discussion.
3) Do you have clients whom you know will never pay you the full amount you expend on their behalf? If so, do you have a business reason for keeping them? Some firms keep these clients and make the conscious decision to over-service them, in order to have a presence, and to create a case study and track record, in a specific industry category. Others believe that taking on a project from a specific company can lead to larger assignments with greater profit potential.These can be sound business decisions, but only if you’ve determined from the outset how much time over the budget you’ll provide: Is it 5%? 10%? 15%?
4) If your agency falls into the categories above, do you carefully monitor the hours spent? And if you expend more than your predetermined investment, do you take specific action to get the numbers under control the next month? Or do you let the chips fall where they may? Do you have on your roster clients on whose behalf you lost a substantial amount of money last year, with no business benefit in sight? Why?!
5) Do you have professionals on staff doing work below their level? This directly combats profitability. Now’s the time to take a look at who-does-what agency-wide, and determine who’s ready to take on assignments that are at the junior-most level of the staffers above them.
6) Do you use freelancers for work that your team is too busy to handle? If so, what process do you use to determine the rate you’ll charge your clients for that time? Remember, when you bill staff time (assuming you’re using the right billing rate) your client is making an appropriate contribution to the agency’s overhead and profit. You need to assure that this is the case when you give an assignment to a freelancer. That means paying the freelancer only half of what you’re charging the client for their time. So if you’re billing that staffer at $150 per hour, find a freelancer who’ll charge you $75 an hour.
I hope you found this series helpful. Since this is such a rich area, I imagine I’ll visit it again in the future.
In the meantime, please leave me a comment and let me know if you found this helpful, and what other steps you take to assure agency profitability. Feel free to share this post with agency owners and leaders who’d benefit from reading it. And please let me know if I can help your agency answer in the affirmative when asked “Got Profitability?”