Agencies today face continual pressure to reduce their prices even as their costs of doing business continue to rise due to real estate, talent and technology. And the threat is real - clients are insourcing ever greater percentages of their advertising based on the perception that it's cheaper to execute in-house. As a result, agencies have to turn over every rock in search of ways to lower costs wherever possible. Every bit of savings drops to the bottom line. Focus is key.
Focus On Deliverables
It's easy to get pulled into the "Jack of All Trades, Master of None" situation with clients. Account people are loathe to turn down any revenue opportunity with a client and optimistically view every new project as an opportunity to build a new competency within the agency. The trouble is, agencies are always better at doing some things than others and when it comes to reducing operating costs the agency can't afford "loss leaders" in the product mix. Start by identifying the average margin contribution for each type of deliverable. You can even rank-order the deliverables if that helps. The picture that emerges is what the agency actually is regardless of what the agency thinks it is. Most agencies have a very clear gap between what they do well and make money on vs what they dabble in and often lose money on. If you don't have an agency management system that allows you to easily generate such a report, you can't expect to succeed without one.
Once you have your data, it becomes a strategic decision about where the agency is heading and what that means from a deliverables perspective, but the straight-up path to lowering your operating costs is to cut the under-performers and focus on what you do well. Push that mandate through Client Service and double-down on a vision and mission that builds on that success.
Focus on Personnel
Agencies today can't compete with the armies of people they used to have 20 or 50 years ago - and they don't need them. People are the single most expensive asset in every ad agency which makes resource management one of the best places to identify cost-saving opportunities. "Automating repetitive tasks within the agency and harnessing the power of agency management software like Advantage to perform data-intensive tasks like resource scheduling and media buying can save the agency thousands of dollars a year in FTE costs alone," says Ellen Coulter, President of Advantage Software. "Because Advantage integrates Project Management, Accounting and Media, one individual using automation can accomplish what it formerly took an entire team to do - quicker and with greater accuracy. It's amazing."
Automation has the added benefit of eliminating jobs that generate little strategic benefit to the agency. In fact, the jobs that automation eliminates are largely the jobs that clients point to when they talk about how expensive the agency's "overhead" is and why they don't want to pay for it. Automating those roles lowers the agency's operating cost and frees up workable space for billable roles.
Focus on Process
Once you've got the agency focused on what it does best and you've automated all the repetitive, time-consuming tasks it's time to optimize the process to reduce operating costs even further. If you haven't already, now's a good time to read our recent blog post on how sprints accelerate throughput in agencies. Most agencies suffer from the same inertia (from a process perspective) as clients do. As a result, agencies that adopt Agile processes and methodologies can see significant gains in throughput with a corresponding increase in capacity and reduced operating costs.
There's no magic behind it, it's just a matter of changing the way work moves through the agency. Utilizing visual-based PM tools like Kanban boards, Scrum boards and task-based scheduling can do wonders for throughput as well as attrition reduction since employees are happier when they have a continual sense of accomplishment and a good handle on their schedule and expectations. Many leading agency management systems feature agile tools and processes similar to Advantage that can help you achieve the operational cost savings you need.
In the agency business today, every position, process and deliverable has to be optimized if margins are to be maintained. Technology will play an ever-increasing role in helping agencies survive and thrive. Your agency's management system should be helping you optimize and reduce costs in every aspect of the business. If not, it's time to check out one that will. Click below to schedule a Free demo of the Advantage agency management system and see for yourself how easy it is to get your margins back where they're supposed to be.