Article - How To - Maximise Your Agency Growth With Intentional Profitability

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AUTHOR: Janusz Stabik

Is your digital marketing agency profitable by accident, or on purpose? At Digital Agency Coach and GYDA Initiative, we’ve worked with hundreds of agency owners over the years, some of whom were unaware of their profitability stats.

Often agencies will end up being profitable by accident, as a happy consequence of the year’s work. Today, we’re going to share our thoughts on turning a purposeful, intentional profit.

Is Profitability An Afterthought Or Is It Achieved By Design?

As a busy agency owner, it can be easy to prioritise managing your day-to-day operations and allowing the business's profitability to become an afterthought. This approach generates either a welcome or disappointing ‘profit surprise’ at year-end. With this mindset, it’s difficult for you as an owner, to have that profit-oriented, strategic mindset which is key to growing your agency.

At Digital Agency Coach, we advocate approaching profitability with intention and purpose. This mindset can feel foreign and acquisitive at first, but it’s important to remind yourself that it’s completely genuine and moral to design your business in such a way that it earns you money. 

Having this profit-driven mindset will enable you the freedom to reinvest in your business, enhance the quality of your service and grow your agency.

How Your Intention Influences Profitability

When it comes to a digital agency’s profitability, we typically see three different levels of intent and three defined profit groups as an outcome. 

Agencies who turn anywhere from 0 - 12%* profit are generally doing so by accident. There is very little intention or strategy in place and the year-end results are unpredictable and often speak for themselves.

Those marketing agencies turning anywhere between 13 - 22%* profit, are doing it on purpose. The higher the number on the scale, the more deliberate and considered the profit outcome has been. The closer the number lies to 13% the less intentional their outcomes have been. 

And as for those generating a profit percentage anywhere north of 22%*, we think of them as purposeful, profit machines. These digital agencies know their services, their clients, their team, and their business inside and out and their sales pipeline is geared toward driving high volume, quality leads which convert. 

*These figures are general only. Actual profit margins will depend on the agency size. Large organisations with substantial overheads typically will have tighter margins.

How Can You Start Making A Profit On Purpose?

Here are six top-line areas to address your agency’s profitability.

1 - Gross Margins

Take a close look at your gross margins. If they’re outside the range of 50 - 60%, you're not profitable enough. Your gross margins can be calculated using the revenue of your overall agency, less the sum of your direct salaries and/or contractor and freelance fees required to deliver your particular service. 

2 - Utilisation

Utilisation looks at how many billable hours you have available to your clients. As a service-based business, you sell time. If you are operating at less than 72% capacity, there is scope to improve your profitability through utilisation. 

3 - Poor Performers

These can be either clients or employees, and if your agency attracts and retains poor performers, this will result in inefficiency and low profits. You might need to address some of those long-standing, legacy clients from your start-up days, or those certain team members who are less efficient than others. Perhaps raising your fees or developing the skills or expertise of your employees is the answer.

4 - Reporting

Typically those agencies who fall into the 0 - 12% profitability category, have no insight or oversight on cash flow, expenses or financial and sales forecasts. Having a robust sales pipeline and reporting structure in place allows you to understand when, where and how you can increase your revenue and reduce your expenses - which we know will lead to a direct increase in profitability.

5 - Pricing

Put simply, you might be too cheap. For digital marketing agencies within the UK, it’s recommended you charge £90 per hour as an absolute minimum for your services. At Digital Agency Coach, we advocate charging between £100 - £150 an hour and ensuring you bill all for all hours at your full rate in order to maximise your profitability. 

6 - Market Conditions

Is the service you provide right for the current market? This is a big question for web design agencies who are competing against the likes of Squarespace and Wix, who have significantly devalued the website product to where it’s now within the reach of many small businesses and small budgets. As a specialist agency with a highly skilled team, you need to be honest and ask if there is a future within your market. If the answer is no - innovate and change with the times.

Ready To Become Intentionally Profitable?

Remember, it's perfectly moral and genuine to gear your agency to become a profitable, money-making business. As a business owner, you are doing your customers, employees, and your market a disservice if you are unable to reinvest your profits back into your industry. 

So, where to begin? Start by asking yourself which of the three levels of profit and intention describes your agency. If you’re turning a profit anywhere south of 20%, it’s time to shift your mindset, address these six key areas and maximise your profitability. 

If you liked this article, click here to email Janusz and talk further on how to make your agency more profitable.