STANDOUT agencies make a minimum of 20% net profit.
If your agency is making less than 20% net you have a problem; your costs are too high.
Running an agency is a simple business (on paper at least):
– Your people costs – including directors remuneration in all its forms – should be around 65% of your gross profit (GP being your revenue minus pass through costs).
– Your running costs or overheads should be around 15%.
Even my GCSE maths tells me that that leaves 20% as a net margin. What that 20% equates to in £ is another matter of course.
Simple maths for a simple business model. The reality, as we all know, is often much harder to manage.
If you’re not making 20% (or more):
1. Review your costs. Where are they too high? Have you got too many people? Are you paying yourself too much? Do you have office space you don’t now need?
2. Make your choice. If your costs are too high you have a simple choice; either reduce them, or grow your top line revenue to support them. If you know what your costs are, you can calculate what your revenue needs to be to support them whilst delivering a 20% margin. It’s often easier to cut costs but I know which I would rather do.
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