How Creative Agencies Remain Profitable

Agencies are built from creative and brilliant minds. For creatives to thrive, the environment must encourage employees to push boundaries, think outside of the box and find inspiration in all things. But like all businesses, great ideas need to be executed effectively in order to be profitable.

The creative industry screams innovation and excitement, but there are hidden, dark realities many agencies face.

“What was once one of the most fulfilling and glamorous of industries has become a grim sweatshop for the people who do the work,” explains Michael Farmer, CEO of Farmer & Company in a recent Forbes interview.

From ignorance of agency executives to painfully slow transitions into the digital realm, many client-agency relationships have be severed, leaving agencies struggling to stay afloat. Compared to the traditional 15% commission agencies once received on media buys, current budgets are much tighter and clients are expecting much more. So, how does your agency survive?

Smart Resource Utilization in Creative Agencies

Forecasting and allocating the appropriate resources, specifically team members, to complete client work on time and within budget is a ‘make or break’ factor for creative agencies dealing with strict budgets.

Common struggles agencies face with resource planning include:

Under or Overstaffing

All team members add value to a project, but when you have too few or too many resources, projects become chaotic and unprofitable. If you are short-handed, team members may become frustrated and feel overworked because they have too much on their plate. This can lead to missed deadlines or a decrease in the quality of work that is delivered to the client. Clients then take on that stress and begin to lose confidence in your team.

Likewise, if you have too many team members and not enough work to go around, company time is being underutilized. A great indication of overstaffing is an increase in labor costs but stagnant or decreasing sales. Not only will this hurt your financial statements, but your team will become bored and unmotivated without being challenged in the workplace.

Lack of Visibility and Communication

When project managers do not know their team’s schedule and workload, it becomes difficult to grasp their availability for new tasks and projects. Employees can become bogged down with extra work, especially if they are not willing to speak up. Not only will tasks pile up if workloads are not visible, but the team may also begin to lose sight of progress being made on the project.

Client projects have many moving parts and it’s easy to lose sight of the progression of the project if you do not know where the rest of the team stands. Complete visibility and consistent communication will keep the team working in harmony towards a common goal.

Deliverables are Out of Scope

When expectations are not clear from the start and resources are not allocated correctly, projects become messy…fast. Account directors and project managers must stay disciplined when setting expectations with clients. Nothing will hurt a client-agency relationship more than mismatched expectations midway through the project.

Invest the appropriate amount of time at the start of a campaign to clearly define deliverables and assess any potential risks that may arise to deter the project. Only promise what you can deliver—on time and within budget. If there are unexpected circumstances that arise which affect the scope of work, communicate with clients immediately.

Track Time for Billable Hours

Many agencies know their hourly rates and bill their clients accordingly. Therefore, it’s important to know exactly how much time your team is spending on each client. After all, time is money! Any work for a client should not go unpaid. Keeping accurate records of hours spent on a job is crucial to being profitable.

Without a project management software to consistently and accurately track the time you might struggle with:

• Consistent forecasting – Overestimating a time frame and budget because of inaccurate reporting can deter potential clients, but underestimating will leave a bad taste in the client’s mouth when it is time to go back to the drawing board and ask for more time or money.
• Sticking to the plan – If timelines and budgets are unrealistic, team members will not be able to produce quality work according to the original plan.
• Meeting deadlines – Missed deadlines lead to angry customers and additional money and resources that are not factored into the overall budget.

Tracking your team’s time spent on tasks builds more accurate reporting and allows you to pitch accurate estimates to potential clients from the start. The more consistent your estimates and actuals are, the more organized your project managers will be when distributing tasks to the team. Eventually, you’ll be able to adjust your prices to match your team’s performance and level of accountability.