In a recent Teamwork webinar, we had the pleasure of hosting Megan Bowen, Chief Customer Officer at Refine Labs, for an engaging discussion on how agencies can boost profitability by mastering three key components: people, process, and pricing.
Megan has played an instrumental role in growing the Refine Labs team from under 10 to over 100 in just two years. With such a wealth of experience building and leading teams to success, she shares some vital insights that could take your agency to the next level.
During the webinar, Megan and host Logan Lyles, Teamwork's Head of Partnerships, dive into the "Three P’s" of agency profitability, covering questions such as:
When is the right time to hire more staff?
How do you effectively track agency profitability?
What is the best pricing model to maximize growth?
Before you watch the full episode, here are the four biggest takeaways we learned from the discussion.
1) Make people your priority and profits will follow
When thinking about how to maximize agency profits, the mind tends to focus on financials – the “big numbers” that tell you if you’re hitting or missing your business objectives.
While having a firm grasp of data like gross and net profit is important (Megan even shares her list of the key metrics every leader should be tracking), she believes that – if you want to unlock your agency’s true potential – it’s your people that you need to understand and nurture most.
Megan calls out two areas where focusing on people can pay dividends. First up, “having a strong employer brand,” and second, “creating an internal bench of talent that are able to step into key delivery positions when your demand is exceeding supply.”
According to Megan, having a strong employer brand is important because it enables you to “dramatically reduce the time it takes to find and hire talent when you need it.” Similarly, by creating “growth paths for different types of roles” internally, you can quickly fill capacity gaps without relying on external hires.
The takeaway: Agency profitability is a constant juggling act between staffing-up for growth, but not over hiring to the extent it impacts the bottom line. By investing in a strong employer brand and internal training programs, you can quickly pivot to fill capacity gaps without damaging your growth prospects or creating staff burnout.
2) Use time studies to identify inefficiencies (and rectify them)
Like a lot of agencies, Refine Labs experienced exponential growth in 2021 as a result of Covid-19 restrictions easing around the world.
“The demand for our offering was really growing. We kept acquiring customers and hit a point where it was clear that our delivery teams were overloaded. We realized we needed to make some significant changes,” explains Megan.
But how? The answer lies in having a validated capacity model that looks at what activities are taking place, how long they take, and how this translates into the number of customers a team can manage effectively.
To do this, Megan recommends running quarterly time studies to assess where inefficiencies or areas of ambiguity lie. Doing them regularly enables you to react to any red flags quickly, such as spending too much time on certain tasks or projects, and team members being at maximum capacity for long periods.
Running these studies can be challenging, but Megan suggests utilizing project management software to speed up the process and make it as easy as possible for staff to log their time and pull reports.
She also talks about the importance of educating employees about the “why” behind time tracking: “The intention here is not to make sure they’re working extra hard and that you can bill for as many hours as possible. It’s about finding out if we’re collectively spending too much time on certain things, and whether we should be doing those things at all for customers.”
The takeaway: The plethora of project management tools available today means you no longer have to make assumptions about where your time is being spent, and which clients are most (or least) profitable. Get a process in place to regularly benchmark your team’s time against key deliverables and scopes of work. By doing so, you will maintain profitability without negatively impacting client relationships or staff churn.
3) Be honest with clients about when you can take them on
Have you ever turned down a client because you don’t have the capacity to take them on?
Being in a situation where demand exceeds supply is a regular problem for agencies, particularly when it takes time to hire and ramp new teams. But Megan has a simple yet genius solution for this problem: just be honest.
With new business flying in from every angle in 2021, Refine Lab did exactly that. As Megan explains: “Instead of saying, hey we’re at capacity, we would be honest with customers and tell them that we only have limited seats. So, if you’re able to sign before the end of the year, we can save your spot for whenever the startdate might be.”
It sounds too good to be true, but according to Megan, it actually works! “In that time period, we signed many, many customers with a start date that was 30, 40, 60 days out from when they signed the contract.”
The takeaway: Don’t let team capacity dictate your ability to grow. By being honest with potential clients about when you can take them on, you can have the best of both worlds – maintaining current capacity levels while boosting future revenue streams.
4) Adjust your pricing in line with service changes
When it comes to pricing, adopting an experimental mindset could be just what you need to become more profitable.
Agencies are well-known for their creative and innovative mindset, but this ethos isn’t always reflected in their pricing strategies. As Megan puts it: “People don’t always think about adjusting pricing models as other elements of the service evolve.”
In fact, every time you change your service, there's an opportunity to revisit your pricing for that service. Megan shares an example where Refine Labs added creative services to its demand and media offering: “We were able to charge a completely separate line item which bumped up the full retainer. Our demand was bigger than our supply, so at that juncture we raised prices again.”
In another example, she talks about the current economic conditions: “We made another attempt to drive prices up in Q2 this year, and basically hit a ceiling. Let’s adjust and bring it back down.”
The takeaway: It’s important to evolve your pricing in line with any service changes. Just make sure your pricing decisions are informed by real data (historical close and churn rates, for example), rather than assumptions.
Don’t miss out on valuable insights for agency success
By mastering the “Three P’s” of profitability, agencies can build long-lasting employee and client relationships that drive success.