Insights

How commercially smart is your agency?

As an agency when we’re working really hard on client projects it’s easy to forget that we’re also a business. We need to be both profitable and commercially smart*. I specialise in helping agencies grow profitably and sometimes I come across bizarre situations that agencies have found themselves in. For examples over dependence on one client. I have met agencies where their biggest client is more than 50% of the business turnover. I’ve even come across 60% and once 80%. Nuts. Other examples include fees and rates not increased for a good number of years, because the agency ‘didn’t want to rock the boat’.

Will your agency pass my ‘commercial sanity check’?

This is about being a profitable agency**. Of course, it’s also about producing brilliant work and employing brilliant talented people. When you’re a profitable agency it is easier to make smart commercial decisions. It’s easier to say ‘no’ to insufficient budgets and too many agencies pitching for scraps.

It’s easy to fall into the trap of being people pleasers, just wanting to do your clients bidding and pleasing your client. The best agency-client relationships are a collaboration where we’re a business advisor to our clients working together in partnership, especially with the senior clients, seen as a partner rather than a supplier.

That means from day one thinking about how each client is going to be profitable to the agency whilst also making commercial sense for the client. I sometimes come across situations where the fees have been agreed at a low level in the past and have set an unprofitable precedent ever since. It can take a long time to get that client back up to an acceptable level of profitability.

Will your agency pass my ‘commercial sanity check’?

Can you say YES to these ten MINIMUM ‘level of commerciality’ questions?

1. No client bigger than 12-15% of revenue (unless you have watertight contracts, long notice periods and a big war chest to see you through lean times)
2. Fees are based on your value and/or a realistic assessment of how long the work will take. (not retrofitted to the client’s proclaimed budget)
3. You increase rates and fees every year by minimum inflation.
4. You consciously manage scope creep and over service to ensure their impact is minimal and controlled.
5. You qualify new business opportunities hard and fast, and you are highly selective about which pitches you pursue.
6. You push for a decent brief and realistic budget.
7. You have a good understanding as to what value means to your client.
8. You only start work on a proposal knowing the ballpark of budget that the client is prepared to spend.
9. Your mindset is entrepreneurial and considers how you can create more value for the client and more profit for the agency.
10. You identify unprofitable/low profitability clients and look to resolve and/or improve the situation.

I appreciate there are times when we take on work, as an ‘investment’ or with a trophy ‘big name’ client. However an agency can only afford a very small number of such clients. I wish you well in the pursuit of commercial success.

**I define profitable as minimum 15% net profitability and ideally 20% or higher.