In The Long and Winding Road, our late founder, Tony Mikes, shared his Six Agency Financial Rules. Since then, we’ve identified additional steps agency owners should take to improve efficiency and increase profits.
1. Watch payroll as a percentage of AGI (adjusted gross income). All payroll, including taxes and benefits, should not exceed 55 percent of AGI. For more agency ratios and metrics, see The Numbers at a Glance.
2. Routinely check estimates against actual costs as part of ongoing project management. This helps you catch scope changes and under-estimates, or tag inefficiencies to be corrected on future projects and estimates.
3. Issue purchase orders to all vendors. POs serve two purposes:
- They are posted as open costs against jobs in progress, ensuring those costs are covered when you bill the client (even if the vendor bill hasn’t yet arrived). And,
- POs are a CYA* for the agency. Use them to detail all instructions and requirements to the vendor, so if anything is missed or incorrect, you can point to the PO and say, “It’s right there on the purchase order.”
4. Track and analyze unbilled time monthly. Check employee billable hours and look for ways to capture more hours for billing, or account for more hours in your estimates. Even if you no longer bill by the hour, tracking employee hours helps you tighten up productivity and efficiency.
5. Ensure segregation of financial management and accounting duties. (The controller should not be able to prepare client billing, post it to accounting records, make deposits or write and sign checks. Nor should accounting have unsupervised access to agency financial information. Segregation of duties is a simple step in fraud prevention.
6. Communication improves efficiency from start to finish. From the creative brief, which provides direction and insight for on-target creative work, through CCRs, change orders, scope of work documents and approvals, communication is the core element to improving agency efficiency, accuracy and productivity. Use all of the tools in your workflow and agency management systems to help enhance client-agency and internal communications.
*CYA – Cover Your Ass