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Why Most Agency Owners Are Under Constant Stress And The One Financial Device That Reduces It

One of the key challenges of growing an agency is the unpredictable nature of the revenue you generate.

Because the work tends to be project based, it can be very difficult to find a happy medium where you have just the right amount of work coming in, which is generating just the right amount of income and having the right amount of staff to deal with that work.

 

A lot of agencies fluctuate between two extremes of stress, which are…

We haven’t got enough work coming in to cover our costs. What are we going to do?

…and…

We’ve got too much work coming in, how the hell are we going to cope with it?

…and everything else in between.

 

This can make being an agency owner super stressful.

But some agency owners do have a more predictable income and can see further into the future, so they can make better decisions earlier on.

This all comes down to being able to forecast the revenue as best you can.

 

This starts with setting clear goals, determining the objectives that will help you to know you’re on track towards those goals and using past to best predict the likelihood of achieving them.

 

After that, it’s all about having the correct data at your fingertips and interpreting that data so you can make better decisions before you get to the toughest phase.

 

At MAP we’re on a mission to empower agencies to become the best they can be and to hit all their objectives. We believe that properly structured revenue forecasting plays a critical part in giving you every chance of reaching those goals.

 

Here are the five key features of a properly structured revenue forecast.

 

#1 Base them on the value of work to be completed

 

Base them on the value of work to be completed per month RATHER than what is being invoiced or what cash is being received. First of all, it’s a required accounting principle to prepare financial statements in this way, but more importantly, it makes the forecasts all the more powerful in running your agency day to day.

If you’re about to embark on a £100k project, which will be delivered over 4 months, you want to have this in the forecast as £25k per month for 4 months.

A smaller £10k project might be delivered 90% in the first month and the remaining 10% the next month. It allows you to understand what resource is required per month and how the activity is going to compare to what your capacity is with the current team.

 

#2 Only include guaranteed revenue

 

Only include guaranteed revenue and split it between project and retainer. It’s always better to air on the side of caution rather than being overly optimistic when you’re forecasting.

I’ve seen agencies fall short of targets because they’ve had unconfirmed work in the forecast and they’ve not been kept on their toes with bringing it over the line. Only include work that’s 100% signed off by the client, and then the only thing you’re estimating in the forecast is the value you’ll be completing each month.

 

#3 Include pipeline revenue

 

Include an additional section at the bottom to cover pipeline revenue that you’re 90% sure will come in. Separate to a revenue forecast the top agencies we work with are using a sales CRM and management tool such as Pipedrive to track the progress of leads through the sales cycle.

When prospects reach a level of certainty, it’s time for them to come into the revenue forecast. When combined with the guaranteed revenue from point 2 we’ll have visibility of how our confirmed work compares to budget, and what prospects we have close to converting that could make up any shortfall, allowing the sales team to prioritise accordingly.

#4 Split it by departments

 

Split it into departments. It will be slightly different agency to agency depending on the services you provide so tailor it how you see fit. If you have a small number of key clients it could also be fitting to split by client too. It allows the department heads to be held accountable for their own performance and also to be rewarded accordingly.

The best forecasting meetings that I’ve been a part always include a healthy discussion between the sales and delivery teams, with the Finance Director, sat in the middle making sure it’s all being brought back to the numbers.

 

#5 Compare it against budget and against capacity

 

Finally, compare it against budget and against capacity. At all times you should have visibility of how the guaranteed work compares to both your budget and your capacity allowing you to make key decisions before it’s too late. If we’re under capacity/budget what can we do sales wise to make up the difference? If we’re above capacity it’s a great problem to have, but we need to have a discussion about the timing of delivery or bringing in additional resource to cover it. If you have visibility by the department from point 4 it makes the conversations all the more powerful.

 

A revenue forecast is what turns AAARRRRRGGGGHHHHH…… into an Ahhhhh…..

 

It’s the difference between being in a state of constant stress and moving into a more calm position, where you can make better, more predictable decisions as best an agency owner can.

 

And at its most extreme, it can be the difference between growing a successful, profitable agency and failure.

What Now?

 

If you’re already a MAP client and don’t have Forecasts in place, speak to your MAP FD today.

If you’re not a MAP client yet, get in touch and we can share with you what a properly structured Revenue Forecast should look like for your agency.

 

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