Communo x Paro Webinar Recap

Understand what makes your agency financially healthy and well-managed. In this webinar, Paro dove into a playbook created to run a profitable agency and how a freelance CFO can help an agency be financially better-managed and positioned for future success.

In Paro’s Playbook, there are 4 steps for setting an agency up to be financially successful:

  1. Set up ‘back office’ for success with tools and processes
  2. Establish agency-level economics
  3. Evaluate client-level profitability
  4. Optimize pricing

Set up ‘back office’ for success with tools and processes

Key question to ask: How can you operate your agency most efficient and efficiently? 

You have to make sure your agency has the right foundation.

When evaluating your own agency look at the basics:

  • How is your chart of accounts set up and is it useful?
  • Evaluate key numbers such as the profit margin, gross margin, and payroll.

Answering this question and having these number are key indicators if an agency has a foundational finance problem or not.

When choosing your tools it is suggested to invest in a full service payroll tool. Lean on automated software to keep you in compliance. A full service tool keeps you on time and is hassle free.

Recommended Accounting tools: Quickbooks, Freshbooks and Xero

Establish agency-level economics

Key question to ask: Does my agency make economic sense?
Run your business on data not intuition.

Granularity is important when it comes to accounting your financial reporting. When you have granular reporting you are setting yourself up for success as your business grows.

Create reports that speak to important metrics that make sense to you. Have reports that you can understand and tract to, ensuring that you are aligning to your goals for growth and profit.

Establish baseline financials for your agency. How profitable is your agency based on FTE hours spent working on projects? What is the revenue based off of that? Once baselines are established, problem areas are uncovered and goals can be set.

Evaluate client-level profitability

In a service business-to-business model an issue often seen is capacity issues. When experiencing capacity issues do you:

  • Hire more help 
  • Fire a client 
  • Raise your prices 

The answer is, it is dependent on each client/project. When making decisions on capacity issues ask yourself:

  • What is my client profitability?
  • Why is one client more profitable than another?
  • Do we have the right clients?
  • Do we have an employee or customer service issue?

All aspects of your agency can affect your profitability. For example, if a customer service representative or an account manager is investing too much or too little time. It does not just impact your client experience but it impacts your agency’s economics.

Optimize pricing

The ultimate goal of a professional services model is utilization. Under-utilized you are hemorrhaging cash and over utilize your employees suffer, your clients suffer, and the quality of that work suffers. By finding balance and breaking down on a client by client or project by project basis you can take control of utilization.

When allocating your internal resources across client projects, there’s only so much bandwidth any human being has. To get a true accurate gauge of client level profitability for costs other than team members, it is important to identify that some of those costs are not directly attributable to a client. Such as, the start of your advertising budget for agencies. This cost goes back to what is your true overhead rate. (Your fixed and variable costs are combined to find your true overhead rate)

For Example, a website design project, you come up with your baseline. In your baseline analysis you would want to know what your true overhead is. Not just your fixed costs, but what are the variables that go along with the type of project. For this project there is going to be some variable expenses, hours worked, and some fixed cost, the computer to complete the project.

When you know the direct cost that you build that client for (Hours worked), are you also recovering your fixed cost (Computer) or true overhead (Hours worked +computer)? After removing all the costs are you recovering the profit from the client that you expect to get?

Optimizing your price for your agency’s work is dependant on understanding the full scope of your expenses.

Get the full recap and suggestions by watching Paro’s webinar!

Watch the webinar to get all of Paro’s insights:

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