Want more money?
Let’s not beat around the bush here – naturally as a creative agency you want to expand your skills, and learn new talents, and have a fresh view of the world every day. But you also want to make money. (Otherwise you’d have a job, and you don’t.)
Now we don’t know about you, but for us at My Accountancy Place we want to use some of that money for fun things. At first, when we have a little extra to spend, it’s things like cake. And fancy coffees. And then maybe new technology of some kind. And then that house by the sea….and on it goes.
So let’s start with getting you some cake, and then you can get to the other, bigger things. (Like big cakes.)
So how can your creative agency make more money? More profit, that’s how.
So many creative agencies are busy getting more clients, more fees, more work. But are you getting more profit?
We’re accountants, so we know all about money (thankfully!). We know how profits drive your business, how profit is defined as revenue minus costs, and how to improve your profits. And it really can be quite simple to drive your costs down, or increase your revenue.
These aren’t crazy, impossible to implement ideas. They’re small tweaks – but they might just change your life, if they help your business continue to grow.
Know Your 3 Critical Numbers
Start with the 3 critical numbers for creative agencies. We’ve talked about this before, but knowing these 3 critical numbers will give you the necessary starting point you need.
As a reminder, the 3 numbers are:
- Your gross profit margin
- Your customer satisfaction
- Your team satisfaction
Learn how to identify your 3 critical numbers – or talk to us.
Check Your Prices
When you start a creative agency, you may have set your prices by random guess. Or looking at the creatives nearby. Or picking a number that seemed to reflect the industry.
That’s all right to start with, but over time it affects your profits because you are probably not identifying associated costs. In a product-based business, the costs are materials. In your business, it’s down to your time. So how do you put a price on the creativity and ideas which come out of your brain?
The chances are, your prices are too low, because you either don’t see the value in your thoughts as much as your clients do; or because you’ve never evaluated it.
So, check what your prices are.
Think about:
- Are you making profit on all the services you offer, or only some of them?
- What are others in the industry charging? If the big players are charging a lot more, then there’s likely to be a very good reason for this.
- Are your prices cost effective? Do they translate into the appropriate time and effort your staff spends on them?
And all of this is why you need to make sure you…..
Review Your Hours
Occasionally a job can take much longer than you anticipated. But if this happens all the time, then you need to adjust your price accordingly. Tracking where your staff spend your time, will help you see which projects take up more time than you’ve planned for, and allow you to adjust your estimates for future work.
Every staff member has a cost per hour, and it’s not hard to work this out (not with a calculator anyway). Simply take your staff’s annual wage, and add in an appropriate number for overhead costs (office utility bills etc.). Then divide this by the number of working hours in the year, minus holiday and sick days. For full time staff, this is usually about 40 hours in a week x 47 weeks in the year.
So, let’s say you pay your staff £25,000 a year and the associated overheads with that staff member total £5000. They work 1,880 hours in the year, so 30,000 divided by that equals about £16 per hour. Any work which they do, equates to £16 per hour, so to make profit, you need to make sure the price of the work is higher than these billable hours.
In which case, you might need to…..
Increase Your Prices
If you’re not making any profit on the hours you or your team are working on projects, then you need to increase your prices. That’s a given.
But even if you are making some profit, is there really any harm in increasing your prices? If your clients are happy with the service you provide, then they won’t mind paying a bit more for it. If you deliver something good, people are happy to pay.
You don’t even need to increase them in big chunks. Just small percentages at a time, and it might be that no one even notices. We all expect prices to go up sooner or later. Plus, even if you do have a couple of clients not liking the increase, you’ll have room for new clients who will happily pay the higher prices.
If nothing else changes – your outgoing costs stay exactly the same, and yet you get more money for a project – then this is pure profit, which makes us cake lovers very happy.
Track Your Expenses
You’d be surprised at how many creative agencies don’t monitor what they’re paying out. They just assume it’s right! But if you track your outgoing costs, and know what’s spent where, you’ll be able to identify any areas you can cut back on, saving money, and making more profit.
If you’re spending a hundred quid a month on a software package none of your team like to use, for example, then you could save this money instantly! Plus, if you know what you’re spending your money on, you’ll be better placed to….
Negotiate
There’s a reason there are lots of price comparisons sites out there. Don’t just laugh at the meerkat adverts and wish you came up with that idea – use those sites! See where you can save your business money.
The more you lower your costs and save money, the higher your profits.
And speak to your suppliers too. Negotiate a better deal direct with them, because you’re such a valued customer, or ask to spread out payment amounts to them. This will also help you increase profits.
Finally:
Stop Competing On Price
Direct costs are not the biggest value of your creative agency. You and your team, and the work you do, are the biggest value. If you’re great at what you do, you don’t need to be the cheapest. Your clients will be happy to pay for excellence.
Granted, this takes time to build – when you start your creative agency, you take on any kind of work to build up your portfolio. But sooner than you realise you can increase your prices, stop taking on those little (frustrating) clients, and get more profits.
Do Them All, And Make More Money. (For cake.)
See? It’s not boring money management stuff, it’s quick and simple changes which every creative agency can do to make big impacts on your profit margins.
Of course if you have Xero, you can easily track your profits, your increases, the money going out, and all that kind of thing, so you could identify all the ways to improve your profit. There’s a reason we don’t shut up about Xero you know. It’s perfect for helping creative agencies make more profit.
Which means more cake.
