Introduction
After working together for 6 months, the client, a boutique Digital Marketing agency:
- Increased net profit by 36%
- Increased average profit margin per client by 66%
- Increased average profit margin per service by 33%
The client is a Digital Marketing agency, focused on Content Marketing, SEO and Paid Media. The agency was overall profitable before we started working together. However, the leadership had a sense that some services and clients were bringing results down.
The client aimed to grow the business (revenue) while increasing the net profit. With no system in place for allocating expenses and overhead per project there was no way to know what they should focus more on.
Client Story
The Digital agency has been in business for over 5 years. It positions itself as a boutique agency, with B2B SMB clients in Financial and Legal Services.
The client has a small core team in charge of strategy and day to day business operations. The services are delivered by talent contracted on a per project or per retainer basis.
Before working together, the agency was in the following situation:
- Did not have a system implemented for tracking expenses per project, client and service.
- Unaware of what services contribute more to the profit, or what services are delivered at a loss.
- Not tracking profitability per client
- Hardly leveraging the benefits of remote work setup
- No systems and processes in place to increase cost efficiency
- Tools did not support automated processes and reporting
The agency was in a situation that did not allow them to make decisions for meeting their objective: revenue and net profit growth. They had experienced revenue growth before, correlated with net profit going down. Since they did not have reporting structures in place, there was no coherent decision making process.
The client was in the position to close more sales. This would have generated more revenue. However, not knowing how it impacts profitability.
This is when the client decided to work with me to build a reliable system to:
- Track budgets and expenses per project
- Allocate overhead per project
- Determine what services and clients are profitable
Profit increase project has been implemented in 3 phases:
Phase 1 – Expenses Tracking Implementation
The client did not have any system or structure in place for tracking expenses and overhead per project. In order to set them up with a system that supports decision making process we worked first on understanding the situation:
- Started using a time / budget tracking tool, Harvest.
- Setup Harvest with all projects, clients as well as human resources involved in delivery
- Generated reports from Harvest and combined them with overhead data from P&L report
- Obtained the profitability picture per project, client and service
At the end of this phase the client had a clear picture of where the issues were and what had to change for improved results. Moreover, we put in place a reliable system for ongoing budget management to be used by the client for all future projects.
Phase 2 – Actions for profit increase
In this phase of the project we focused on the lowest hanging fruit. The client made data backed decisions with immediate results.
The reports generated in Phase 1 served as decision making data. Here’s what the client was able to do:
- End the contracts for unprofitable services
- End the collaboration with the only unprofitable client of the agency
By taking these 2 actions and without adding any other service or new client to the portfolio, the profit grew by 8%.
At this point in our collaboration, the client was ready to start working toward his goal, growth.
Phase 3 – Revenue and net profit increase
In Phases 1 and 2 we identified those services and clients with a negative profit margin. We eliminated them and we set the foundation for growth.
During Phase 3 we worked on:
- Onboarding more clients with profitable services
- Ongoing monitoring of profitability per project, service and client
The Digital Marketing agency now has a reliable system for tracking profitability. This allows for fast decision making for adding new clients, projects or services. The client will also use the system we put in place for predicting revenue and profit in the coming quarters and years. This will set their business up to succeed in meeting their growth objective.
Overall Results
After our first 6 months engagement the client saw an increase in net profit by 36%. The 3 phases and drivers of the increase in net profit were:
- Accurate reporting setup
- Eliminating negative profit projects
- Adding more profitable business to the portfolio
During Phase 1, we set up reports to monitor profitability per service and per client. By applying corrective actions the following results have also improved:
- Profit margin per client increased by 67%
- Profit margin per service increased by 33%
After the initial 6 month timeframe I continued to work with the client. We worked on implementing processes and tools. The goal was to make service delivery more cost effective, as well as to decrease overhead.
At the same time, I worked with the client to build a hiring system to leverage the benefits of distributed work model:
- Worldwide access to specialists
- Reduced costs with talent
All these resulted in lower costs and an increased profit margin.
Take Action Today
Take a look at how you track profitability per project, client and service in your business. For more insights and actionable advice on building a profit machine start with my free content. My article outlines actionable strategies for improving your business’ profitability.
If you’d rather have a partner to do this, my 8 week program is ideal to kick start your business growth: