5 Steps to Agency ProfitabilityBy Debbie Pine

This presentation will give you some practical advice to increase the profitability in your creative business.

We have spent over 10 years using this methodology in a live environment – and it’s a very simple formula…

What are the 5 Key Steps?

Rate Card & Remuneration Fees

Estimating Properly

Tracking – Time and Materials

Billing – Cash in Real Time

Reporting & Forecasting

1. Rate Card & Remuneration FeesThis is probably the most important area to get right as it sets the tone for HOW MUCH your agency can make from a piece of client business.

You need to give this the right attention up front in the relationship to ensure you can deliver great creative and still make a profit!

1. Rate Card & Remuneration FeesTick Boxer KEY TIPS Select the correct remuneration structure to suit

your type of client work – eg: Menu Fees are better for retail, Campaign Fees better for heavy brand work, etc Draft your Rate Card properly – defining each part

accurately e.g. scope, rates, payment terms, etc Remember: Your services are valuable. If you have a

poorly negotiated Rate Card with a client – advise them after 1 year and introduce a better Rate Card, clearly explaining why it needs to change. There is absolutely no point working for a client and losing money. Your relationship will disintegrate and your business may suffer. Work out which clients are profitable and which ones are not!

Tick Boxer tools for Rate Cards

Tick Boxer’s Agency Rate Card Template – gives you a step-by-step form outlining all the requirements to create the perfect Rate Card. It also shows you all the remuneration options to consider in negotiations.

The 2010 Agency Rates Report – gives you the average industry rates (by agency type) of over 60 different head hour charges. Do you know what an Account Director is worth?

2. Estimating your creative properlyOnce you establish the correct Rate Card – give the time and attention into ensuring your day-to-day project estimates are as thorough as possible. Your estimates are HOW you turn client business into revenue for your agency. They are the next critical step after the Rate Card in making $.

Don’t be afraid to place value on your creative - and remember to quote based on the quality and longevity of the idea – not just the execution of it.

2. Estimating your creative properlyTick Boxer KEY TIPS

Ensure you have Estimating Templates in place for ALL media types your business produces so you don’t miss ANY fees. This could be the difference in making an extra 100K-500K each year. Decide WHO in the business is responsible for

quoting and ARM them with the tools. Don’t choose a junior resource and assume they are well trained enough to understand what they are meant to achieve. The estimator MUST have a copy of the Rate Card

to quote from and be continually in touch with the Finance Team to manage estimate approvals and billing.

Tick Boxer tools for Estimating

Tick Boxer’s suite of Estimating Templates covering 11 different media types – ensures you capture all fees on whatever media you are quoting – e.g Online, Television, Radio, Print, Packaging/POS, Direct Mail, Press & Magazine, Outdoor, etc

3. Tracking your job costs

Don’t under-estimate how much a job can change or blow out through the course of the creative project. Once an estimate is drafted, this may be a constantly changing beast until the job is delivered. Always allow for 2 -3 rounds of client Authors Corrections for each step: Creative Concepts & Execution – including artwork, editing, post production, live testing etc.

Remember to track in REAL TIME and not too long after the job is completed as additional fees get lost and forgotten.

3. Tracking your job costs

Tick Boxer KEY TIPS

Decide WHO should be in charge of tracking the job costs – it can be one person or each department tracking their own area (this will require your ‘trackers’ to be supplied with a copy of the estimate/quote)

Decide WHEN to track costs – daily is better, weekly is OK, monthly is not acceptable

Decide HOW to track – is this manually on a job bag sheet OR via an agency accounting system? It is easy both ways so don’t let “a lack of a system” stop you…

Decide HOW you will flag this internally and with a client

Tick Boxer tools for Tracking

Tick Boxer’s Studio Job Bag Cover Sheet template is a very fool-proof way of tracking changes manually within a Studio artwork environment. It’s especially useful for an agency with no financial tracking system.

This cover sheet can be utilised across any kind of media. It’s 100% effective if used correctly.

4. Billing to create positive cash flowIt is important to bill a client job as soon as it is quoted and started. Why? By the time the job is delivered to the client, the Agency is usually just being paid – which means the billing happens in REAL time.

In addition – if any external expenses are incurred during the job, the agency is not carrying these expenses. They can be large, especially on TV related jobs. It is common to bill 100% and also 50% upfront. Choose what works for you.

4. Billing to create positive cash flowTick Boxer KEY TIPS

Set a billing routine – for small businesses it can be daily, for larger businesses it can be weekly

Set clear terms of payment in your Rate Card Agreement as to due dates and potentially setting bank interest charges on $ outstanding over 60 days.

Decide on a target to meet and try your best to meet it

Remember to sell in your pre-billing as REAL time billing. If you need to change a current client billing terms – send a letter advising them of why and how it is going to be managed. This can be polite and confident – ensuring you advise the date it starts.

5. Reporting to understand your businessNo matter what size you are, you must produce some level of reporting to be able to make positive changes to your business.

Data is your friend and will give you so many clues as to what you can change to make the biggest financial advantage. This ranges from poor client profitability, lagging department profitability, individual staff utilisation and where sloppy processes are occurring in the business.

5. Reporting to understand your businessTick Boxer KEY TIPS

Establish which key reports are the most useful in your business

Apart from your core P&L report - We recommend the following: Department Gross % Profit (Staff to Revenue Ratio), Individual Staff Utilisation, Client P&L (Staff time against Revenue), Cost Code Report (where you are spending your revenue), Client Forecast Report (forecast budget versus actual client spend)

Figure out WHEN to review them, with WHO and HOW to action any changes coming out of them.

Tick Boxer tools for Reporting

Tick Boxer has created two tools in Excel to easily generate these reports if you don’t have an agency system in place with financial accounting functions.

The Excel tools are the Staff Utilisation Report & the Agency Reporting Tool. Simply fill in the required details and let the report calculate your statistics using our built-in formulas.

Do you need further help?

Visit our website

www.tickboxer.com

to find many more resources at your fingertips to help your creative business become more

profitable.