Profit Pitfalls in Digital Agencies and How to Avoid Them

Digital- and creative agencies, whether big or small, share many of the same challenges when it comes to the management of the business. Thereby, it’s crucial to learn from each other, both bigger and smaller agencies, and not fall into the unhealthy habit of isolating yourself, because you either feel too confident in your position and think you can’t do better, or that you simply don’t realize that the challenges you go through aren’t unique to your organization.

I encourage you to go through this list of challenges, and consider your own position in this regard; preferably being as objective as possible.

Missing deadlines
Let’s jump right into it. How often do you miss a deadline? Yearly, monthly or maybe even weekly? It happens to all of us, but if you get to a point where it turns into more of a rule than an exception, then you should definitely consider how your current workflow is put together. Missing deadlines is not just “how it is”, it’s a real challenge that does actually have resolutions. There are many opinions on the best; so, finding the right one for your business is paramount.

Let me suggest you look at the tools you currently use to manage your organization. How do you currently keep up with your schedule? How do you manage the workforce and skills of your teams? How do you know who’s available, and just as important has the right skill set to finish the task in the right fashion? These are all common questions that still many agencies don’t really have an answer for. This is often due to the fact that many businesses, even larger ones, still don’t have an efficient integrated tool setup to manage the portfolio of projects, teams, schedule, etc. Using spreadsheets for even the most advanced calculations is still very common. Spreadsheets were never made for those types of jobs. No surprise it becomes an increasing tangled mess of information.

Other businesses just have a lot of different tools for various different minor tasks. A tool for managing tasks, a tool for the schedule, a tool for the team and HR, a separate tool for marketing, various tools for designers, and on it goes. A very important factor in a hopefully growing business is collaboration, an overview and a perspective on where we’re heading. This is simply not possible with a bunch of separate tools that don’t really talk and understand each other, or at least it’s very time-consuming, it’s not really promoting collaboration, and nor very fun to use for the people who actually have to deal with it on a daily basis.

To help fix this gap, a new type of software is emerging in these days. Namely, Professional Services Automation (PSA). A good PSA-tool, like Forecast, has the most important features built-in; the ones which are used across positions and the ones that are crucial to make the right decisions. This is all done by bringing all of your data together in a one-stop hub, thus connecting all of your separate tools, and being able to do holistic calculations on the matter. Ultimately, bringing you a better overview and perspective.

Going over budgets
Another great challenge in all types of businesses is the budget. How do you manage your resources properly, together with the cash inflow to ensure a profit margin that actually supports a growing business? Managing your resources and your projects are both equally important, and preferably both parts should know everything about each other. This is another challenge of having many separate tools that are not connected to a great enough extent.

A too low profit margin means that your business is not properly converting revenue into actual profits. Ideally, a good profit margin should be around 20%, but often due to the fierce competition within the industry of digital agencies, it’s not unusual to see margins around 10%. This is not only hard to live by, but extremely hard to manage projects at such a small gap between loss and profits. Bringing a level of uncertainty to your business; a major creativity killer.

A proper budgeting tool should be directly linked with both your resource- and project management tools, preferably as automatic as possible. Forecast is exactly doing that, combining everything into one, with features like time reporting to automate your project budgets to reflect billable and non-billable time.

Lack of perspective
The future will always encompass a certain level of uncertainty whether we’re talking personal life or business. Some companies are more prepared than others though, and this often comes down to the knowledge they have about their organization, their team, and the market they operate in. First of all, being present at all levels of your business, and being aware of what is actually going on within and outside.

Secondly, some tools might be able to help you in getting this perspective. We’re still not at the place where digital software can give you a human-like subjective vision into your business, but in the more objective sphere, we now have systems to do the calculations, based on your data, that can show you with a technical perspective what’s going on, and what your next decision should probably emphasize.

Find available people with the right skills
When you start a new project, or if you just need some extra people for a few tasks that just came up; it can often be a mind-boggling exercise to find available people in that period, and especially to find those people with the right skill set to nail the tasks. You have to know your team’s schedules, and especially the skills of your people very well. That is always a great idea, but when you get above 10+ people, it begins to become a full-time job to just get an overview of the current schedule. This is where tools again come into play; they really lend you an extra hand that doesn’t get tired.

Forecast lets you see the whole project and team schedule at anytime. You can easily allocate people to projects, assign tasks to the right people, and use the quick booking feature to find more resources with the right skills. Just select the people, and click book. Simple as that.

Working out-of-scope for free
The other side of business in a creative agency is the actual project work. Normal practice in any type of business, is to initially set up a plan together with your client, on what needs to get done. What’s in the scope? But often agencies forget to discuss what’s outside the scope. Another habit that can often stack up; is if you just do this one extra task a little bit too many times, because suddenly a team member might have been working a full day on something that you’re not even getting paid for to do. This is of course done with the best intentions in mind, and it can be worth it if you’re dealing with an important client. Maybe you have a long lasting relationship in doing business together, and it can be a nice surprise. A sort of occasional nurturing.

When that’s said, you have to distinguish between the important and future-proofing extras, and the ones that are just biting you in the back. If it’s a less important client, in terms of relationship and profits, then a little bit extra may be too much. It can be the best or the worst practice for the future of your business.

Another common pitfall is when you during your sales negotiation with the client cut the price of the project without actually thinking about what this means for the profitability of your business. When you cut the price, you naturally earn less money; so, in order for that to work you probably also need to limit the scope to a certain extent.

Estimating projects properly
When you work with larger projects, estimating how much time tasks take to complete, and setting sensible deadlines and goals that actually match reality is a very difficult job for most. Does this task take 20 or 30 hours; it’s often this sorta random number, but still it’s really important for your project planning, execution and not least when you negotiate the deal with your client. If you go over the estimate; you lose money. The client is probably not going to pay more than agreed upon.

Therefore, proper time tracking and estimating tools is super important. There are a bunch of time tracking tools out there with each their pros and cons in terms of functionality. Find one that matches your needs. However, we thought you might need a little help. That’s why we, at Forecast, combined estimates and time tracking with artificial intelligence. Simply put, a machine-learning algorithm that learns from your projects, your tasks and your team’s estimation and time reporting behavior. What does it mean when Chris estimates this task to between 30-40 hours, with the labels of #javascript, #landingpage and #frontend, and the client Fitable Sports? The algorithm will learn from you and any other company using Forecast. Ultimately, providing you with a better estimate, and more predictive budgets.

Thorough time tracking
Not being thorough enough in your time tracking can really send your business off-track. If you’re working without a fixed project price, your team’s time tracking efforts really affect the profits of the business, because it’s directly linked. Even with a fixed project price knowing your estimates is crucial for analysis and improving future business.

There aren’t really any magical tools for time tracking, besides a few that track your software / app usage. Generally, you have to just tell your team to be more aware of their tracking behavior. Also, having a generally known rule of what’s billable vs. non-billable hours is very important. It should hopefully give you a more precise look into what’s going on.

As you’ve probably noticed most of these points ultimately come down to you being aware of what’s going on in your business, technically and socially, and using the right combination of tools to support your workflow and processes. A great tool should be intuitive, and as close to fun as possible; you should not have to read a comprehensive 100 pages book in order to get started. You should be able to just sit down, look around for 30 minutes or so, and then immediately get cracking. No matter if you’re the top of the cake or the foundation. Everybody should be happy using it, else it will most likely be a failure, or at least only a mediocre rollout.