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The Ninth Commandment of Agency Ownership – Thou Shalt Only do Profitable Work

Are you actually making money from each of your clients? It seems like such an obvious question but many agency owners don’t know the answer.

So many agency owners do work that doesn’t make them any profit. The worst of it is that they often don’t know that they’re not making money from specific clients.

They see an overall profit in their annual reports. But they don’t see just how much money they’re losing out on through over-servicing specific clients.

The Symptoms

How can you tell if you’re not doing profitable work?

First, ask yourself if you know how much profit you generate from each individual client. Most agency owners don’t. They only know the overall figures that their accountants provide to them at the end of the year.

That’s a big symptom.

The second is that you take on work with an eye to the future. What I mean here is that you do work because it might lead to something better later on.

The problem here is that the extra work may never come. You’re so focused on making the client happy that you’re not focused on what you’re getting from them.

The third symptom is pretty simple. You’re paying out more than your clients pay you, you’re not running a sustainable agency.

Finally, would you proudly display your profit numbers? Or, would you rather show off your revenue?

If you’d rather do the latter, that’s a symptom that you’re not doing profitable work.

The Root Cause

The cause of all of this is that you don’t fully understand the economics of the business you’re operating.

Instead, everything comes from your gut.

You compensate your people based on what your gut tells you rather than by looking at the numbers.

You also charge clients based on what your gut says they’re likely to pay. That means you’re not using a model that will take them to the goals they want to achieve.

A secondary cause is that profit is often an afterthought. It’s something that you examine at the end of the year rather than every single month. That process means you never know quite what you’re earning, so you can’t guarantee that you’re doing profitable work.

Why You Should Fix the Issue

I have a brand new client who’s generating a 12.5% profit margin. That means she’s earning less as an entrepreneur than she’d earn working for somebody else.

This is the travesty that failing to follow this commandment causes. That client’s currently working harder than she ever has for less money.

I’m going to work with her on creating pricing strategies and how to position her agency. The aim is to pull that margin up to 25% and make the business healthy again.

So, it’s pretty simple. You follow this commandment if you want to see the fruits from all of your labour.

Dev “Profit Generator” Basu

 

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