Change the Way You Think About Profit -Stuff We Love 002 - Peter Czapp - The Wow Company
Change the Way You Think About Profit -Stuff We Love 002 – Peter Czapp – The Wow Company
Good morning, everyone. Before we start, I have something really important to say about profit. Profit has often been seen as a dirty word, we can all recall the headlines of big businesses making big profits so that fat cat executives can take home huge bonuses. Profit has often been associated with greed, with excess, and with decisions that harm both people and the planet.
At Wow, we believe there is another way, we believe that business can be beautiful. We believe that doing the right thing gets results. And we believe that having a clear purpose and standing up for that purpose is the key to building a beautiful and sustainable business, one that we can be immensely proud of. It’s also a huge amount of fun.
Now, I want to make one thing absolutely clear, the purpose of a business is not to make profit. The purpose of a business is to achieve something, to contribute to society in a positive way, to make change that makes the world a better place, things that we are striving for every single day. So where does profitability sit in this vision for beautiful business? I believe it sits right at the very heart of it. Whatever cause you are championing, whatever positive change you want to make, you will not get very far without profit. Profit is the fuel for our journey and today, I will show you how to ensure your tank is always full. Let’s get started.
So hopefully, this is another stepping stone on your journey of profitability. My journey with this started 16 and a half years ago, when I got a phone call from my business partner, Paul, who said, I’ve got an idea. That idea was Wow, Wow has grown since 2004 to become the leading accountant for marketing agencies across the UK, we work with hundreds of marketing agencies, typically between 5 and 75 staff. We absolutely love helping to make your marketing agencies more beautiful, more profitable and more sustainable on your journey. Now when Paul and I set up the business, we didn’t talk about how we were going to do sets of accounts, anyone can crunch the numbers, we talked about how business should be beautiful, how we could make businesses even more beautiful. And we started to talk about this more and more over the years. More recently, we’ve codified it, and we share our vision and manifesto for beautiful businesses via that link. If you would like your copy, please click on that link and you will be able to see our six pillars for what will make your business even more beautiful than it is already. It’s a wonderful piece of work and I’m so proud to be able to share that with everyone. I know it’s inspired many of you watching this already.
Now that journey of helping businesses to be more profitable, more sustainable, that journey of focusing on agencies has taken us to some great places, we noticed that our clients kept coming to us with the same challenges and we wanted to solve those challenges in a really cool way. So we set up the Agency Collective, it is an incredible community, the world’s best peer support community for agency owners. We’ve got nearly 600 agency owners in that community now, who take their time to solve challenges together, to support each other, to inspire each other, to partner together to make their agencies a better place. If you’re not a member of the AC, then please check it out. You’ll see some of the testimonials online, it’s been transformational over the last seven years, and particularly in the last 12 months, when the going has got tough, our community has come together.
BenchPress and The Wow Companies insight into marketing agencies profitability.
Something else has given me so much joy over the last nearly a decade now, has been my work with BenchPress. We started benchmarking agencies nearly 10 years ago with a really tiny report and that tiny report has grown to become the largest survey of independent agencies in the UK. And next year in 2021, we are going global withBenchPress which is incredibly exciting. Not only will you be able to compare yourself to your peers in the UK, but you’ll be able to compare yourself globally. As well as going global, we’re also going local. Next year, we’ll be splitting BenchPress as well as we have done into over a hundred million, we’ll be splitting it out regionally so you’ll be able to compare your performance regionally. This is incredibly exciting for a data geek like me, and incredibly exciting for you too because it’s gonna mean you’ll have more insights to help you grow your agency.
Now, throughout all of this, a thread running through all of the work that I’ve done has been this philosophy of helping you build an agency that is profitable, and sustainable. This all starts with mindset. Before I talk about mindset, I want to talk about concept versus action. Because a lot of the things I’m going to talk about today, a lot of the concepts I’m going to share with you today are things that maybe you’ve heard before, maybe you’ve even heard me talk about before and yet, I’m still amazed at how few agencies are really taking action to the fullest extent here. I guess, I’m not surprised, really, because I find myself doing exactly the same thing, just a month ago I was talking about one of the concepts, one of my favourite concepts, which I’ll share later on in the presentation today, to a group of agencies, and I suddenly found myself thinking, Oh, my goodness, we’re not doing this, we’re not doing the thing that I am telling everyone here to do, the thing that I’ve been telling everyone here to do for the last 16 and a half years. I have not taken the action that I needed to, I’d forgotten to take the action that I needed to in my own business. I guess the challenge for you today is to think, what actions have you forgotten to take, what actions, new actions, can you be inspired to take to make your agency a better place?
The profitability mindset and profitability forecasting.
Now this all starts with mindset. And one of the key mindset shifts that I want us all to get into when it comes to profitability is thinking longer term. It’s absolutely essential we take a long-term view, especially after a year when we spent so much time taking a short-term view making decisions that will come to fruition next week. Having to scramble and really think hard about how we can navigate our businesses through really challenging times. Now is a wonderful opportunity to lift our heads up to look further afield, and to plant seeds that we’ll be really, really glad that we did in three years’ time. I want to help us all create a beautiful business and to do that we have to think longer term. When doing that, a wonderful thing that you can do is to create a profit forecast. Now there’s no easy way to jazz this up, a profit forecast is a spreadsheet, it has rows and columns, along the columns are the months of the year, and your rows are your sales and your expenses. Let’s share with you a little bit about what the top performing agencies do when it comes to their profit forecasts.
First of all, they look three years out. The reason that’s important is because it detaches you from your current challenges. If you’re just looking a year ahead, you’re highly likely to just take a linear approach, you’ll take what you do now, and you’ll add a percentage onto it, you won’t really detach yourself from your current situation. Looking three years out is a perfect timeframe to do that. It’s far enough away that you can dare to dream, you can start to think about some of the things that you want to change, but it’s not too far away, that you feel it’s out of reach, it’s close enough to touch, it is only 12 quarters away. So think about that, it is only 12 quarters away so it’s close enough for you to take action. When you’re looking at your three-year vision, I’m going to start with profit first, what is the amount of profit you want to be making at that point, to give you a sustainable business, and then go into detail, split out your sales, split them out into maybe new and existing customers and work back to your pipeline value. Think about whatever sales value you need to have, work out based on your average value of projects, your conversion rate, how many opportunities you need to have each month, make sure that you’re building the infrastructure so that your targets are realistic.
Someone sent me their profit forecast, they said I’ve got one of these, I don’t need one. I’ve got it covered. I’ve got it for the next three years and I said great, let me take a look. So I took a look. And what I saw on there was 2021, it just had 150,000 pounds a month for sales target every month for 12 months. 2022, it had 200,000 pounds a month, every month for 12 months, 2023 at 250,000 pounds a month, every month for 12 months, you get the idea. There was no thought gone into these numbers, they’d simply picked a figure out of the air divided by 12 and worked its way across. That’s not how to do this. Start with profit first and then work out all of the costs that you need to keep yourself within in order to achieve that profit and then think about the sales and how they’re going to be broken up. What sales are going to come from which key clients, how much new business you’re going to need to win. The detail is what matters here. It will never work out exactly as you plan but by forcing yourself to stop and think, that will give you an incredible advantage over those that are just planning on, and planning on is our default position, right? We’ve been doing this since we set up our businesses, I remember what that feels like that feeling of having nothing, no clients, no clue and you’re on a wing and a prayer, hoping and working your backside off to try and make this dream a reality. You work and you work and you work and the danger is you just keep working and you don’t stop and think, stop and think about the business and what’s going to really help you.
When you’re going into detail on your profit forecast, a key metric to keep an eye on is your gross profit percentage, making sure that that percentage is in excess of 50%. I promised you I’d share with you the one metric that is critical to your success. This is it. This is a metric to keep an eye on like a hawk, it’s absolutely critical to the profitability and sustainability of your agency and there’s a special way to calculate it, one that not enough agencies are doing. Here’s what it looks like. Your gross profit percentage is calculated like this, you start off with your turnover, and you remove all of your recharge costs, anything that you recharge on to clients, things like ad spend, print spend, any travel expenditure, anything that gets recharged to clients, gets taken off your turnover and that gives you your fee income. Now for a lot of agencies, your fee income may well equal your turnover. If you don’t have any recharged costs, what you then do is you take that fee income and you remove some other costs from it. The first cost that you’re going to remove is all of your chargeable wages. This isn’t just wages, by the way, these are the wages, the pension contributions, the National Insurance contributions, everything, all of the costs associated with your team that are engaged in chargeable work for clients.
Where you are losing profitability in your marketing agency.
Now, if you have people that spend some of that time doing chargeable work and some of that time doing other things within the business, then you work out the percentage that they spend on those chargeable activities and that’s the amount of their wages that gets put into this pot. If you have any managers that, again, are managing chargeable people, even though they might not be directly engaged in client work actually doing the work. If they’re managing a bunch of chargeable people, then they should be counted under this bracket of chargeable wages, and that gets removed from fee income. You’ll also want to remove all of your Freelancer costs because these guys are definitely engaged in chargeable work and the next thing you need to remove is this. Now, it’s a market rate for you and the work that you do, and this is calculated pro rata. And in my view, I think it’s really important that you do that because if you don’t, you’re kind of cheating a little bit. Let’s say you spend 50% of your time on chargeable work, and you have a market rate of 100,000 pounds, that’s 50,000 pounds worth of costs that need to be accounted for in calculating your gross profit. That 50,000 might affect the percentage by a little bit if you’ve got one or 2 million worth of costs but if you’ve got a quarter million of costs, that 50,000, if you don’t count it, you’re cheating, you’re not getting a true picture for your gross profit. It’s really important that even though it might not appear in the same bracket in your accounts as your chargeable wages, that it’s accounted for in your gross profit. By doing it this way, it allows small agencies to compare themselves to large agencies. It allows agencies where the owners and founders are spending a lot of time on client work to compare yourself to those that aren’t, it gives a level playing field for the calculation of gross profit.
Now, what we then do is take that gross profit figure, we divide it by fee income, not by turnover, it’s really important that you divide it by fee income. The reason for that is that it allows agencies that have high recharge costs to compare themselves to those agencies that don’t. Previously, when looking at gross profit percentage, let’s say for example, a creative agency found it very difficult to compare themselves to a pay per click agency because of all those recharge costs. By doing it this way, this gives you a level playing field and you can truly compare yourself like for like, against any agency in the land. That’s the exciting thing about this particular way of calculating gross profit percentage. Once you’ve got that figure, you times it by 100, and there it is, your gross profit percentage. Ss I said, you should aim for a percentage of 50% or more. The average for agencies in the UK is 44%. And if you’re sat there feeling smug that you’re above that, or even if you’re above 50, I’m going to let you into another little secret. I’ve been benchmarking consultants as well as agencies and consultants are much better at making gross profit than agencies. In fact, whether it’s for agencies, the average is 44%, for consultants, the average is 55%. So I challenge you all, to not just go to 50% percent for your gross profit percentage, but to go higher, because there are people out there that are doing it.
Now, what you will find is, this is just the starting point, I want to take you on a journey with this, I want you to go deeper. The next step on this is not just to work out your gross profit percentage for the whole business, it’s to work it out by department, work it out by all the different services that you offer. There’s a really neat way to do that in Zero. So go over to your accounting system. I’m gonna show you Wow’s charts of accounts and exactly how we do it, exactly how we calculate our gross profit by department and how you can do it too. So what our zero looks like at the top, we have all of our sales codes and you’ll notice here that these are speaking to all the services that we offer, accountancy, bookkeeping, tax, company secretarial, everything basically, R&D, is in there, everything that we do is listed there. All of the sales go into those particular buckets. What we then do is have cost of sales codes associated with every single one of those sales codes; all of the staff costs, all of the recharge costs that we have, any of the freelancer costs that we have, go into those particular buckets. What that allows us to do is in the bottom right-hand corner of your screen, and Zero, you have this magic button, the Export button allows you to export to Excel or Google Sheets, and do your own calculations. From that you can work out gross profit percentage by department. This is incredibly powerful, because you can work out where you are making money and where you are not.
And once you see these figures, you cannot un-see them, it will force you to make decisions that you really perhaps should have been making long ago. Armed with this information, it will give you the power to transform your profitability and do more of the things that are highly profitable, and less of the things that are not. That is why it’s really important that you pay very, very close attention to your gross profit percentage, it’s a really good metric to look at quarterly, and make decisions off the back of it. Now, part of that journey, a critical part of that journey to increasing your profitability will be working out what your high value offering is. So first of all, just the definition of a higher value offering, it’s something that clients value disproportionately highly against the cost of you delivering it, the clients value disproportionately highly to the cost of you delivering it. Some clues as to what this might be. This could be a strategic service that you offer. I think one of the most undervalued bits of work that we all do in our businesses is the thought. I see so many agency owners giving this away, literally giving this away. It’s the most powerful bit, it’s the most valuable bit and it should be charged accordingly.
I remember chatting to a client of ours that runs a video production agency, they ran a good video production agency, just over a million turnover. This was a couple of years ago, they spotted that, things were becoming a little bit more commoditised and things were becoming a little bit tighter, budgets were becoming tighter. What they did, what they decided to do is they wanted it to become more strategic and they wanted to get paid for that strategic thought and owning the content strategy. They changed a couple of things on their website and they changed what they were talking about. Instead of talking about how they delivered video, they talked about content strategy, they ran events on content strategy and it took less than three months for them to start getting briefs on content strategy. Suddenly, they owned the whole piece of the pie. Instead of just being the video production company getting squeezed, getting that last bit of the budget, they were involved in the strategic decision making and were able to charge accordingly. That piece was highly valuable. What piece of work are you doing, that is highly valuable that you’re not charging for? Now it might be strategic, or it might be technical, it might be something that you’ve worked very, very hard at acquiring some skills at, and training your team and hiring the best people, you’ve got very, very focused on a particular technical area that creates a barrier for entry that’s hard for others to replicate. All that hard work needs to be rewarded. Perhaps an element of that or the highly technical elements of that is something that could be a high value offering, something that you’re not charging enough for.
Ultimately the position we want to get to, and if you’ve heard my webinars before, you will know that I’m a massive fan of this; I want to help us all be the best in the world at something, all of us, every single one of us listening to this, what can we be the best in the world at? That’s my challenge to you, to get thinking about, to go on this never-ending journey to achieve. As part of that, you’re going to have to think about how you can get niche, get really niche in what you’re doing. Again, this isn’t a new concept. I’ve been talking about this for years. The reason I’ve been talking about this for years is because I’ve seen the data, that data has told me every single year that those agencies that focus on a niche, make more profit, and grow quicker than those that don’t. I guess what’s been really interesting about COVID is a lot of people have challenged us and said, well, surely, if you are in the hospitality niche, or the Travel and Tourism niche, then surely that’s not a good idea. And obviously, right now, those businesses will be hurting. But as we emerge from this, and by the way, I’ve seen some businesses pivoting brilliantly and we’ve got an interview with one coming up before the end of the year, that used to focus on the hospitality sector, and pivoted to focus on building websites for I think it was Amazon products. So really, really interesting online shops, they pivoted their business to adapt to the changing times. But what was interesting is, they pivoted to another niche, they didn’t just become generalists. As we emerge from this, the agencies that are going to win are those that focus really, really, really focus on their high value offering, they know what they’re good at, the generalists will just get general results. Don’t be one of those, get niched, get focused, and focus on your profit sweet spot.
What do the most profitable marketing agencies have in common?
Again, one of my favourite topics I love challenging you all on and I want to just take you through in a bit more detail what your profit sweet spot might look like. Now, this is a size of project or type of project where you make disproportionately large amounts of profit. So in terms of size of project, and research shows that traditionally, or generally, I should say, agencies that work on larger projects make larger amounts of money. We noticed amongst the top 10% by profitability, they are way more likely to have completed a project in excess of a quarter million and way more likely to have a higher threshold in terms of minimum project value than the rest. The reason is, you know a quarter million-pound project is not 10 times the work over 25 grand project. However, a little caveat to that, and it was a story told beautifully by someone I chatted to a few years ago, an agency. They told me that their profit sweet spot was a combination of size and type of project and what they discovered is actually the larger projects for them are a bit of a pickle. They learned this the hard way and many of you listening to this have been there as well, they took on a project that was beyond their capability that was too technically complex and it nearly broke them and nearly sent them bust.
I’ve seen agencies that have done that, and it has sent them bust and it’s heartbreaking when that happens, but they learned their lesson and they learned it just in time. They worked out that their profit sweet spot was really simple. The type of project was a digital transformation project, the size of project was 20 to 50 grand, anything smaller just wasn’t worth the hassle. Anything bigger, was too complex. They got absolutely brilliant at delivering those types of projects, world class delivery, and highly, highly profitable. Really, really slick. What is your profit sweet spot? Now it might be the repeatability of the project, that is the thing that determines the profitability. I hear more and more agencies say look, got our first project, it’s so draining isn’t it, you know, you’ve got to build all the relationships, understand their business, you know, find new ways of working, it’s only the second, the third, the fourth project that it really starts to get profitable. So if you find yourself in that category, how can you build repeatability into what you do, maybe it is using retainers, maybe it is using technology, I see more and more agencies using technology to give them that repeatability to give them the opportunity to go back to clients again and again, and talk about how they can help them with their marketing.
When it comes to technology. I’ve seen loads of agencies get involved with MailChimp and over the last 12 months, we’ve watched agencies using MailChimp as a tool, not just for their own agencies, but with their clients. When MailChimp set up MailChimp and co., which is their new partner program we thought it was really cool. So we’re going to be partnering with them over the next 12 months and hopefully beyond to spread the word about what they do. They have an incredible community and some amazing resources that will help you not only pick up more new clients for your business, but potentially offer email marketing to your clients to get that recurring revenue stream. If you want to find out more about this, here is the link go to wowco.uk/MailChimp and find out all about the MailChimp and co., partner program. It’s really neat.
Profitability and culture in marketing agencies
Now, all of this, all of this strategising, all of this profit forecasting and focusing on your high value offering doesn’t matter a jot unless you get the culture, right it’s absolutely essential that we all commit. That word is really important that we commit to building a profitable and sustainable culture, and we do so in a conscious way, this isn’t something that will happen by accident. You know, I learned this the hard way. Wow is 18 members of a team and you know, we were young, we were naive, we just thought culture would take care of itself, how wrong we were. And I went through a presentation, and I heard someone share the piece of the famous Peter Drucker quote, and I have not forgotten that moment. I sat there, and I listened to someone say, culture will eat strategy for breakfast every time. I remember it changed our world, we went back and commenced the program of real focus on our culture. I’m so happy we did that, we have the most amazing team and the most amazing culture focused on helping agencies build beautiful businesses, but also ensuring that we are profitable and sustainable too. So how do we, where do we start with that?
Now, it’s really simple. You need to really, really look after your people, this presentation is about profitability, but your people will determine your profitability, it doesn’t matter what you decide around the boardroom table, it’s what’s going on right now, I was gonna say, at our offices, but at our offices, and in our homes, of all of our teams all around the world, we need to put our arms around them, we need to look after them, because these are the people that will determine the future of our businesses, the future of our agencies. It’s really important to be looking after our people and I want you to just think about what more you could do this week, this month, this year, to check in with them. I had a lovely phrase from a documentary that I watched at the weekend, which I’ll talk about more in a second. It was a quote from a sports manager that said, if I had my time again, I wish I’d spent more time looking after the person as well as the player, looking after the person as well as the player. And I love that quote. So making sure that you’re looking after your people, the person who’s at the end of that zoom call.
I want to challenge you all to help your team understand why profit is important. Why is it important to the business, that things are profitable, the projects are profitable, and how individually they can impact it? You know, I was sharing this story at an event and I received an email, I think it was quite quicker, it was a couple of months afterwards. This agency owner ran a reasonable sized agency, I think there were about 600,000 turnover, maybe about 10 staff. He said, right, I took that point really seriously and he said I went back and created a spreadsheet and we used to talk about how much time we over-service jobs by but he said what I did was I just changed that and I took that and times it by 100, which was their hourly rate and I had a big red number, huge red number, which was the amount of money that that time has cost us. He said that had a transformational impact on the team. He said I didn’t even need to say anything I just shared that spreadsheet said look last month, we overshot, we overspent by this amount. He said instantly, they looked at their Freelancer spend and went, well crikey, why are we spending five grand a month on freelancers? They cut that down to 500 pounds, only the technical Freelancer they really needed, and they got really focused on that number, and it was that simple for them.
In last year’s benchmark report, a 2019 benchmark report, what year now? 2020, sorry, in 2020’s BenchPress report we actually looked at this a lot in detail. We wanted to understand what agency owners measure, how often and which bits they communicate with their team, and we published that in the report. If you’re not seeing a report, then get in touch with me, I’ll send you a copy. That was really, really interesting to see the extent to which agency owners are increasingly being open and transparent with their team. Now just be careful when you do this. Make sure that people understand the context. Don’t just go sending the management accounts, if they don’t understand the context, what I love about what this agency owner did was he made it really clear and simple. Look that time equals money and look what this is costing us. No-one wants to see a big red number there. So what can you do to help people understand that? Here’s the biggest thing, right? When it comes to building a profitable culture, the biggest thing that you can do that will make a huge difference to not just your profitability, but to everyone’s well-being, is stop doing work for free. Stop it, stop it right now. It does no one any favours. People think it does. People think that when I’m over delivering for clients, I’m doing them a favour, they’re going to love us for it. They don’t, they won’t, because they don’t know you’re doing it. They won’t value it. If you don’t put a price on it. If you don’t value your time, how do you expect your clients to?
I remember one of the very first agency collective events, we had a debate, asked for a show of hands about whether people do work for free, and whether people don’t, and the room was split pretty much 50-50. On both sides, there were really strong arguments, you know, on one side, people say, Well, if you don’t do, you know, do work for free for clients, how you expect to build relationships, and the other side was saying, well, how’d you expect to make any money? And I thought, well, I need to sell this argument in the only way I know how not to have a big fight. You know, that was tempting, it would have been very tempting and fun. We decided instead to benchmark those two groups in the next year survey, we asked the question, do you charge for things when things go out of scope? And what we discovered won’t surprise you, guess what those that charge for it made more money. What we’ve also noticed is those that charge for it, also have happier teams. The reason for that is when you do work for free, well, there’s sacrifices, right, you’re gonna have to work longer hours, you’re going to have to potentially cut corners, you’re not around quite so much to help out your teammates, because you’re doing work for free. No one wins from that. I think it’s a really important point to make and that simple concept can transform your culture, and hopefully build a more profitable one.
It’s not just about profitability. It’s about sustainability. I talked about that 50% gross profit percentage, most agencies sits between 40 and 60. Once you get above 60, it’s quite hard to sustain that level of profitability. What’s interesting is I’ve just benchmarked consultancies here in the UK, and their bracket is 50-70%. Right? They make more gross profit, gross margin than agencies. And for those of you who’re agencies listening to this aspiring to be consultancies you can get up to that 70% mark? It’s a great place to be, beyond that it’s just not sustainable, you’re going to hurt your people. And the documentary I watched at the weekend was The Edge. It was a story of the England cricket teams rise to number one in the world from pretty much being bottom in the world. We’ve just been thrashed by the West Indies and we had a new coach come in Andy Flower, he set a two-year target to be number one in the world and, you know, I’m not gonna, like give away any spoilers, but they went on this journey and they achieved it in 18 months. What happens next, was really interesting, you’ve got a fascinating insight into the culture that took them there but it wasn’t sustainable. In no way was it sustainable. It broke them and left a lasting impact on them. No price is worth paying that impact for. What I encourage you to do is think about the sustainability of what it is that you are doing and making sure that you are looking after your people, and that you’ve got a sustainable level of profit, so that everyone’s well and happy and healthy.
Sustainability isn’t just about people, it’s about the planet. One of the things that we’ve done in the last 12 months that I’m so proud of is to get involved with this amazing company, Ecology. This is a company that is tackling the world climate crisis head on by planting trees, they planted 4 million trees so far, and Wow started paying a small monthly amount 12 months ago to help plant trees too. So far we’ve planted nearly 7000 of them. I mean, not us personally, we get Ecology to do it. We have contributed to a removal of over 600 tons of carbon from the atmosphere and our forests will continue to grow. If you want to go and check out a little bit more about Ecology and how you can get involved in sustainability and helping save the planet, go to wowco.uk/ecology. It puts a smile on our faces, every single month, we get their little newsletters through, and seeing the amazing work that they’ve done and the amazing work that we’ve helped contribute to. So, some quick wins for you now. I’ve talked a lot about mindset, but I want to give you some quick wins, everyone loves quick wins, right? Stuff that you can do tomorrow, that will make a massive impact on your business.
Threee tips that you can implement right now to improve the profitability of your marketing agency.
First up, if you want to increase profitability, when you are quoting, give three pricing options. Okay, so this is from a book by Blair Ends, and it’s called Pricing Creativity. If you Google Pricing Creativity by Blair Ends, you will find this. Now, I read this book when it first came out and I thought, this is amazing and I shared it with a few agency owners who also bought it. This was back in the spring, and I had the most brilliant summer getting text messages and WhatsApp messages from agency owners saying, Oh my God, I used that three pricing options formula and it has transformed my business. One just kept sending me messages just with the amount that they had sold, their particular leading offering for and what the new highest amount was. Something they used to sell for 10,000, they sold for 15, and then 20, and then 25, and then 30. It kept going, I kept getting text messages saying, I just sold it for 40,000 pounds in one summer, he went from 10,000 to 40,000 pounds, simply by using this approach. I’d love for you to use it too so, when you go into the website, you’ll see that Blair uses three pricing options and you’ll see that it’s not priced like a normal book, but I promise you the investment will be worthwhile. Check it out.
Now, I told this story recently about the 10 to 40,000 and someone challenged me, they said, well, surely that’s just exploitation, you know, something that you sold for 10,000, you’re now selling for 40. That’s just ripping the client off. I promise you it’s not. I would argue strongly that every time that client sold it for less than 40,000, he was massively under selling it, under selling himself and the value that he was giving that client, no, he didn’t force clients to do this. He didn’t hold them over a barrel, you know, you can be whatever it is that we do, there’s always alternatives out there. And I think our job is to find out how much clients really value what it is that we do, the true value that we are adding and not to sell ourselves short. That is the greatest crime, to sell ourselves short in life and in business, and using those three pricing options will ensure that doesn’t happen, a quick win for you.
Now, another quick one for you another one of my favourite tips, transformational tips. So simple. Have the scope creep conversation upfront, we should not pretend that scope creep isn’t going to happen, it’s going to happen. It’s impossible to scope a project upfront accurately when it’s of any significant size because the world changes and you’ll come up with ideas, the client will come up with ideas. First, you have no idea how the relationships actually going to work, so why not ask the client upfront this simple question. How do you want to handle things when we go out of scope? How do you want to handle things when we go out of scope? No client is going to turn around to you and say, I want you to do the work for free. It’s simply not going to happen but that’s what does happen. When 48 hours before a deadline things go out of scope and you’re stressed, the client’s stressed and you bottle that conversation. I think you know I’ll suffer, I’ll just do an all-nighter, I’ll ask the team to work extra hours, we’ll get it done and you get it done, and you do that work for free and you collapse exhausted and go, we’re not doing that again; but then you do, and again, and again. It’s in those moments that profit leaks out of our agencies, it leaks, it drips, we got a really profitable project right up until that last week.
So have the conversation upfront. The client is most likely say okay, well, how Yeah, how do we handle it? What’s your escalation procedure? Who can sign it off? And is there a contingency budget, I see more and more agencies being really smart about this and saying, look, let’s sign off 20% of the budget for the project as a contingency to use if we discover opportunities along the way, and then you’re not having to crowbar things in you for dipping into that budget. More agencies are using agile approach and say, Look, the project is going to be somewhere between 80 and 120,000. But let’s take it in chunks, I can tell you the first chunk is going to cost 15,000. And we will clearly deliver this but once you’ve delivered that first chunk, you can then move on to the second and the third, armed with the knowledge of everything you learned in the first stage of the project. So have the scope creep conversation up front and then when you’re in your projects, you need to get fanatical about reporting the real detail and this is what we love at Wow, we’re accountants, we love getting fanatical about reporting and I love YouTube too.
Now, what does that look like? Well, first of all, there’s an interesting quandary here, right? Because to get fanatical about the real details here, you’re going to need to timesheet, you’re going to need to ask your team to timesheet. We saw in our research this year, that more and more agencies are doing this. This is the choice you know, you don’t have the timesheet, there’s no rule that says you do but if you don’t, you’ll be leaving that detail on the table, there are certain reports that you won’t be able to produce, there are certain information you won’t be able to get, and therefore you’ll be making decisions without the complete picture. I completely understand if you choose not to do timesheets, let’s be honest, most people don’t enjoy doing them and if for cultural reasons, you decide that’s not your cup of tea, that’s cool, but you have to accept that you will be operating with less detail than those agencies that do use timesheets. Those that do, you get to do some cool stuff, you get to do live project reporting the Holy Grail. It’s not just being able to live project report, being able to see how you’re performing mid project that’s important. It’s what you do with that data. A client came, a really good agency, well-known agency that’s winning lots of awards, came to us and said, we do really well, but our profitability is not great. I thought, well, I bet you’re not doing live project reporting. So I had a look and they were, they said we produce these weekly reports to show us how we’re doing. I thought crikey, I wonder why that’s not working.
Then I said, Well, what do you do with these reports? They said we just emailed them out to the Account Directors. I said, Ahah, well, why don’t next time you hold a meeting and put those reports up on the big screen and talk through them with everyone they said, Okay, we’ll do that. So the first meeting they had, they brought all the Account Directors together, I said, right, here’s the league table of projects and their profitability. And these are the ones that are ahead, and these are the ones behind, and Account Directors at the bottom of the league table squirmed a bit. The second weekly meeting the ones at the bottom of the table, didn’t want to be at the bottom of the table anymore so they made sure that they were much more on track. Then the third week went by and then the penny dropped for everyone. No one wanted to be bottom of that league table, everyone understood that. It was their responsibility to ensure the projects ran on time and on budget and to have those conversations with clients. So that was the thing that transformed their business, not the reporting itself, but what they did with it that mattered. My challenge to you is, well, how do you want to report on profitability? Can you currently split out profit by service offering, like I showed you earlier in Zero, do you know which bits of your business are making money and which are not? Once you see this, you will not be able to un-see it, it has the potential to transform your business. I’ve got so many stories about this.
But some of my favourite ones are those moments when agency owners, you know, have two parts of the business. So let’s say one doing web build, and one doing SEO. There was there was a time when a client, we shared this information with the client, and he looked at it and said, Oh, my goodness, the web business doesn’t make any money, does it? We said no. Well you’re making all your money in SEO, the web business was just breakeven but it was often a gateway to the SEO work. The agency owner made a decision that day and said, well, I’m only going to do web work, if there’s an SEO retainer off the back of it, it’s as simple as that. Quite happy not to make money on the website, if I know that it’s going to lead to an ongoing retainer. What seems pointless is to just deliver a website and clog up that team with work that isn’t profitable. I thought that was a really interesting insight. What insights are you missing out on by not being able to measure that? Do you know your profitability by client? Can you have a league table? That shows me your profitability by client, not by revenue, but by profit? Can you even do it by individual in your business? Can you show me which members of your team are most profitable? That would be pretty cool, right?
When it comes to all of this, you’re going to need to use software that your team will want to use, actually want to use and there’s two pieces of software that I’ve been really, really impressed with. So the first one is Stream Time. Stream Time has been around for a long, long time, what I love about Stream Time, is that they constantly innovate their product. I know what’s coming up next year, and I’m really excited for it but I’m excited about what’s in there right now. I hear agencies raving about how you can manage projects in Stream Time, how you can manage diaries and tasks. It’s really cool. So check out Stream Time, they’ve won a design awards for what it is that they do. It’s so beautiful. The other product I’ve been really impressed with recently is Productive. These guys have something really clever going on with their reporting. They have a level of reporting I’ve not seen in a product that runs projects, so check out both of those, see which ones could work for you. But it could be the key to unlocking the profitability, unlocking the great reporting that we’re all craving, the information we’re all craving in order to produce accurate reports and make accurate decisions.
Now, I said that there was something that I had been talking about for 16 years that I realised that we weren’t doing ourselves properly and it was this, asking for referrals. It’s such an obvious one, right? I’m not going to win awards for coming out with this idea. What I hope to challenge you on is what I’m going to challenge myself on, which is, I guess we sort of shied away from asking for referrals at Wow, because I don’t know, maybe we were trying to come up with the perfect referral scheme, to make it all perfect and wonderful when actually you don’t need to do that. I mean, that’s nice. You know, I’ve seen some great strategies for getting a team involved with this and creating templates and embedding it in your culture, that’s the Holy Grail and I’ve seen some people do that brilliantly well. But you can do this right now, in fact, immediately after this, you can phone up your top three clients, and say, Hey, how’s it going? Can I ask you a favour? Please? You can ask them to refer you to someone else of influence, that you could help, you know that thing I did for you? Like, that was great, right? Who else do you know, that could take advantage of that, that we could help?
And to help them go through the filing cabinet in their head? Like saying, like, Who else do you know? You say, look, it might be a company you worked at before. It might be one of your partners that you’re working with, there might be someone that works in the same office as you. That help them go through the filing cabinet in their head of people that you could help. Asking for referrals is absolutely key, you can engage your team mates and have a fun little competition and say, Hey, guys, for the first 10 referrals from the team that are generated, we’re going to award these little cool, fun prizes before Christmas. This is something that you can do right now. Whilst you also start to think about how you can build a referral program so that this just happens automatically. A really simple tip, another simple tip, gosh, this is an opportunity right underneath our noses. Sometimes I ask people to rate themselves out of 10 for the various things I’m talking about to help you work out where the priorities are. This one you are not allowed to put yourself 10 out of 10. None of us are making the most of this right?
I chatted to an agency owner who is a dear friend, became a dear friend. We chatted right at the start of lockdown and she said to me, oh my God, I’ve done something I’ve been meaning to do for ages. I’m kind of kicking myself I didn’t do earlier, she said we just formed like a cool little innovation team. I take one person from each department, I take an Account Manager, and they sit down every Friday and they come up with ideas and we pitch those to existing customers. She said it’s so obvious. I’ve been meaning to do it for ages we’ve just been too busy. But lockdowns come, we need some work and new business is really tough, so let’s go to our existing customers. This is a habit that will never go away now, it will stick. I’d love for you to get into that habit too. There are opportunities right underneath our noses. Some of you are working with clients that you could spend a lifetime in right, and farm for the rest of your days, and still not touch the sides. Think about your accounts, your key accounts and come up with account plans and start having conversations about how you can expand them. I literally talk about this all day, I don’t have time, but hopefully you can find the time to start that conversation yourself and start coming up with those account plans.
Work with the Wow Company to improve the profit of your marketing agency.
Now I promised you at the start of this, that I was going to change the way you think about profit forever and I hope that I’ve done that, I hope you can now see that profit sits right at the heart of you building a beautiful and sustainable agency, right at the heart of it, but this isn’t just a one fix solution. We need to be thinking about profit regularly and getting into that habit. So what we want to do at Wow is help you on that journey. And we’ve created some amazing resources that you can access right now if you go to wowco.uk/profit, you’ll be able to see a load of interviews with agency owners. You’ll even see some profit benchmarks, some pricing benchmarks, there’s some incredible resources to help you on your journey. What else is going to help you in your journey is if you work with us, we love helping agencies to make more profit and we’ve created an agency profit review that does just that. This is something that looks at your profitability either every year, every six months or every quarter so you get that regular boost, and we take a strategic look at the numbers. We will benchmark you against top performing agencies and identify and prioritise the opportunities for you to increase profit, ultimately, and we do this every time, it’s the most fun thing that we do, we boost your profit and that always puts a smile on people’s faces. If you think that could be something you’d be interested in by the way, you don’t even need to change accountant to do this, you know, more and more we work with people who say, Look, my accountant is my brother in law, I love working with him but if you could just come in once a quarter and help me with this stuff and inject some of that profitability focus into my business then I’d be really happy and that’s what we do.
So if you’re interested in that, drop Rory an email, rory.spencer.wowcompany.com. For those of you who don’t know Rory, Rory has been with Wow for seven years now and has spoken to hundreds of agencies in that time. I went to Rory yesterday, because he ran an event for our clients, to get some insight into what’s going on in people’s heads at the moment. So if you want some of that insight too, Rory is a great person to chat too, drop him a line, and he’ll give you some more clues as to how you can unlock the profit in your business.
Martin’s original content is based on his very current experience of running effective marketing initiatives for his customers and the feedback from Effective Marketing’s successful and popular marketing workshops.
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