If you want to see how you can double or more the profit in your agency WITHOUT adding any clients, this article is for you.

I’ll show you how I’ve taken agencies – including my own – from 10% or less margins to 35%+ in under 30 days by slicing profits in multiple ways.

Now a disclaimer here – if you run this process correctly you could end up with margins of 40% or more – and there’s a big risk in doing that, so stay to the end to make sure you read to the end to discover why.

In the fourth year of running my agency I had a knot in my stomach from stress. We were getting clients, and keeping them – but my profit margins weren’t that great. In fact, some months I’d go negative.

I’d been scoping each engagement really carefully, but somehow that wasn’t enough.

It was the weirdest thing – on paper I should be making money, based on the retainers we were getting and the cost of my staff. BUT some months I’d actually go negative, and it was completely frustrating

What was going on?

I’m going to show you how I figured it out, and the method I now use to help agency owners fix their margins to double profitability even if they don’t get any more clients. In just 10 minutes you’ll have the 7-step blueprint, and at the end of this article I’ll give you two critical pieces – (1) a surprising reason why you don’t want your margins to be TOO big, and (2) a way to implement in just 30 days even if this seems overwhelming to you.

Before we jump in – there’s one secret that nobody has told you. That is that the blended profitability of the agency is only somewhat relevant until the business gets to scale.

In other words, saying your profit margin is 15% for the whole agency is a nice number to know, but it isn’t actionable.

You can’t DO anything with that number

That’s why I was tearing my hair out one day, and just depressed the next – because I felt trapped. I thought the number was fine, but things still weren’t working

So the first discovery I made is that real gains are made by slicing the numbers and doubling down on what works, and cutting what doesn’t.

This is important – don’t just look at overall profit, and margins. Look at 7 different profitability numbers

If you don’t do this, you’re going to be spending time and energy on things that are making you LESS revenue.

Now here are the 7 things to to analyze:

(shameless plug, if this seems hard I can help you do this if you work with me):

  1. Profitability by Client Some of your agency clients are killing your business. That’s because you might not have looked at profitability on a per-client basis. Understand what the margins are on a per-client basis. You will likely find clients that are losing you money. Fix the economics or fire the client. Identify profitable clients and find how to keep them delighted, and repeat with other clients. Then, only sign on new clients that meet that profile
  2. Profitability by Service Line If you’re like most agencies, you’ve added on service lines – and might not realize that some of them are killing your profits. But, you might only be measuring profitability of the whole business, or by client – but not by service line. Each service line will have its OWN margin. You could be making a TON of profit with one service, and losing on others – but not realize it because it’s blended in one scope. Tease these out and look at each service line separately … Then make sure your bids and scopes ensure profitability.
  3. Profitability by Team Member You might hate to hear this, but it’s real. You might have agency employees who are losing you money. The fact is, some team members are more profitable than others. They might be great people, but sometime employees aren’t as profitable as others. Which ones might depend on if you’re billing hourly, fixed fee, or retainer. Slow and methodical may do great on hourly, but kill your margin on fixed fee. Match the person to the bid type.
  4. Profitability Over Time Did you ever have a month where your profits were really thin, but you had no idea why? Many engagements vary in margin over time. For example, in my agency there was a ton of up front work so margins were low at the beginning, then got high during ongoing delivery. In almost every agency, profitability is lumpy. And expenses can be lumpy too. And collections might get lumpy. Understand when these points are otherwise (a) you can’t plan and resource engagements, and (b) you could hit a convergence where a bunch of low margin work happens at once and tanks cashflow.
  5. Profitability by Season Ever notice how people shop differently during the holidays? During the summer? Nearly every business has seasonality, even if it isn’t obvious – and this applies to agencies too. It could have to do with selling seasons (in my agency, no new clients ever came in late summer), usage seasons, when the clients launch campaigns, etc. Look over the your prior years and find out if certain seasons had different profitability – and make sure to manage cash accordingly.
  6. Profitability by Market Segment I started my agency with the cheapest, lowest-margin segment of the market possible – and it sucked. Until I raised retainers, I didn’t even realize it. I’ll be the same is true for you – Some segments of your client base will be more profitable than others. Could be large vs small customers, certain geographies, certain psychographics of the buyer. If you think every market segment is the same, it just means you haven’t analyzed it.
  7. Profitability by Fee Level Higher total fees don’t always mean better margins. Sometimes big clients can squeeze margins. I’ve seen many agencies that would be better off firing a client that’s 50% of revenue.

You’ve just heard 7 things to analyze – and yes, this is a pain in the ass. BUT, this will make you a ton of money. Do you know how important I think this is? So much so that it’s one of the first things I do with clients because it can double margins in just 30 days of understanding what’s going on.

At the beginning of this article I mentioned there’s a risk if your margins get over 40%. You want good margins – that’s why you do this. But if your margins are WAY too good with one client, ask yourself this: am I delivering enough value? Because if the margins are too good, they might realize they can hire in-house or find another agency. The secret not just good margins for you – but a long term relationship with the client so you get paid a long time.

I get it. This seems hard. It’s easier to just keep on doing what you’re doing.

But if you really want to double margins, either take the time to do this yourself – that’s right, open up your calendar and schedule it – or work with someone who’s done it to guide you through it.

Categories: Agencies