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Creative Biz - Profit Pitfalls

What are the top 10 profitability pitfalls? A reckoning on what creative agencies are doing wrong on the road to profitability is long overdue, says Steve Hodinott...

Top 10 Profitability Pitfalls For Creative Services Agencies

By Steve Hodinott

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It's eye-opening to examine the Top Ten Profitability Pitfalls to demonstrate what agencies are doing wrong on the road to profitability.

The bottom line is that agencies are losing money by not properly managing their client teams. All too often, agencies look to blame clients and the competitive market to explain why they are operating at a loss. In reality, the agencies need to look internally to find where the problem lies.

In fact, according to a survey of 75 senior directors at creative service agencies across the UK, only half of agencies have initiatives in place to improve profitability. It seems despite agency consolidation and widespread job cuts (in 2002, 40% of job losses were in the creative sector), the creative industry is still failing to look internally to improve profitability.

"In the creative services industry, it's reputation not revenue that drives the business. However, as the marketplace becomes increasingly competitive, agencies must focus on profitability if they want to survive," said Michel Karam, Managing Director, Re:Sources UK, of the Shared Services Centre of the Publicis Group in the UK.

Top Ten Profitability Pitfalls

1. Working in Creative Silos
The struggle between creative teams and account managers is an age-old story in agency world, but this creates serious issues when creative teams work in silos without sticking to agreed budgets. Agencies need to ensure a strong level of communication exists between creatives and account handlers to ensure jobs stay on time and on budget.

2. Dismissing the Cost of Pitching
New business pitches are notoriously chaotic and all too often agencies fail to plan staff hours or track budget, resulting in surprising bills at the end of the month. The cost of new client pitches needs to be budgeted and tracked just like the cost of ongoing clients.

3. Alienating Procurement
The procurement and the marketing department are like chalk and cheese, and agencies notoriously have a hard time bringing tangible evaluations to the creative process. Agencies need to prove from the start that they are capable and willing to work within the procurement processes as required by their client.

4. Over-servicing Overload
Last minute requests and 'one little favours' result in hundreds of lost hours that the agency cannot bill for. Agencies must work efficiently to ensure that the entire account team is working within the agreed hours.

5. Keeping Costs Hidden
Big brand clients are becoming increasingly wary of how agencies spend their budgets and are demanding cost transparency. Agencies that are accountable and transparent can surely develop a stronger relationship with clients, which benefits all parties.

6. Techno-phobia
All too often agencies shy away from technology and ignore the clear business benefits it can offer. Web-based technology solutions are a perfect fit for busy advertising execs to create, add and view on-line, real-time job status, letting account managers focus on the job at hand rather than administrative tasks.

7. Bypassing Evaluation
Project or job evaluation is often the most dreaded aspect of the client - agency relationship, but it needn't be. By keeping track of budgets and schedules with simple job management solutions, agencies can anticipate problems and ask for more budget or more time before a problem arises rather than after the fact.

8. You Schmooze, You Lose
Gone are the days when clients can be wooed over an expensive lunch and numerous bottles of wine. As agencies consolidate and competition increases, clients need to know that their client is capable of delivering creative campaigns on budget and on time.

9. Working in the Wild
Creativity doesn't fit in a spreadsheet, but agencies fail to realise how simple it can be to keep track of creative resource. With a simple management solution, HR departments within agencies can keep an accurate record of hours and projects to ensure that each employee is working the hours they need and getting the work done to deadline.

10. Bowing to Third Party Suppliers
Third party suppliers can easily eat away at the project budget. Agencies tend to forget that by using high-cost low-value suppliers they are wasting their client's money. Agencies need to show the client that they are aware of the client's budget and they are working to get the best value of each third party supplier.

About The Author:

Steve Hodinott, is Country Manager for Maconomy, a leader in profit management. Maconomy's web-based agency solution helps creative agencies effectively manage costs, working capital and profitability by integrating financial control with job management.