Ad agencies have been going through a massive upheaval in the last five years. With digital media eating into traditional media profits, there are new markets opening up rapidly while others seem to be closing just as fast. These are times which can make or break a small, fledgling agency.
It is generally understood in business that there are no direct ways to increase profits, only indirect. There needs to be a strategic drive towards the goal of increased profits keeping in mind the many variables involved. Many companies, with a high volume of transactions, lose about 2% to 5% of their revenue because of lost data, process inefficiencies and human errors. The percentage may be higher for small ad agencies because of their inability to keep a track of versions and changes.
Growth is the easy part of running an ad agency; sustaining it along the way is where the real challenge lies. An ad agency exists to be creative. However, that can only be kept sustainable by following effective business practices that ensure you are turning a profit.
Here are a few pointers on how you can increase the profitability of your agency.
Manage Your Staff’s Time
Your employees are your greatest strength and, at the same time, also your biggest expense. It is their abilities that you will be utilizing to provide what your clients want. Making sure that they are not wasting their time in unproductive activities is vital. If your employees have more time you will be able to take on more projects.
The idea is to maximize your capacity and production while eliminating time-consuming processes. This can be accomplished with the help of centralized scheduling, scheduling optimization, and regular physical exams to ensure your employees are healthy. Managing your staff’s time more effectively will help you ensure they are focused on the work on hand, thus reducing your delivery time and increasing profit margin.
Increase Your Lead Conversion Rate
As simple as this may sound, it is one of the most effective ways to increase your profits. If you are able to generate one lead a week, try and push that to two, if you are able to convert 2 out of ten leads generated, try and push that to three. Set your lead generation and conversion goals in tandem with the revenue you hope to generate. Work on your pitch and deliverables to see where you may be falling short of the clients’ expectations, and rectify them.
Anyone who runs an ad agency will understand how important it is to be consistently working on increasing lead generation and lead conversion. This is the cornerstone of an agency’s ability to weather financial storms.
Increase Your Profit Margin per Sale
Finding ways to raise the price of the product/service you sell, or reduce the cost without affecting the quality will add to your profit margin. If you are able to hold costs constant and still manage to raise the price, the additional profit flows straight to the bottom line. Every dollar you are able to save on your cost without affecting the quality or price, once again, adds directly to your bottom line.
It is a continuous endeavour for agencies to always try and reduce the cost of the services and products they provide. Opting to go with a retainer model instead of the hourly billing format can help you tremendously in retaining clients as well as increasing the cash flow.
It is advisable to try cross-selling, wherein you offer new services or goods that complement your already existing offerings. You can also try shifting to a more long-term sales model which entices customers to come back to you, like offering monthly or yearly service plans or service packages.
While at it, make sure you regularly audit your administrative functions and save on routine tasks that cost inordinate sums of money. Are there services you can provide cheaper if you outsource the work? Are there any redundant services that you can cut? Answering these questions will help increase your profit margin per sale.
Keep an Eye on Scope-Creep
Despite having decided the scope of the project during the briefing, things are bound to change as the project commences. Additions, deletions and alterations are a part and parcel of an agency’s work. If the scope of the project changes too drastically it can increase your project costs and eat into your profits.
Over and above a good account manager, you need a warning mechanism for other employees to be able to determine this happening in real time. Have an audit trail to track scope-creep to determine what is billable.
Put in Place the Right System
Get yourself comprehensive agency management systems that will help streamline activities otherwise rife with human error, and prone to procrastination. Have a strong billing and accounting system that can keep a track of your cash flow. Most small agencies tend to lose money because of incorrect coding of bills.
There are a multitude of online tools available to help you with your billing and accounting processes, utilize them. Enable yourself to track projects on a regular basis by installing real-time systems for alerts and updates. These tools can help free the time spent by you and your employees on time-consuming processes and ensure higher efficiency.
Your client has come to you because you can add the creative flair missing in his product or service. Show them that you can do that, and much more. Use dynamic marketing tactics, and provide service that will keep your client coming back for more. Utilize social media to thump your chest from time to time, and when you land a big fish, use it to reel in more. Over and above all, market your agency smartly.
Having the right resources, business processes and systems in place ensures you are already halfway to increased profitability. Your agency needs you to keep an eye on the bottom line, so take the lead to ensure that you are both, creative and profitable.