10 Steps To Run a More Resilient Agency

Sometimes, new projects just seem to be rolling in easily. Other times, a crisis hits like a curveball—and nothing seems to be going as planned. When things were going smoother, maybe you didn’t invest enough time to figure out what your drivers of success were.

Globally, the past 12-18 months have been difficult for agencies. Perhaps the businesses that are currently struggling weren’t even aware of all the issues they had before client budgets started freezing and selling started slowing down.

That’s why we’re here. Below, find a check list that can serve as a North Star to help your agency focus on what’s important to withstand winds of change.

Many services businesses reading this will ask themselves: what does a resilient agency even look like? Every agency is different in size, offering, market, clients, projects behind them… But in essence, you’re selling intellectual and creative work, and you need to stay profitable.

To be able to make it through tough times, your agency will want to focus on finding ways to intentionally grow and increase profit margins. But let’s get more specific.

First things first: predictability. In other words, forecasting. How far into the future can your agency forecast its utilization?

Most agencies know who’s working on what in the following few weeks only, and that’s just not good enough. It’s also not surprising when we look at the market data available on utilization. According to a report done by Promethean Research, which included over 45,000 digital agencies, less than 15% track forecasted utilization. 

To make your agency more resilient, the next 2-3 months should always be booked in advance. This is not only useful for managing cashflow. It also guides your business development team to know what to try to sell more of. Plus, it helps your account or project managers balance out work with time off, as well as with hiring plans.

If you’re interested in learning more about billable hours, team utilization rates, and ideal billable hourly rates, try Productive’s free billable hours calculator.

A common element of building agency resilience that’s often overlooked is client concentration—how concentrated your incoming revenue is across your client base. If a high percentage of your agency’s overall revenue relies on a single client, you have a high level of client concentration.

In our recent study that gathered data from close to 800 agencies, we found that 26% of agencies derive approximately one-third of their annual revenue from their largest client. However, when looking into the top 5% of the agencies that got the highest valuations, 57% had less than 10% of their revenue represented by their largest client. That’s a fairly big difference. This is quite risky and leaves agencies exposed to external threats.

A stable cash flow is paramount when it comes to resilience, especially during uncertain times. Making sure that your business has a foreseeable stream of income can help withstand financial pressures.

A strategy to consider is to require clients to pay a percentage upfront. This provides your business with an immediate infusion of cash and reduces the risk of non-payment after the service is delivered.

Also, consider implementing a system of automatic payment reminders, which will encourage timely payments and reduce the likelihood of overdue accounts.

According to the above-mentioned study on approximately 800 agencies, more than half of the agencies reported that 50% or more of their revenue was recurring. This is a positive finding within the agency industry space.

Retainers enable better cash flow planning. Recurring work reduces stress when it comes to securing new business and provides better forecasting. In turn, this will help keep your teams’ schedules balanced.

Having a team that primarily focuses on sales seems logical, but it’s not the reality for every agency. Our research found that only 35% of agencies had a BD strategy and team in place, but still heavily relied on founder(s). Having a dedicated sales team and business development strategy in place is highly recommended to maintain a steady inflow of client work and revenue.

Many agencies sell marketing services, yet rarely find the time to update their own portfolios or consistently invest in their marketing.

Years ago, the rule of thumb was that an agency should invest 3-5% of its annual revenue into marketing. Nowadays, with the market getting more and more saturated, the typical agency will spend 7.1% of its revenue on revenue-generating activities, and with this type of yearly investment, agencies have been able to deliver an average annual growth rate of 13% since 2015 (source: Promethean Research).

Ask yourself: how much of your annual revenue are you investing into marketing your own brand? To build your strategy, consider a few of the following channels:

Looking into your agency’s overall profitability just isn’t enough in this day and age. When your team tracks time on a daily basis, and you can check how your profitability is doing by service or client, you gain better insight into where you can grow.

A big problem for many full-service marketing agencies was just that: they offered a range of services but were masters of none. Zooming in on profitability by service can show you where your agency shines and what it can focus on selling more of. As a result, the service you start selling most of becomes your agency’s niche.

Lots of agencies struggle with what and how to charge per person or service. This leads to applying blended rates, which aren’t always the most profitable—especially if some projects require a lot of time from senior staff or contractors.

Last year, the Wow Company’s annual BenchPress report revealed that those who offered 3 pricing options were twice as likely to have high conversion rates (above 60%).

It’s important to test different pricing options to see what works best for your agency. During the discovery phase, try communicating the benefits of higher prices clearly or offer multiple pricing options.

Sometimes, agencies hire on a whim. In fact, many agencies hire on gut feeling or when they have an increase in projects lined up—and then 6 months down the line, people can end up on the bench.

Knowing when to hire and when not to is key to avoiding burnout, i.e. keeping your team’s workload balanced. Opting to work with trusted freelancers might be a better option than hiring and onboarding a new person sometimes.

Forecasted utilization is the KPI you should look into when trying to figure out resource planning for the next quarter (or two).

When was the last time you did an audit of your agency’s expenses? Your agency’s margins can be heavily influenced by fixed costs that are often overlooked. In Productive, you can enter your monthly overhead costs into the system, and you get a more realistic picture of your profitability.

To wrap up, here’s a reminder: not many external factors are under your control, and it’s just a matter of time before another crisis will come up.

This doesn’t mean that your agency can’t be at the cutting edge. While things are going well, take action by using data to make decisions that will securely guide your agency toward the future.

If you need help with taking control of your agency business, Productive can help you get a strong grip on your operations and profitability.