Profitable Agency Business and How to Sell It

By | March 16, 2017
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Joe EolsenThis is a guest post from Joe Olsen. Joe is the CEO of Rova, an agency growth tool, built by agency veterans for agencies. With Rova, dubbed The Client Services Engine, empower your agency team to manage, measure and grow strategic client relationships. You can get in touch with Joe on Twitter and LinkedIn.

Let’s start with a fact. Successful agencies create revenue through the ability to generate profitable business with new clients but also within current relationships. Show me your New Business and Client Services team, their processes and tools, and I can tell you how far you’ll go, your capacity for growth and your ability to thrive in this cutthroat industry.

The Key is Consistency

Agencies are often started and run by personalities that view consistency and process as boring, which can be a major challenge for most. As an agency leader, static variables will guide you through the chaos. If you can find ways to make the variables of revenue and profitability generation static, you’ll then start to better understand the unique coefficients of diversion and manage the variation. Yep, it’s a math problem, and I’m an engineer.

When applied to scoping work, you’ll find defined and static variables within each of your statement of works (SOWs). You’ll then create a standardized process for creating SOWs, to which you can manage the variation and compare SOW-to-SOW, apples-to-apples, regardless of the scenario. Additionally, you’ll start to create an agency culture focused on generating more profitable work, bringing those who influence the business closer to the lifeblood that fuels it.

How to Build a Well-Oiled New Business Machine

To get started, let’s talk about how you can start scoping projects faster, more efficiently and with less input from billable resources. This starts with putting more focus on getting things close and less attention on being 100% right. This flies in the face of most agencies - the idea of New Business or Client Services people scoping projects without exploring every detail, then re-exploring them and cautiously combing through once more, scares the hell out of them. You may be inundated with horror stories of misestimated jobs going way over budget or worse, project teams confused about deliverables and arguing over what the client “really” wanted.

The reality is that the client wants what the salesperson sells them. Whether that’s your New Business team or an Account Executive. Whoever crafts the deal is the client and will speak for the client in all aspects of the project as it relates to delivering what the client wanted. This may sound simple but you’d be surprised how many agencies verbally agree, but don’t follow through with action. Stick with it. It’s critical because if you give that responsibility to your BD or AE and all they see is a powerless position of constant negotiation and berating by the rest of the agency, they’ll quickly revert to producing mediocre to poor revenue and results.

The second reality is that every project scope is the same. It involves resources with fixed costs, timeframes with target start and end dates, and capabilities with floors and ceilings. There is a finite limit to what you can do, regardless of the energy and attitude of your team. When you add a desired profitability on all costs—including those resources inside the agency and your outside vendors—you’ll arrive at baseline variables for a profitable project.

Every agency leader knows projects go wrong and things get off track. That’s why you create variables for Project Management and QA as total percentages of the gross project scope to ensure you have guardrails. It won’t stop disasters, but it’ll prevent your average fender bender and falling asleep at the wheel. These variables, in addition to the margin variable, allow you to control the amount of risk you’re willing to take, which is of course up to each agency to decide for themselves. However, using this process over and over for EVERY scope will allow you to really dial in over time, getting closer and closer to your agency’s formula for profitable revenue success.

Start Doing More

I’m a firm believer on selling on value, ‘What is what I’m doing for you worth to your organization, or your definition of success.’ I want my fair share of that value, so I sell that way. Using the standard model, you can establish some incentives for going above and beyond and even further controlling the variance.

First, I like to establish three profitability percentages—a floor, good and great profitability percentage. There’s some psychology at play here that drives the team to want to produce good and great projects. No one wants to be on the floor, much less every time. We all know there are times when we have to go to the floor on projects, and maybe even dip below it in extreme circumstances, but this creates transparency around the fact that it’s happening and a natural barrier to poorly scoped profitability is created.

I also like to add a sales markup variable that allows the seller to create an additional value attributable only to themselves. This will inherently create a more sales-focused organization. Practice selling value to clients and maximizing opportunity as opposed to just doing whatever is necessary to sell the deal - before you even know what you could sell it for. Watch a group of AEs in a team meeting when you show this stat on the board for each rep and watch their competitiveness come out. Just think, you’re driving revenue and profitability while training your staff—and inevitably the rest of the organization—at the same time. Everyone should understand sales.

See...like I said, it’s all an equation. And it can all be done in a spreadsheet with some simple formulas. To prove it’s not some secret intel, we created the Agency SOW Configurator for just this purpose, and made it free so you can simply download the sheet and start plugging in your numbers. Scalable, responsible scoping for every project. Give your team the tools necessary to focus the culture on generating more profitable agency business. The Configurator is just step one.