That’s a very confusing statement on the surface, so let me explain. The global economy is sending mixed signals these days and so salary load is top of mind for principals. Let me walk you through the decision matrix so that you can make a smart business decision about that. (Please forward this to your controller if you need help following this.)
First, figure out your salary allowance. Look at your fee basis for last year. Look at total revenue ($4M in our example firm) and subtract cost of goods sold ($1M) These COGS capture outside expenses like media and freelancers but not employees on salary–put employee salaries in here and you’ll get it wrong. That leaves us with $3M in agency gross income, gross profit, or fee revenue, which all refer to basically the same thing. You can afford to spend 45% of that on unburdened compensation, including your own. So add up what people make ($36K + $78k + $128k, etc.) and see where you stand. Our example firm can afford to spend 45% of $3M, or $1,350k. It turns out that they are spending $1,620k. It appears that folks are overpaid, but not so quick.
Second, normalize the allowance. There’s a calculation here that you cannot skip, and that’s to calculate....
I recently keynoted a conference on UX and before and after taking the stage I made a point of asking as many of your clients the same very specific questions about how they hire agencies. Two newer trends quickly became apparent, and it would be good to keep these in mind.
You’ve had some new business success recently and now it’s time to staff for it. You might be too quick to hire people, and when you do hire, you may be hiring the wrong ones. So let’s see if I can help you out a little with some principles that might preserve the momentum at your agency and keep you out of trouble:
I recently did some repeat consulting for a client, and I was surprised at how little things had changed since I worked with them a few years back. Working with any advisor is a painful process, but it's designed to be a good investment rather than a fair bit of pain for just a little bit of gain.
She initiated the re-engagement, so I presumed that I wasn't blamed for the lack of progress, but I can't help the introspection. Did I misread her situation? Did I not work hard enough to suggest a solution that she could realistically implement? Was everything good except that I wasn't present enough during the implementation period?
Each of those reasons has been true at one time or another in a consulting career that spans decades, but it's rare and I nearly always catch it in time and make it right, where appropriate. This time, though, I decided to chart out the simple...but profound...reasons why change might not take root at your firm. Why you keep trying different things and can never seem to get rid of those weights that keep you from soaring above the average firm around you. Why you might wonder if you should call it quits and go work for someone else, and maybe make more money with...
Years ago, when I still owned my agency, I went to work one Sunday afternoon so that I could get something done without the usual interruptions. I was anxious to catch up on our billing because receivables were dropping as clients paid and I needed to turn some WIP (work in progress) into some AR (accounts receivable). I hated the accounting nature of that part of my job, but it felt so good to generate $100,000 of invoices in just a few minutes.
I finished and felt like I'd accomplished something. I was satisfied because I was suddenly caught up, in this one thing, for this short time. It almost felt like I'd earned all that money in a few minutes!
But not for long. That next morning I started the week off and I kept thinking about how high our high receivables balance was! When would some of that client money start coming in? I knew why it was high--I'd just bumped them up to that level the day before--and I knew that none of it was due yet, but I could see this underlying anxiety in myself. Yesterday it was because receivables where low; today it was because they were high. Crazy.
Do you see that in yourself? Always worried about something? It's a curse and a blessing, really. You're never satisfied. You never rest for long. It's always this or that on your list of tasks:
Most of you hate timekeeping. You hate doing it and you hate enforcing it (see an eight-part sliding plan to do just that).
There's very little scientific connection, too, between profitable firms and firms that are religious about tracking all of their time. So these are the only times when you need to stay on top of it:
At the end of this piece I'll share why I'm nervous to admit this, but for now let me just say that your job running an agency really is different than running another kind of firm. There are two reasons for that.
I consult with one new agency every week through our TBR, and a question that comes up regularly is how to transition a new client from the sales team to the account team. Here's how to do it well.
Late last year, Creative Mornings (Atlanta) asked me to present some thoughts on this subject to 400 creatives. They were kind enough to capture and edit the video, which I think might be worth watching. If I may, consider watching this with some of your staff--it's about 25 mins long.
In essence, I posit that you start with competence, then move to cross over to something else, and that's when you then create. How do you change your world? It's not through your work, likely. The safest prediction is that you'll impact the people around you…by just being competent. By doing your job, raising their game, and explaining humanity through your actions. To do this, you tame the genetic A.D.D, relax a moment, and realize that it's not death to simply do your job for a few years.
After you've done that, you must leave things behind—strengths, even—to form the next level of competence. Your ongoing impact comes from abandoning those strengths. In the process, life isn't about finding yourself. It's about creating yourself. And the process of creating yourself often means leaving part of yourself behind, rather than finding yourself, like the process of new growth in the world around you. It's using an opportunity from a position of strength.
Where are you in the process of creating yourself? How much do you really know? What is it that you contribute? Do you wonder about the worthiness of the entire marketing industry? How do you place yourself in an industry where most of what you do is bullshit?
I think it's an interesting presentation, and there were some good questions at the end.
You can download a PDF of the presentation and watch the video.
If you could concentrate in a few different areas over the next eighteen months, here's what could happen at your firm:
That's not going to happen, though, unless you give up some things, because you just don't have the capacity. I'm not asking you to work harder--I'm asking you to work smarter. If you are ready for this, consider giving up some things, and giving them up in the right order:
Take just six minutes with me and think about the four different kinds of employees you have. You'll learn a lot more from this exercise if you participate and apply it to your firm as you read.
Start by answering two questions about each employee:
Draw your own guadrant, like the...
As a leader, your job is to make decisions. There are other things, too, but that is your main job.
Warring against that, possibly, is your fear of making the wrong decision. Rest assured in knowing that there is greater long-term potential harm in not making decisions than there is in making wrong decisions.
So to be an effective leader, try to master the timing of your decisions rather than the criteria for your decisions.
Key Times to Make Decisions
So, when should you make a decision? Here are the four most important times to make a decision: