7 Steps To Healthy Profit

Why Profit Matters

Step One: Positioning

The first step to building a healthy, profitable business is positioning. How differentiated is your agency? BenchPress data shows that agencies with a clearly defined niche are twice as likely to achieve fast growth (26%+ fee income increase) and high profitability (61%+ gross profit).

Step Two: Intent

Profitability starts with intentional focus. Evaluate these three areas:

• 1: Planning with Intent
  • Identify your most profitable services, clients, and projects.
  • Example: An agency dropped standalone web design, focusing only on SEO-led contracts because SEO was more profitable.
    
    
• 2: Forecasting with Intent
  • Do you have a detailed, month-by-month forecast of revenue, costs, and client types? Top-performing agencies know exactly how they’ll make money.
    
    
• 3: Quoting with Intent
  • Set rules for profit margins on proposals. Example: One agency targeted 50%+ gross profit on all quotes, with strict director approvals for margins under 45% and a hard stop at 40%.

Step Three: Pricing & Discounting Strategy

Pricing and discounting are critical levers for profitability. Regularly review pricing, as many agencies fail to increase rates yearly—19% for new clients and 36% for existing ones. Without rate increases, rising costs will erode margins.

• 1: Annual Price Increases: Adjust rates yearly for all clients. Use benchmarks like BenchPress to evaluate performance and identify opportunities to climb to top-tier pricing.
  
  
• 2: Premium Pricing Opportunities: Identify services clients value most, such as strategic work or unique specialisations, where higher prices have minimal impact on demand.
  
  
• 3: Budget Discovery: Always know the client’s budget before quoting. If unclear, present three pricing ranges to guide them—this technique often helps clients reveal their budget.
  
  
• 4: Value-Based Pricing: Move away from time-for-money models. Blair Enns’ Pricing Creativity offers excellent strategies for pricing based on value, including giving clients three options, which increases conversion rates and client value.
  
  
• 5: Discounting Strategy: Avoid discounts unless necessary. If required:
  • Negotiate returns like upfront payments, longer contracts, or marketing opportunities.
  • Offer extra deliverables instead of monetary reductions.
  • Ensure discounts align with your profitability goals.

Step Four: Resource Management

This step is critical to maintaining healthy profits. Mismanaging resources leads to profit leaks, particularly in scoping and delivery.

Scoping: Avoid Scope Creep

• Don’t skip the discovery phase. Fully understand the client’s needs before moving to delivery.
  
• Discuss scope creep upfront. Agree on how to handle changes during the project to avoid stress and last-minute disagreements.
  
• Use contingency budgets (e.g., 20% of the project value) to address changes flexibly without undermining profitability.
  
• Consider an agile approach: quote in phases and adjust based on learnings, reducing the risk of inaccurate scoping.
  

Delivery: Cost Efficiency and Utilization

• 1: Reduce Costs to Serve
  • Develop clear, repeatable methodologies to standardise quality delivery while using less expensive resources.
  • Leverage AI and tech to improve efficiency and lower costs.
    
    
• 2: Increase Utilisation
  • Set non-chargeable time budgets. Clearly allocate time for training, new business, or internal projects to maximise chargeable work.
  • Resource planning matters. Have a dedicated person managing transitions, prioritising projects, and ensuring timely invoicing to improve cash flow.
    
    
• 3: Charge for Out-of-Scope Work
  • Always charge for additional work. Agencies that do see significantly higher gross profit margins (43% vs. 36%). Clients value paid work more than free extras.

Step Five: Reporting

Accurate and detailed reporting is crucial. Agencies that measure gross profit by client and project are more likely to achieve their 50% gross profit target. Here’s how to optimise:

• 1: Track Gross Profit in Detail
  • 61% of agencies track by project, 48% by client, 28% by service offering, and 11% by team member.
  • 1 in 5 agencies fail to measure gross profit in detail, missing opportunities to identify their most and least profitable work.
    
    
• 2: Use Real-Time Reporting
  • Monitor project profitability as it unfolds—not just after completion. Spot unprofitable trends early and take corrective action.
    
    
• 3: Focus on Profitability
  • Prioritise high-profit clients, services, and sectors. Drop or restructure unprofitable ones to avoid wasting resources.
    
    
• 4: Assess Your Financial Infrastructure
  • Can you instantly view profitability by client, project, department, or service? If not, you’re operating with limited visibility, which can be costly.

Step Six: Maximizing Profit from Existing Clients

Existing clients are a goldmine for untapped opportunities, yet few agencies fully capitalise on this. Here’s how to unlock their potential:

• 1: Ownership, Targets, and Accountability
  • Do you have someone dedicated to growing revenue from existing clients?
  • Set clear targets and hold them accountable, just as you do with new business.
    
    
• 2: Account Plans and Expansion Strategies
  • Develop written account plans for key clients with revenue forecasts and expansion goals.
  • Focus more on high-value, profitable clients—make them feel special.
    
    
• 3: Multiple Relationships
  • Build connections beyond a single point of contact to avoid vulnerabilities.
  • Engage with key client roles, such as finance and procurement, to strengthen ties.
    
    
• 4: Showcase and Pitch Regularly
  • Organise client-focused events to demonstrate your expertise and foster cross-pollination of ideas.
  • Systematically pitch tailored solutions to clients, planting seeds for future opportunities.
    
    
• 5: Protect Your Relationships
  • Remember, competitors are pitching to your clients. Stay proactive to maintain and grow your value.

Step Seven: Cultivating a Profit-Driven Culture

Profitability is heavily influenced by your agency’s culture. Here’s how to foster a profit-focused mindset:

• 1: Highlight the Importance of Profit
  • Profit fuels growth, career progression, and better opportunities for everyone in the agency.
    
    
• 2: Promote Visibility and Accountability
  • Use real-time project profitability reports and review them in meetings.
  • Publicly discuss performance to encourage improvement and share best practices.
    
    
• 3: No Free Work Policy
  • Discourage free work—it devalues your services and stresses your team.
    
    
• 4: Empower Team Members to Spot Opportunities
  • Teach your team that billing reflects value and upselling benefits everyone.
  • Train them to identify opportunities and involve account managers to act on them.
    
    
• 5: Incentivise and Celebrate Success
  • Recognise and reward behaviours that contribute to profitability.

What is the AC Growth Programme?