Cultivating a healthy business model
Making your agency profitable and defining your rates
There are tons of ways to maximize your profits as a marketing agency, and this great guide from Marketing Agency Insider is a solid place to start for inspiration.
Essentially, it boils down to what you want to prioritize and how you want to structure your company. Every agency is different, but there are some business models that work better than others.
Tip: one ideal way to maximize profits is to establish value-based pricing, in which you charge clients based on the value of the services rather than the amount of time spent on a project.
Understanding your rates and the value you add to clients can help you greatly in the long run. Always know your worth! 🤑
Managing billing
Stay on top of your billing cycles — and make sure your clients pay you when they should be paying you. 💸
Seems obvious, yes, but when you’re hard at work trying to make clients happy, the weeks can fly by and you’re left forgetting whether or not you got paid — and 99% of the time, your clients won’t remind you about it, either.
A CRM is a great way to track won and billed projects, but for invoicing, accounting, etc., be sure to have a tool like FreshBooks or Xero in place to keep everything in order. It’s important to be able to have a snapshot of how your company is performing financially. 📊
Revenue targets
Setting the right revenue targets for your company can be a tricky process.
Thankfully, there is a helpful guide over at SOMAmetrics that lays out how you can set effective revenue targets for your agency and beyond. 🎯
Getting this right early on can help an agency grow sustainably and profitably — and you can set these targets in a CRM, such as Salesflare, to track it more effectively.
Be sure to track your time per client. But equally important: track your non-billable hours as well. ⏳
Things such as new business pitches, writing proposals, networking, admin work, meetings and client research are crucial in keeping your business alive — even though they aren’t directly generating revenue.
In any case, keeping a close eye on how your company spends non-billable time can ensure that you and your team are working in the most efficient way possible. You can get a better idea as to what is taking up your time during the day, and if there is room for improvements to any processes you have in place.
Plus, it can also help you discover and identify any unprofitable clients and find more billable hours in areas that you need more work in. 👩💻
Tools such as Timely are great for tracking your time and giving you better insights into what you and your team are spending time on.
In terms of the agency’s billable utilization, this can vary, though a healthy target is around 70–80% — meaning only 20–30% of you and your team’s time is spent on non-billable tasks. The latter, of course, can be much lower as time goes on, but having a goal or framework in mind is helpful.
Looking for a way to calculate billable hours? Like Timely, Toggl is another great tool for this, as you can assign different rates for different team members or clients. ⏱
Setting up a common offer structure is a great way to ensure your company is consistent in its pricing. Agency fee structures can be broken down into two main buckets: project-based and retainer-based work.
For project-based work, depending on how much net profit you want to achieve, there are a few factors to consider, such as hourly costs of employees, estimated billable hours and unexpected costs (or scope creep).
The key here is to calculate those unknown factors and to determine a profit margins on services that makes sense for your company — and don’t forget your administrative costs when calculating this! ⚠️
Retainer-based work is a bit trickier to calculate, as there is a lot of front-loaded work associated with it. That’s why you should be sure to have provisions in place in your contracts, such as termination clauses that protect the setup phase and ensure that if the client terminates the contract early, you are compensated correctly.
An example breakdown of an annual pricing structure would be:
So here, your monthly retainer for this client would be $4,000 — this should cover specific, itemized deliverables. And if your client wants more outside of these deliverables, then that would be the time that you negotiate some à la carte price points for their needs.
A good place to start with proposals is Better Proposals’ list of free proposal templates, which you can find here (they integrate with Salesflare, too). 🤘 Another online tool to create business proposals you can check out is this one from Qwilr.
Negotiations can be tricky and a bit awkward when first starting out with your agency. However, that shouldn’t stop you from entering a negotiation with confidence and an open mind.
When it comes to dealing with enterprises, expect at least 5% discounts asked — this is quite common. But never agree to a contract that you don’t feel you can deliver on or you don’t feel confident about. 🤝
It’s all about compromise between you and your future client, but that doesn’t mean you should hand over work for free, either. This is when knowing your worth is crucial — and can help you get to an agreement that both parties can be happy about. 😁
If you feel a future client is trying to nickel and dime you to the point that the contract wouldn’t make sense, try to politely come to a middle ground, and if that isn’t possible, it might be worth reconsidering the agreement.
Leveraging the press
Building a PR campaign can be a great way to get your name out there, and this can be done in a variety of ways. 🗞
For example: you just signed on a major client — great! This can be announced via a press release (it’s even better if it’s a joint press release from their comms team, as it can give the announcement more weight).
Or, you can use the press as a way to position yourself as a thought leader in your field. Pitching story or column ideas to publications can be a great avenue to free promotion for your company — and it puts you in the spotlight as someone people can trust on certain topics.
A press strategy can take an entire life of its own — and requires a lot of time, resources and relationship building. But if this is something you are interested in pursuing as your agency continues to grow, this guide by Quick Sprout is a good way to get started.