Job profitability is a key driver of an agency’s success and financial health. It enables financial stability, growth, competitiveness, the ability to provide quality services to clients and an enjoyable experience for employees, making it an essential consideration for agency management and decision-making. Here are eight ways an agency can improve job profitability, and because I like alliteration, they all begin with an R! It goes without saying that some of these can only be done once a fixed contract with a client has ended.
Reprice
Increasing fees is the most impactful way to improve profits.
With all else being equal, any fee increase goes straight to job profit and the bottom line.
At the very least, you need to be making up for the high wage and general inflation suffered in recent times.
Rescope
The next best thing to increasing prices is to reduce the scope of work you do whilst holding the fee. Think of it like your favourite confectionery constantly reducing in size over time for the same price.
Upselling offers an opportunity to increase the scope and profit margin overall.
Recovery
If your agency is consistently writing off time, look at why.
Overservicing occurs for a variety of reasons – examples include inefficiency, lack of standardised processes, loosely drafted scopes of work and unbilled scope creep.
When you have identified the causes, work to correct them for future work.
Resource
Job profitability can be dragged down by having expensive senior staff doing the work that would be expected of those in more junior roles.
This is often caused by having the wrong team shape, or capacity and resource planning not being carried out regularly enough or at all.
Plan ahead and ensure you have the right staff mix available.
Relocate
If your agency operates from multiple locations you may want to consider moving work to another office, be it in the same country or overseas where work can be delivered at a lower cost or more profitably.
Increasingly and especially post-pandemic, some agencies have been adopting a distributed workforce, across the UK and/or internationally. This can mean it is easier to find people with the required skills and experience at a lower cost. This is increasingly useful with the difficulty that UK agencies are having to find suitable candidates and the premium having to be paid to attract.
When hiring internationally, it is easier to use independent freelancers, a freelance agency or outsourced service providers. The simplest way to hire staff permanently overseas is through an employer of record that will take care of all legal, payroll and taxation matters.
Rates
The rate card needs to be set to cover the cost of people and overheads, and generate a healthy return. It mustn’t be set arbitrarily or to undercut the competition.
A blended rate card should be avoided as it usually works in favour of the client. It helps client procurement as it enables them to comparison shop as if they are buying a generic product.
Stick to tiered rates (rates by role) where possible. Here’s another piece I wrote on setting rates.
Recharges
Third-party costs that you recharge must be reviewed for price increases and passed on to clients.
Those costs which are regularly recharged on autopilot are the ones where you might be making a lower margin or worse, losing money if charged at cost (the past cost).
More information can be found on a blog I wrote on recharging third-party costs.
Resign
If you’ve exhausted all options to improve profitability for an unprofitable client, your agency is at or near capacity and has a healthy pipeline, resign.
Time is best spent on clients from which you make a good return. The decision to resign an unprofitable client is made easier when the team doesn’t like working with them.
Please get in touch if you would like to learn more about how our outsourced CFO/FD service can help your agency improve job profitability.
