The second essential tool is having a forecast model that can highlight how the business is performing. Any model is only as good as the information that’s in it, so spending time on this area of the business is the best way to ensure that you’re looking at the right information.
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When this is updated and working correctly, you should have all your revenue (both forecasted and recognized) in one place. You can determine if you’re spending too much on labor (or not enough), how much you’re spending on your overhead and get a sense of where your margin is projected to be, along with any corrective action that needs to be taken. This should work in tandem with your cash flow model as cash typically trails accounting profit.
Lastly, prioritizing and understanding pricing is the third leg of the stool. It’s been a recurring topic in the industry how client budgets have decreased, the role of procurement has increased and agencies are being asked to do more work. Given these current market realities, it becomes essential for agencies (especially smaller ones) to understand the costs that go into making work for clients.
Knowing how long something will take, how many people will be needed and what types of people should be a part of the process are all important factors to understand your cost basis. Adding in your overhead ratio should give you a clear picture of what your true cost is and, from there, help to determine a price that protects the agency from taking on work at a price that is unsustainable and could put the business in jeopardy.
Putting it all together
Making work that delivers on clients’ marketing goals should always be the north star for any creative service company. Without having a solid foundation of work, it’s incredibly difficult to stand out. Great work begets more work. Winning new business and getting to make creative work is incredibly rewarding. It’s why so many of us chose to get into this industry and the desire to create an agency with one’s vision requires such a passion and energy for the craft.
But it’s not always enough. The above elements may not be the most fun aspects of running a business. They don’t specifically show up in a campaign or film, but they are the areas and behaviors that can help a business accomplish the goals it sets out to achieve and sustain them for the long term.
