How will you be better in 2021?
The average operating profit margin for agencies continues to decline according to the Moore Kingston Smith annual agency survey. And that’s before Covid! So how will you avoid your agency’s operating profit declining this year?
The future looks fundamentally different for many agencies. There’s a need to be better, faster and stronger. Agencies need to become solutions architects able think more holistically. Work for clients needs to be more effective and we need to be able to ‘talk business’ and be a business partner with clients. As a trusted adviser to your clients they will turn to you first because you’re truly impacting their business and are seen as critical to their success. This becomes a virtuous spiral upwards. Your strategic thinking and proactivity leads to business growth for you and the client. Your insights enable the client to see more clearly into the future and make better decisions.
It’s getting harder than ever to grow a profitable and successful agency.
What worked in the past probably won’t be enough in the future. The market is more competitive, there are new competitors changing the dynamics of the market and it’s harder than ever to make the agency model work profitably.
I’ve studied what the most successful agencies do to grow profitably and also what the least successful agencies do to remain stuck. There are clear distinct and different strategies that these two types of agencies are applying. I share these strategies in my workshops to help my agency clients decide how they will be more successful and profitable.
Let me give you some examples as to how it’s getting harder for agencies to be successful.
The number of new business pitches has fallen. So if you aren’t focused on growing your key existing clients and if you are pitching for the wrong clients and/or wrong projects, then think long and hard.
How compelling is your agency’s value proposition? Too often an agency can sound like every other agency working in their discipline. Creating a value proposition that differentiates and resonates for clients is vital – yet at the same time really hard to achieve.
Over-reliance on the agency owner or head can be a problem.
Are the senior team rainmakers? How well do they develop and grow new client opportunities? If an agency is over reliant on the owner then that owner becomes the bottle-neck and restricts growth. The bottle-neck is always at the top of the bottle. Succession management is vital.
My consultancy, Spring 80:20, collaborated on a study into agencies that had turned their business around. Those agencies which had turned their business around enjoyed phenomenal achievements in their fortunes. We called them “Thrivers” (as opposed to merely “Survivors”) In every case the Thrivers made significant changes in their business. The changes made by these Thrivers and their lessons learnt are shared in my workshops for agencies.
So simply being as good as you were last year probably means your agency could actually go backwards. It won’t ensure you thrive in a faster, more competitive, more choosy, more commoditised world.
If you want to benchmark your agency then how well do you compare to the ‘agency financial performance hall of fame’ *
•Revenue growth (not a specified amount, but I suggest 10- 15%)
•Fee income > £120,000/head **
•Staff costs <55% of fee income
•Operating profit margin >20%
•Net current assets >3 months of overheads***
* Moore Kingston Smith annual agency survey
** All staff taken into account, not just revenue generating ones
*** Given the experience of Covid maybe this should increase to >6 months
I work with agencies of all disciplines to help them be smarter, be fitter and be more profitable. I help them have stronger and more senior client relationships, know which clients to invest in and which to not invest in. If you’d like your agency to be a Thriver drop me an email firstname.lastname@example.org