Magazine article Marketing

Today's Agencies Need an Accounting Review; a Closer Look at Business Costs Can Help Your Shop Survive Tough Times

Magazine article Marketing

Today's Agencies Need an Accounting Review; a Closer Look at Business Costs Can Help Your Shop Survive Tough Times

Article excerpt

Today's Agencies Need An Accounting Review

Agencies looking for an edge to survive this recession should take a close look at their accounting procedures to ensure they are as cost-effective as possible.

First and foremost-and it may sound like motherhood-if you haven't started to treat your agency as a business, do so.

Establish a minimum acceptable level of profit. If an account does not achieve this level, senior management should consider:

* Renegotiating the compensation,

* Altering the staffing mix (ensuring the quality of service is not diminished),

* Reducing the resources devoted to an account, or

* Resigning the business (if costs exceed the benefits).

When you initiate your review, pay careful attention to those accounts that aren't even covering direct costs.

When renegotiating your compensation, consider moving to a totally fee-based approach. Canadian agencies have been slower to adopt this concept than their American cousins.

Next, review your agency staffing and overhead needs.

The American Association of Advertising Agencies suggests the 50:30:20 rule:

Total agency labor costs, including benefits, should not exceed 50%. Total overhead should not exceed 30%. And the remaining 20% represents pre-tax profit that the agency should be earning.

While these are optimal percentages to be strived for, there should be good reasons to justify any deviation from the goal.

Take a leadership position in cost cutting, not by taking the company-paid cookie jar away, but by having senior management take a cut in pay. A cut here will save jobs at the lower- to mid-range salary levels.

If you have lost a particularly large client, review your existing account base to determine where there may be staffing needs in order to minimize the number of people who will be laid off.

Bill out your out-of-pocket expenses to the fullest extent. Review your existing client contracts for what you can or cannot bill, and make the staff aware of what is specifically recoverable.

A tip here: The agency business gets more and more competitive by the day. Agencies routinely gamble thousands of dollars on new-business pitches, often to come up empty-handed.

In this economy, service your existing clients like never before, keeping in mind the maxim of "a bird in the hand. …

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