How to Avoid the 4 Missteps that Bottleneck Agency OperationsApr 17, 2023
When agency owners and leaders come to us for operations support, they often feel like they are putting in double the effort to earn every new dollar. Unfortunately, this is common for many digital & creative firms on their path to scaling, typically due to inefficient systems and overlooking the critical foundational elements needed for a stable business.
Addressing these challenges is where our team comes in to help agencies increase profit & joy while decreasing stress and chaos with proven systems and operational best practices.
Most agencies can drastically increase their bottom line without signing a single new client by identifying and eliminating four common missteps that bottleneck agency operations.
Bottleneck 1: Overservicing
Overservicing is the most common and significant challenge we see within the agencies we work with. Overservicing simply means the team is doing more work for the client than the team is getting paid for.
Before we cover how to avoid this misstep, it’s essential to understand a few of the common reasons that firms find themselves overserving clients in the first place.
- They are not accounting for project and account management time within services and project scopes. Every client requires time spent on project and account management. When not accounted for, agencies cover it from profit margins instead.
- Agencies don’t get insights from team members doing the work before scoping it. For example, agency owners may estimate 5 hours a week for a service, but team members have insight into why that task usually actually takes 8-10 hours a week.
- They are not accounting for executive time spent on accounts. Agencies often overlook the time executives and owners spend speaking with the client, checking in with the team or doing anything related to a client account. When this happens, the most expensive employees spend billable time on a client and either don’t get paid for it or cover it out of the agency’s profit margins.
- Ensure the entire team clearly understands the agreed-upon scope of work at the beginning of the relationship. It’s easy to hit the ground running after signing an exciting new client, but not taking the time to ensure the whole team understands what is in the scope of work often results in overservicing.
- Have a system for handling client requests that are not within the original scope of work. At some point, clients will ask for services that fall outside their work scope. Agency teams want to be positive, supportive partners and often immediately say yes. Instead of just saying yes, try our “yes, and…” approach. For example, if the client asks for social media assistance that falls outside of the scope of work, try saying, “Yes, we would love to help with social media! We will regroup on the budget we need for that project and get back to you by the end of the week.”
The only way to truly know if an agency is overservicing the client is to accurately track the time spent on the account. We share everything agency owners need to know about our favorite project-tracking tool in this blog post.
Bottleneck 2: Improperly Scoped Services
Next, improperly scoped services are a significant reason agencies see profit margins fall. Therefore, it’s critical to take time before kicking off a project to outline deliverables, timelines and budget clearly.
However, the team’s work is not done once the scope is developed and approved. It’s crucial to set these expectations with the client and maintain them continuously. This is essential for healthy, long-term client relationships. Everything agency leaders need to know about establishing and maintaining client expectations can be found in this blog post.
Bottleneck 3: Overstaffed accounts
Overstaffing accounts is another common reason that agencies find themselves with deteriorating profits. Why? Most agencies feel understaffed when instead, they simply need to be more efficiently staffed. Inefficient staffing is typically due to cumbersome working methods, unclear organizational structure or a lack of team training.
Each team member within an agency should have a utilization target and consistently meet those targets before the company hires. As part of our agency audits, we help owners evaluate utilization rates to see if the current team structure can be profitable.
Bottleneck 4: Not tracking the financial metrics that matter
Lastly, not understanding the financial metrics to monitor is a surefire way to cause operational chaos within an agency. When we’re auditing an agency a few of the top metrics we look at are:
- Delivery margins on client work: this is the ratio of a client budget spent on delivering the work vs. covering overhead and profit.
- Utilization rates and billability: how much time is the agency as a whole spending on billable vs. non-billable work
- Percentage to revenue capacity: given company-wide utilization rates, how close is the agency to meeting its full revenue capacity, getting paid for each billable hour its team has available?
In addition to impacting the company’s bottom line, each of the abovementioned challenges affects team morale, too. Teams that are overservicing clients are often overworked and overwhelmed, leading to high employee turnover rates. Team members working on accounts with improperly scoped services are likely confused and frustrated. Overstaffed accounts likely have employees who are unclear on their roles and don't feel empowered to take full ownership of their work.
More client work doesn’t necessarily lead to additional team stress, but inefficient processes certainly will. Avoiding these four common bottlenecks will ensure that the agency is not only profitable but happy as well.