A relentless pursuit for top line growth, often cited as ‘vanity’ over ‘sanity’ can ignore a key business requirement, profit, a much-needed resource for a growing agency.
All too often good revenue or sales performance fails to translate to the bottom line. If you believe the annual ‘state of the nation’ reports that come out then independent agency profit margins are way lower than what should be considered a ‘healthy business’. My sense is that these reports are misleading, often including agencies made up of 2 people in a bedroom in Sussex, working for peanuts to get their name on the map and a case study.
Regardless of these reports and their accuracy, how can agencies improve their situation and make better margins?
The answer doesn’t lie in creating a sweat shop or simply selling more, in fact the latter just exacerbates the underlying issues and leads to a worsening situation.
The key is understanding and then changing commercial behaviour.
We often talk about this with clients. It’s much wider reaching than most people think, who summarise profit as simply the difference between how much money you have coming in versus how much money you have going out. Changing commercial behaviour requires a systemic look at all areas of the business from Finance, Delivery, Client Services and Sales all working together to change mind-set, behaviours and culture.
Profit as a plan, not profit as a consequence of doing business.
A rear-view mirror approach to reviewing profit performance at the end of the year will get you nowhere, you need to have a plan for profit that you execute like you would for sales or product development.
If you don’t change your commercial behaviour then you’ll get the same results each year.