Marketing Agency Exposed Podcast: Ep 31: Are you profitable? (Part 1)

Ep 31: Are you profitable? (Part 1)

Jul 29, 2020

Summary:

Maintaining a steady profit margin is the key to a healthy, stable business. It’s how you survive in downturns, how you invest in innovation, how you market, and more. The classic model in the agency world revolved around tracking billable hours and racing towards commodification at every turn- today we are opening up about creating profit without losing sight of the human component of your business.

Top 3 Curtain Pulls in this episode:

Know your numbers! If you don’t have an accurate view of your current profit margin, you’ll never be able to create lasting changes that result in increased profit.
“You want to shoot for four times what you pay somebody in revenue… you want to be north of 23% profit margin shooting for 30% net profit margin in your business” as a baseline for success.
Employees that are aware of and bring value to the table are employees that will increase the value of your business in return- steer clear of creating human commodities out of your employees. “The people run the processes, but the processes run your business.”

For more tips, discussion, and behind the scenes:

About The Guys:

Bob Hutchins: Founder of BuzzPlant, a digital agency that he ran from from 2000 -2017. He is also the author of 3 books. More on Bob:

Brad Ayres: Founder of Anthem Republic, an award-winning ad agency. Brad’s knowledge has led some of the biggest brands in the world. Originally from Detroit, Brad is an OG in the ad agency world and has the wisdom and scars to prove it. Currently that knowledge is being applied to his boutique agency. More on Brad:

Ken Ott: Co-Founder and Chief Growth Rebel of Metacake, an Ecommerce Growth Team for some of the world’s most influential brands with a mission to Grow Brands That Matter. Ken is also an author, speaker, and was nominated for an Emmy for his acting on the Metacake Youtube Channel (not really). More on Ken:

Show Notes:

[0:30] The Guys start the episode talking about a passion of Brad’s- motorcycles. The conversion leads to Brad sharing a new toy of his, the new 2020 iPad Pro, with awesome keyboard features that may finally be an ipad that can double as a laptop.

[6:29] Bob segues the conversation towards profitability- “Speaking of Brad’s new toys, all the profit that he’s making his agency… we’re going to talk about profitability today.”

There is an unknown rule of amount of revenue per head as far as your team.

[7:08] Ken: “Agency aside, you want to shoot for four times what you pay somebody in revenue… you kind of want to be north of 23% profit margin shooting for 30% net profit margin in your business.”

This includes budget for innovation and other things that grow and stabilize your company.
Marketing is a cost-heavy industry, and it can be difficult to ever have room for that if you don’t have a large enough profit margin.
There are a lot of different ways to increase profitability, and sharing those is the subject of this week’s episode.

[9:45] Brad: “I look at my business as one of the many things in my life that is going to generate revenue… I look at my business as a way to make revenue that I can take and invest in other areas that don’t take as much labor to make 10%.”

[12:15] Brad continues: “... it’s all about human resources at the end of the day… in the end it’s the human resources that make that [business] happen.”

Roughly 60% of employee’s time is actually billable, it’s very unlikely that you’ll find someone working 100% of their hours

[16:00] Ken shares about growth in some agencies he’s spoken with- the growth in linear over time, with the same amount of work being done for the same ratio of money.

Truly a profit strategy depends on the end goal, are you creating a profitable company that will feed your stability and growth of employees or something to sell quickly and is prone for growth in the eyes of someone else.

[18:45] Brad discusses the importance of building value into your company outside of just the clients you work with- clients come and go, one giant client leaving can result in 50% or more of revenue dropping off. How can you maintain that profitability even through this? VALUE.

[21:35] Ken: Speaking to the holistic view that Brad talks about- business model isn’t just about that business, truly a holistic part of his whole life plan.

“The less you rely on the thing, the more healthy your relationship with that thing can be.” This applies to life in general, but is also a great way to think about your business. Life model is separate from your business model, but the more stable and healthy each of those relationships are, the less reliant you become on the other.

[24:29] Bob: Talks about the struggle of business owners with walking the fine line between people as commodities inside of your business. Often as you scale, employees become more commodities than people.

[25:56] Ken rejects that model of ownership- “If your business is based on humans, and those humans are commoditized.... Then as you go up and down, you’re inevitably not going to be able to retain or attract the thing that you actually sell.... Which is the humans.”

[27:17] Ken continues: “Our company… I call it a hybrid agency because there’s agency services that we do but ultimately I’m trying to build a brand that has equity and that has multiple products, one being a service that we give, others being other products… I see our business as a distributor of experience and knowledge.”

His goals in building a team is brick by brick, building up a base without losses and time wasted in retraining people.

[32:30] Brad shares advice for any employee out there listening- make sure you are making the company money and providing value for your presence. If you feel that you could leave and be replaced by someone in 2 weeks without a hiccup, you know you haven’t created any real value for your boss or the team.

[39:50] Bob speaks about how often, agencies are selling knowledge more than creativity or execution.

[41:21] Bob asks: “Is there a model that you guys follow? How do you track profitability? What are the basics that someone listening can understand?”
[42:13] Ken: Before you can figure out how to adjust your employees or long-term plans, you need to know where you’re at right now. Know how much time you put into something, and make sure you’re paying yourself to do that.

For many agencies, there is an expansion and contracting that can be scary if you don’t know where it’s coming from or how to track it.
30% net profit at the end of the day should be baseline, and know how much you’re making per employee. Are they bringing in that revenue?

[44:34] Brad: Anthem does a few estimates, for the client yes but also for the sake of the team. There is a statement of work that is held to the price to allow for scope creep

One model is bottom up, looking at cost but also monthly hours per employee and tracking their work closely… “I do that just to give some peace of mind… that we’re going to be profitable on a project.”

[47:00] The Guys speak about tracking hours and how it can impact the psychology of employees to constantly track their own productivity. Next episode will cover this topic!