Workshop 3

Increasing Profitability

Hi I’m GrahamThis is me before Procurement arrived.

Objectives

• Everyone goes back to their agency with some great ideas to increase profitability

• We share our wisdom with those unfortunate enough not to be in this brilliant group

Topics we’ll explore

• Positioning

• Pricing

• Procurement

• Productivity

• Performance

• Presentation

A quote to get us started

“If you have an apple and I have an apple and we exchange apples then

you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas,

then each of us will have two ideas.”

Positioning

What business are we in and how do we conduct ourselves?

Do you want to be hired for what you do…or…what you know?

Agencies that get hired for their “hands” are valued and compensated differently than agencies that get hired for their “heads”.

Would you prefer “supplier” status or “advisor” status?

Tim Williams

PROFITABLE AGENCIES MAKE A CONSCIOUS CHOICE AS TO HOW THEY WILL GROW THEIR

PROFITABILITY AND BUSINESS Kingston Smith W1

• Culture• People – recruitment and retention• Agency Positioning• Client-agency relationship• Approach to new business• Commerciality• Financial measurement and tracking

Change Management• You may have mapped where you are but do

you know where you want to be?• Do you know how you will manage that

change?• How do you move from “hands” to “heads”?• What choices do you have to make to build the

right client relationships, develop the right people and instil the right culture?

• Will it make you more profitable?

Increasing Profitability

• What were the key learning's from Tim’s presentation that could help you increase your profitability?

Pricing

Are you missing out on revenue opportunities?

Price better by 1% and earn 11% more profit* Tim Williams/McKinsey & Company

Here, in order of effectiveness, are the best ways to improve your bottom line.

1. Improve your pricing 1% Profit improvement of 11%

2. Reduce your variable costs

1% Profit improvement of 7%

3. Increase Revenues 1% Profit improvement of 4%

4. Reduce fixed costs 1% Profit improvement of 3%

*Study by McKinsey & Company

How progressive is your agency when it comes to pricing?

How ready are you to move from cost based pricing to

value based pricing?Take the simple test.

Devised by Tim Williams

A Declaration of Value

If you accept the premise that your agency sells the value it creates rather than the hours that it works, your goal is to

commit your senior team to a “Declaration of Value”Tim Williams

Procurement

Love it or loathe it but it’s here to stay. Do we thrive or strive with

procurement?

Video

The two big lessonsfrom Rosie Doggett, Procurement Advisor to Marketing Clients UK

• Procurement people MUST make 10% savings so a canny agency will factor that in.

• The majority of procurement people are highly educated, supremely numerate and extremely well trained in negotiation skills - good agencies should invest in getting their people who deal with procurement trained to negotiate professionally.

Tips from ISBA for dealing with Procurement

• Do not try to marginalise Procurement.• Invite Procurement into the agency on a secondment to help

them understand language, core activities and skills.• Invite Procurement people to present their side of things to the

agency. What is Procurement all about, what do they want from agencies, how can Procurement help enhance the relationship?

• Encourage them to create win/win situations and act as the client guardian of the client/agency relationship.

• Help them recognise that client behaviour can often produce inefficiencies and impact the way the agency works and charges

• Ask for their advice in reducing agency costs.

Best Practice

What lessons have you learned about Thriving with Procurement?

Productivity

Is it possible to give your agency a leap forward in productivity by finding much smarter and more

progressive ways of working?

OPERATING PROFIT PER HEAD, THE KEY MEASURE OF PROFITABILITY AND

PRODUCTIVITY COMBINED, IN DM/SP DECLINED BY 2.4% LAST YEAR IN THE UK

Kingston Smith W1

Employment costs consumed 62.3% of gross income - considerable above the

suggested maximum of 55%

Operating Profit per Head by Discipline (UK 2012)Kingston Smith W1

Operating Profit per HeadCompared to Agency Groups 2012

Kingston Smith W1

How do we make that leap forward in productivity?

• Have we got the right people?• Do they take responsibility for revenue and profitability?• Are we afraid of employee churn?• Do our senior team demonstrate the right behaviours?• Do we manage our human resource effectively?• Do we have the right incentives in place?• Are we making the most of technology?• Do we have disciplined and effective processes?• Do we tolerate over-servicing and scope creep?

A Focus on Productivity Gains

Let’s write down 3 things we have done to improve productivity, or suggest 3

things we should do in the future.

Performance

Setting goals and measuring and reporting against KPIs

People who work in accounting departments often work 12 hour days creating reports that nobody

cares about. This gives them a very bad attitude. Do not attempt

humour around them.DILBERT

We are the Board of Directors of a rapidly expanding agency network and have just acquired a new

agency. We have to ensure that the business is well managed. We set KPIs in 5 aspects of the business.

What are they?

Presentation

Sharing our ideas

Our Top Tips for Increasing Profitability

• We have 5 minutes to impress everyone with our insightful genius

And Remember…..

If you make money every month it’s hard to lose it at the end of the year.

Carl Spielvogel