Are You Stunting Your Agency's Growth? 10 Financial Mistakes Standing In Your Way
1. Are You Stunting Your Agency's Growth?
10 Financial Mistakes Standing In Your Way
2. Introduction
You probably remember what it felt like to have a steady
paycheck for the first time. Money started to feel like a
tool, instead of something to hoard for the weekends.
Maybe this was right after college. You got a job, moved
to a new city, rented an apartment, made new friends,
started eating out most nights a week, and found that
money fulfilling its function pretty quickly. This isn’t ev-
eryone’s exact experience, but it is a fundamental pattern
of financial growth
(unless you’re like Mr. Money Mustache).
3. Many agency owners fall prey to similar mistakes. They find themselves in an entirely
new financial ecosystem than when they were employees, with new decisions to make
and new considerations to account for.
Instead of letting you learn the hard way again, we’ve compiled these common finan-
cial mistakes to help you avoid them.
5. 1. Not Having a
Financial Plan
When you’re busy onboarding and managing new
clients, it’s easy to let a financial plan become something
you’ll get to someday. Not having one is a quick way to lose
all of that hard-earned revenue. A financial plan not only
helps you identify how much to charge for your services, but
it also provides insight into key aspects of your business,
such as profitability, inherent value, and scalability.
6. 2. Not Tracking Key Metrics
Maybe you’re a numbers whiz and you’ve been able to track key metrics in your head up
to this point. But as you start accruing more expenses like software,
unplanned outsourcing, work spaces, and biz dev costs, it’s crucial that you
understand the kind of return you’re getting on all of these investments.
7. How many clients do you need to close—both new and
old—and at what percent profitability to afford those
snazzy iPad Pros for all your designers? Do you know
how much of your overhead your current clients cover?
Does anyone? What happens if your world is shaken up
tomorrow?
8. 3.PoorlyManaging
Retainers
Retainers sound great in theory (and for the most
part, they are), but agency owners should
approach them with caution. It’s easy to get into a
situation wherein a client is free to exceed a retainer
but asks for money back on unused hours. Put con-
straints in place ahead of time that make the financial
process clear for deficit or
surplus hours. Make sure your team tracks its hours
fastidiously and avoid deficit hours
whenever possible.
9. 4. Assuming Larger
Retainer Equals
Larger Profit
Another common pitfall in the retainer game is assuming that
the larger a retainer, the larger the profit. Another equation to
consider though: larger retainer equals more deliverables
equals greater toll on resources (whether it’s paying freelanc-
ers or taking away from other more profitable projects and
clients) equals profit?
Before taking on any large retainers, make sure your process-
es and tracking systems are in place to prevent a huge project
from eating up your agency.
10. Processes are the lifeblood of agency work, and to be truly great, they must evolve. Sometimes, however,
processes are changed significantly, and they affect time amount of time teams spend on projects. If you go
through a change like this, re-evaluate your time spent for any overages after three months. If you see that
time has increased, consider repricing your services for new projects and retainers (but please, avoid
charging existing clients more for the same number of deliverables!)
5. Changing Processes
Without Changing Pricing
11. 6. Not Diversifying
Your Revenue
Stream
Let us all take a moment to mourn a company like Imagi-
nation Technologies. They put all their apples into Apple’s
basket, and now they are hurting in ways no owner likes to
see. As with a large retainer, it’s tempting to follow the big
revenue, but it’s important to keep an eye on potential
financial stressors. If your biggest client dropped you
tomorrow, would your agency be able to survive into next
week?
12. 7. Tracking Projects
and Accounting
Separately
This is like trying to lose weight without tracking your
ingoing calories against your outgoing calories. Every proj-
ect is going to burn a certain amount of your agency’s
resources. And it’s easy to let that tracking exist in its own
silo—revenue is the only number that really matters, right?
Well, it’s also easy to spend that revenue before you even
earn it if you’re not tracking your projects against the an-
ticipated revenue. This may only happen rarely, but once
you know what sort of projects make your profit margins
look like a grad student’s checking account, you’ll have a
smarter, and more profitable, agency on your hands.
13. 8. Inefficient Billing Process
Once a client signs a contract, dollar signs might
dance around your head like bluebirds in a Disney
movie. Every time you hear about the status on
that project, you can’t help but think fondly about
the revenue right around the corner. You sit your
team down for a quarterly revenue report expect-
ing to see that
revenue realized in the P&L for the agency, but
sadly it’s nowhere to be seen.
14. What happened?
The bill didn’t go out until last week? The project
ended, but accounting didn’t hear about it. The bill-
ing lay dormant until a passing conversation over
lunch brought it back from the dead and got it out
the door to your client.
The time between a project ending and billing being
sent out is crucial when you’re growing an agency. It
can be the difference between missing and making pay-
roll. Put processes in place to make sure account man-
agers and accounting know how to partner after a proj-
ect is complete.
15. 9. Scope Creep
Scope creep is to your clients what dessert is to your kids.
They aren’t trying to be greedy; it’s just so hard to resist
asking for that extra deliverable … or extra cookie. Scope
creep is an issue of not setting expectations. Be confident in
the value you deliver and know that clients will try to get as
much of that value from you as they can for the lowest cost.
It’s just business, but it’s also a recipe for financial burnout if
you’re not prepared.
16. BIG
SALE
10. Pricing Is Wrong
This goes back to knowing your value. A lot of agency
owners make the mistake of pricing based on hours spent
or a type of service. Instead, set your prices based on the
value you deliver. If you can, work with existing clients to
better understand the positive impact your agency has
had on their business. Use this, combined with the actual
cost of those projects, to help inform your pricing moving
forward.
SALE BIG
SALE