Why creative agency leaders need to think like accountants

Numbers on a screen

When you make the move from being a hands-on creative to running your own agency, you’ve got to start thinking like an accountant – at least a little bit.

From pricing strategies to KPIs, applying systems and processes to creative work will make your agency more scalable, profitable and efficient.

And, for a bit of upfront investment of time and energy, they’ll reduce your stress levels overall, making it easier for you and your team to focus on doing your best work.

When I hear people in business say “I don’t do numbers” it makes me want to bang my head on the desk. Pretty much as I imagine it makes you feel when you hear someone say “I don’t do marketing.”

These days, the traditional divide between the arts and the sciences has turned into a fuzzy border. Numbers people are under constant pressure to create content and build brands, while creatives are increasingly expected to talk the language of return-on-investment.

They might even be managing their own day-to-day accounting using cloud software like Xero.

For starters, here are the basics I reckon any decent creative agency leader will want to have in place.

Key performance indicators (KPIs)

If you don’t have KPIs, you’re basically just winging it.

KPIs are quantifiable metrics used to gauge the performance of a business. I’ll be honest, getting them set up and reporting on them can be a bit of a pain, but it’s absolutely worth it.

They help you identify problems, highlight where things need to change and keep your team leaders on track.

For example, client lifetime value is a really useful long-term KPI. It tells you how much each customer is worth to your agency over the course of years and helps you prioritise.

Coming up with KPIs for creative work can be a bit more challenging but it’s not impossible, despite what some people will tell you. You just need to be a bit pragmatic and accept that measuring something is better than measuring nothing.

For example, if you can come up with a way to record staff time for each project or campaign, you can start to focus on how to tighten up processes to deliver the same quality of results to clients but with better margins.

You might find that your team resists KPIs – and to be fair, you did hire them for their imagination and creative skill, not because they’re good at paperwork. Involve them in setting the KPIs if you can and make sure they know that it’s as much about making sure they can work happily and efficiently, with the tools and kit they need, as it is about squeezing out more profit.

In my experience, one of the reasons agency owners might avoid setting up proper KPIs is because they secretly suspect they won’t like what they find – a bit like those people who avoid checking their bank balances towards the end of the month.

I’d say, bite the bullet. If there are problems in terms of cashflow or performance, you need to know about them and act sooner rather than later.

I wrote about how to set up KPIs in a creative business – have a read of that post for more in-depth guidance.

Systematise relationships with a CRM

Another thing that makes me twitchy is when I find a business that’s still operating off multiple systems, about 46 different spreadsheets and a wall covered in Post-It Notes.

You need a single point of truth and a single integrated system for client data, contact information and your finances.

That means investing in a decent customer relationship management system (CRM).

Again, it can feel like a big cost and a lot of hard work to get it set up – especially if you’ve got years’ worth of client data to input or migrate from other systems.

But believe me, it’s worth it – especially when you get your CRM talking to your accounting system and start automating processes.

When you can automatically create invoices in Salesforce and have Xero send automatic reminders when payment is overdue, for example, you’re not only saving time chasing but also increasing the speed with which you get paid.

Going back to KPIs, it’s also great to be able to see a client’s total lifetime value or current fees in their CRM record, using data from Xero.

Pricing strategies

One thing an accountant will never do is undercharge for their services – and you shouldn’t either.

It’s one of the biggest reasons for businesses going bust and can be hard to turn around as existing customers can be resistant to increases.

The easiest way to end up with a broken pricing strategy is to base your fee structure on:

  • Wishful thinking – underestimating the time and resource required to deliver.
  • Fear of missing out – agencies often charge too little because they don’t want to turn away work.
  • Guesswork – back of a beer mat, rule of thumb, finger in the air calculations are usually wrong.

The most basic data-led pricing strategy is ‘cost-plus’, or ‘markup pricing’.

Under this model, you first need a realistic figure for how much the service costs to deliver. Then, you just add a fixed percentage markup of, say, 50%.

That’s mostly used in retail and manufacturing but, actually, it’s essentially the basis of project-based pricing, which is common in agency work.

You work out how much you think it will cost to deliver a campaign or a particular output and then quote a fee that covers those costs, plus margin.

It’s really important, again, to resist the urge to be over-optimistic when it comes to calculating team time. Assume a reasonable scenario somewhere between best and worst case, to give yourself some room for manoeuvre. And this is where data comes in: look at past projects by way of benchmarking.

Another option is competitor pricing. For this, you need to know what your competitors charge for similar work. That information can be hard to come by but it’s not impossible.

If you’re bidding for contracts against other agencies, it’s not necessarily the case that you need to beat their quote, but you’ll probably want to be in vaguely similar territory – or be really clear about what you offer to justify much higher fees.

Data-led decision making

My instinct is always to ask, “Why?” If I’m going to commit to a course of action – especially if it’s going to cost time or money – I want to see the workings behind the recommendation.

I want data. If I can’t have data, I want estimates based on data. If neither are available, it’s probably not going to happen.

At the end of the day, common sense, received wisdom and gut instinct will only get you so far when it comes to growing your business.

Get in touch to start making your agency more profitable and efficient with smart business advice from Alchemy.

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