The biggest reasons agencies lose out on profitability

There is a growing gulf between agencies and clients when it comes to briefs, communication, and delivery. 

It’s startling, but only 9 percent of agencies feel they are ‘nailing’ project profitability, and this figure drops to just 5 percent for agencies with less than 50 employees – according to new research.

The study, from AI-native platform for project and resource management Forecast, looks at the hurdles in process, operations and company culture that hinder project profitability for agencies. 

Leaders from 163 agency leaders were surveyed between May and July 2021 in partnership with Cactus Agency Growth Consulting. The research looked at the various barriers that exist when it comes to agencies seeking to maximise profitability and making operations efficient. 

Overall, agencies pointed to inefficient delivery processes (39 percent) and too much time spent on project admin (31 percent) as the primary speedbumps.

Time needed is now harder to predict

Rob Massa, chief revenue officer at Forecast, says: The sudden move to remote working caught everyone off guard. No one was prepared for such a drastic change and agencies had to immediately shift their working model to cater for a fully remote workforce. There were challenges felt by not just managers and leaders needing to keep on top of their employees' workloads, but also for employees who had to deal with this sudden shift. 

“We speak to a lot of agencies on a day-to-day basis and the challenge of accurately forecasting revenue and project profitability is always number one. What it comes down to is a lack of visibility. If agencies don’t have sight of how much time their people are spending on tasks and don’t track historic metrics, how can they possibly forecast future projects?”

Where time is being most spent

Reporting and managing how employee time is being utilised was found to be a significant challenge. Of the agencies surveyed, 67 percent of those with 100 to 199 employees cited status and update meetings, resource management and timesheets as the areas of client management which absorbed most of their time; this figure dropped to 50 percent for those with less than 100 employees.

Barriers to accurate forecasting

With forecasting having a bearing on so many decisions, including investment in talent and tools, it needs to be as accurate as possible. However, only 40 percent of agencies surveyed said they are able to very accurately forecast the revenue of client and project work.

Across all agencies, the two most dominant forces holding back forecasting were lack of visibility and lack of time (40 percent). Inaccurate or disparate data was the third most common cause identified (18 percent).

Forecast’s research indicates that agency staff believe client processes slow them down and take up time. In turn, these processes mean agencies don’t have the time – or the right information – to accurately forecast future revenue.

Other key findings:

  • 47 percent of agencies said less than 25 percent of revenue came from retained clients.

  • 60 percent of all agencies surveyed felt they could make ‘some improvements’ to maximising project profitability – whilst 35 percent felt they could make ‘significant improvements’.

  • More than a quarter (28 percent) of agencies described themselves as having no set process methodology.

  • Smaller agencies are less likely to know their billable utilisation rates – with 34 percent of all agencies surveyed not measuring this metric.

Spencer Gallagher, co-founder and CEO of Cactus, adds: “Most agencies cannot find the right talent right now and this is only going to become harder, so they are going to have to work at retaining talent and doing more with fewer people – which doesn't mean overloading staff but making sure they are more efficient in how they use their time.”