I've written and spoken a lot recently about the risk of 'margin squeeze' in the current climate for agencies.
In the last couple of weeks I've lost count of the conversations I've had with agency leaders where they've sheepishly admitted that yeah, their rates are too low, have been for years, and they know they should raise them but they haven't got round to it because they're too busy doing all the work they got by being cheapest but aren't making enough profit on to hire others to do it.
My role isn't to get into the operational details of setting pricing — there are plenty of sales and pricing experts to help with that. My role is to help agency owners ensure there is the high-altitude long-term thinking in the business, at owner, board and CEO level so that the agency can see issues and make better decisions themselves, to serve the bigger strategy.
Your board should be spotting issues like low prices and margin squeeze and challenging them, supporting the CEO and leadership team in analysing the market, deciding on positioning, and advising on approaching the issue with clients.
Otherwise, what happens is that the agency owner and CEO always take the hit — absorbing the pain through reduced earnings, lower business valuation, or increased stress as a result of low margins leading to poor cash flow and low reserves.
Somebody has to pay the costs of having a great agency, and it should be the clients rather than you. You should be earning from having a great agency.
Take some time to analyse your margins, identify any pressures on them, and discuss how you are going to chart a course to healthier profits.
(Convivio members can use the Board Briefing on margin squeeze to guide this analysis and discussion)
Be bold, because you've probably undercharged for years.
Noteworthy this week:
- Agency CFO Simon Collard shared 100 tips to improve agency profits (on LinkedIn)
- Remote work should be (mostly) asynchronous, says this article in the Harvard Business Review, and I agree. If your agency is seeing friction in remote working, you may find lots to think about here.
- The lovely Carl Smith at the Bureau of Digital blogged tips on remote parties
- I was interviewed on the Smart Business Revolution podcast for agency leaders in the US
We published our latest research report from the Agency Senate, on the current pressures on agency leaders, and how they are managing them.
If you want to set 2022 up perfectly, have an owners retreat (even if you're a sole founder). Taking a day to really think through the business from the perspective of ownership will jump start your year and give you new zing. We can facilitate an amazingly insightful owners retreat for you.
If your agency is on the journey between 10 and 30 staff, you need to know about the Step-up programme we run to provide founders with everything they need to know to grow a great agency in this tricky stage, along with the support to get it done. During December, you can also join 'cohort zero', to be on the pilot programme — gaining early access, a discount and extra hands-on support. There are now just two slots left on Cohort Zero, so they're likely to go before the time deadline is reached — find out more and grab your seat now.