With the UK announcing in April its return to recession, businesses across all sectors are vying to be as efficient as possible to maximise the chances of growth and profitability in the months ahead. Service agencies face a specific set of challenges here due to the fact that many give away time for free, unlike other industries that bill every pound. This is something agencies have grappled with for many years, but with the focus on profitability in a very uncertain economy, it’s something that increasingly needs attention.
We wanted to explore this, so we commissioned Loudhouse Research, a London-based research consultancy, to survey agencies in the UK and US to find out their outlook for the year ahead and identify factors that influence agency profitability and operational efficiency.
We found that, despite the volatile environment, the majority of agencies across the UK and the US remain optimistic that they can increase profit margins over the next 12 months. However, this outlook comes despite what seems to be common knowledge of certain operational challenges, such as the perennial struggle with over-servicing and disparity in how clients are treated.
For example, the Loudhouse research report found that 72% of agencies questioned commit disproportionate resources to “big name” clients, while almost half routinely give free services to new clients. These practices probably don’t come as a huge surprise to those who work in agencies, but with the economy tighter than ever, they could well undermine growth.
A fully integrated business software suite that combines employee time-capture with core resource planning tools is one way to ensure that agencies manage their organisations effectively. The research backs this up, highlighting that 51% of agencies cite integrated IT systems as the most important aspect of managing operational profitability. However, only 69% are satisfied with the integrated systems they have in place.
It appears that agency growth today is too often occurring at the expense of profitability and working culture. Addressing this issue is an urgent priority if agencies are to avoid the spiral of service degradation, staff and client churn and a shrinking pool of profits. A single, cloud-based IT system can play a big role in delivering the insight needed to address client servicing issues, but first agency leaders need to recognise that they are not facing an insurmountable problem and put the wheels in motion to tackle it head on.
Any change, however small, in your staffing structure will have an impact on your hourly rates and/or billed hours targets, so it’s easy to see why a fully integrated business software system is the way to go, particularly while juggling demanding clients. This will undoubtedly deliver a stronger foundation on which to build a platform for profitable growth.