As much as we all love marketing and love helping businesses with inbound marketing, we run an inbound marketing agency to makes a profit. However, if you’re not careful you’ll find a portfolio of unprofitable client engagements that might put the long term prospects of your agency on a slippery slope.
Agencies that have experienced unprofitable engagements have one thing in common. They charge more, they price effectively and they know exactly what services need to be provided to drive results for their clients.
Here’s how to improve your net profit.
Start Charging More
Today you have six inbound marketing engagements at $5,000 per client. So $30,000 a month in reoccurring revenue. Not bad but if you simply charged $1,000 more per engagement, you’d have $6,000 a month fall right to the bottom line. Same work, same resources, same time—just more money. A small change like this has a big impact on profits.
Maybe you’re thinking, “It might be hard to get someone to pay $6,000 a month instead of $5,000 a month.” That thinking is actually what we call, self-limiting belief. When you look at the value proposition associated with inbound marketing, whether it’s $5k or $6k a month—the upside far outweighs either figure, so think big and charge more. Someone paying $5,000 can certainly afford to spend $6,000 if they’re getting a Marketing Machine bolted onto their businesses.
Price Based On Value, Not Hours
It’s hard to get away from hours. We track them, we treat them like perishable assets and we know that they are all we really have to sell. However, that doesn’t mean it’s WHAT we sell. What we’re providing our clients is something worth much more than a collection of hours. What we provide our clients is rare. In fact, almost every business on the planet is searching for and desperate for what we provide.
A repeatable, scalable, and predictable Marketing Machine that day after day produces highly qualified leads for a business. This type of machine doesn’t exist anywhere else. Our agencies are the only ones who can deliver this to clients.
When you think about your business in these terms, then you realize what you do becomes extremely valuable. Start pricing based on hours but then value engineer it up to more accurately represent the value. Ask your clients, “What would you pay if you could have a Marketing Machine that kicked in 300 leads a month?” Once they answer that question, you know how to value engineer your engagement.
Eliminate Tactics That Don’t Produce
Over the years, we’ve had a handful of inbound tactics that didn’t produce results. One by one we eliminated those tactics without lowering the price of the engagement driving up the net profit margin each time. Make this a regular process of evaluation and elimination. At the same time look at pricing for specific tactics and raise the prices on tactics that are running below target profitability. This regular ongoing system ensures you’re net profit margin is always moving in the right direction.
Drive Efficiency Within Agency Operations
Once pricing and value have been realized on the sales side of your business, the next step is to look at agency operations and find ways to limit the hours your team spends delivering the work. Pushing up prices and driving down hours is a combination for high profit margins.
Start with the tactics that take the most time. Websites and content are two of the biggest offenders at our agency. One of the ways we streamline production is with playbooks. Each and every tactic, process or procedure at Square 2 Marketing is governed by a playbook. We have over 100 playbooks in use right now. These ensure that people are doing things right the first time.
Another place to push efficiency is with revisions. Clients love making revisions and you need to do your best to limit this. Left unchecked, revisions can represent a significant leak in profitability. Set revision expectations with clients before they become clients and then help your team get good at controlling revisions. We actually track revisions across the company and we’re currently tracking at 1.39 revisions per tactic.
Know Your Numbers
What gets measured gets done. So you have to know your numbers. You need to know profitability by client and you need to know profitability by project type. Then set goals for target profitability across the company and actively manage your client engagements to exceed these targets.
If you’re going to get into the numbers then make sure your data is accurate. Everyone on your team needs to be entering their time accurately. They need to be allocating times to clients and to projects accurately. Then you need the cost data associated with those hours to be in the same system. Set this up right to start and you’re reporting is going to be much easier.
Report on profitability weekly to start and once you get intimate with the numbers you can move to monthly. For an extra set of eyes and even higher net profit, make your client services team accountable for profitability.
If your inbound marketing agency doesn’t make money, it’s not going to be around long so this has to be one of your top priorities. The good news is that each of the recommendations above can be implemented today and will impact your profitability immediately.
Start Today Tip – You might be running your inbound agency profitably right now. You have to know for sure, so first get to know your numbers. What is your company wide Gross and Net Profit Margin? Do you know client by client profit margins? What about project profit margins? You need to know all of this and you need to track it weekly. Once you know these numbers and get regular tracking reports on all of this, you’ll start to make better decisions around pricing for clients and efficiencies within the agency. This will drive profit to the bottom line immediately.
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