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Why profit is the most important metric and 3 areas you can look to improve it in your agency

I often ask business owners why they decided to pursue the entrepreneurial path, and the responses that come back are around having more time

and flexibility, not having to answer to a boss, and having complete creative control in what they do each day - all things I can resonate with and factors that I considered when making the decision to establish my accountancy practice, Autus.

Over time, my answer has changed. I’m really doing this because it excites me and I love it! The challenge, the responsibility, the team building, the ability to make a real impact on my client’s lives - and most importantly the impact a profitable business allows me to have on my family’s lives.

Without profit, a business is not a business. It’s an expensive hobby. We’re all in business to make money and if you’re going to survive and thrive you need to work on profits.

Profit margin is the biggest indicator of the long-term health of your agency and a good margin is crucial to ensure you’re still around in 10 years. Scaling an agency without an optimised financial foundation will simply scale your problems and lead to future remedial work on a much bigger scale.

We’ve found that pretty much every agency has some form of hidden profit which you can unlock with a bit of digging!

Here are 3 low-hanging fruits you can grab to start taking control over profitability in your agency.⁠

1. Revisit your pricing strategy

Getting pricing right is the fastest way to have a big impact on profit. There are two main components to a pricing strategy.

  1. The pricing method

  2. The price itself

The hourly rate is quickly disappearing as a pricing method, and it’s for the best! In this traditional model, the more efficiently your team works the less you get paid, which doesn’t make a whole lot of sense.

Value pricing is becoming more common and if you can offer your value efficiently, your margins will be high.

When it comes to determining the price itself, it can either be business-driven or market-driven.

A business-driven price is one that takes into account your overheads and applies a profit % on top. The downside here is that you don’t know whether you’re at the sweet spot, and if your business doesn't have a lean cost base you risk inflating prices.

A market-driven price is one that’s tested and refined based on what prospects are willing to pay at each level. It takes longer to establish but factors in the market reaction allowing you to find the sweet spot of profit : conversions to truly maximise profit per sale.

Before investing time to onboard more clients, invest in your pricing strategy to make sure you’re getting the most back for what you put in.

⁠⁠2. Habitually review costs

A lean cost base is so important to keep as much of that hard-earned revenue as possible.⁠ Plug the leaks to lock in profits.

The biggest cost in an agency is its staff, so as an owner you want to keep an eye on revenue per head and other efficiency metrics to ensure your overheads align with your income levels.

Review your regular business outgoings with a critical eye and stop anything that’s no longer needed. Going forward, make a habit of reviewing costs on a quarterly basis.

As your business evolves so do the external support and tools you need.⁠ We all have direct debits that we’ve not given a second thought to for years - stop these profit vacuums!

3. Minimise taxes

⁠Structuring your business correctly and claiming all tax deductions you're entitled to will go a long way to keeping profit in the business.

⁠⁠Speak to your accountant or tax advisor about whether your current structure is still appropriate, perhaps you started trading as a sole trader and have grown to a point where a limited company is better suited (tip: this comes quite early!), or you’re working internationally and will find greater efficiency in locating your company offshore.

And now the best tax tip you’ll ever get - it’s a little-known fact that you can get a second opinion on your tax return. Instead of trusting what your accountant has pulled together as being correct, get a second opinion.

We’ve found that 9 times out of 10, business owners aren’t claiming all tax deductions they’re entitled to, and rebates for previous periods are usually worth thousands of pounds in the bank and even more in future savings!

Want to talk about how you can improve profits in your creative or digital agency?

Email and a member of the team will get in touch to arrange a free 121 call.

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