How to Truly Define and Measure Client Profitability in Creative Agencies

By Penny Kooy

Your highest paying clients aren’t always your most profitable. While this statement may sound illogical at first, much more goes into determining and measuring client profitability across creative agencies than revenue generated from your biggest retainer accounts.

Often, such factors as budgets and project scope take center stage when discussing profitability. On the other hand, soft resources—like productivity and efficiency—are more difficult to track. However, they make all the difference when calculating project profitability. Many times, an agency’s biggest projects have the smallest yields for clients, while smaller, more frequent projects have far less overhead and a greater return.

Reports can identify important information to help maintain positive agency-client relationships, optimize budgets, track project processes, and identify areas for opportunity. Tracking and reporting are among the most critical functions for creative agencies of all sizes. From project health and client satisfaction to budgeting and resource allocation, reporting can help an agency work smarter—not harder.

Knowing what and how to measure impacts your bottom line. With the right automated, integrated tools and technology, tracking, measuring, and reporting become easy. To help illustrate how to truly define and measure client profitability, let’s review some key components of every creative project—and the corresponding reports that help make sense of data.

Project Overview & Health

Project status reports are tricky. While they should ideally follow consistent, standardized templates, more often than not, stakeholders tend to have their own idea about what should be included. From metrics and statistics to dates and other information, many clients ask for something different.

To help standardize the process, it’s important to utilize tools that provide a detailed view into project health while also allowing agencies to customize them with multiple fields. Color-coded health meters for project tasks and financial status help managers get an instant overview of their projects. These reports compare and compile budgeting and actual spending in one simple report that multiple users can share and manage based on user permissions.

Robust project health tools should indicate a project’s real-time budget versus actual spend. They should also produce “burn reports” to show how much work is left compared to how much time is allocated for a project. When measured correctly, project health should not require users to wait for a project to be finalized to gain insight. Instead, it should provide one centralized location where budgeting and actual spending are grouped together.

Profit & Loss

For a financial tool to be truly all-encompassing, it must provide robust reporting capabilities that include all financial aspects, including overhead. After all, that monster of a project may not be as profitable as you thought it was when you first sent out a contract. Project profit and loss (P&L) reports enable agencies to view all their financial aspects in one place and gain an overview of client profitability. Basically, they deduct the expenses of goods or services sold from total sales revenue to calculate gross margin and provide an overview of estimated, in progress, actual, and write-off expenses.

These detailed reports also incorporate overhead allocations that, in turn, help businesses Go to the full article.

Source:: Business2Community

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