When this industry was TV focused and working on a full commission system it was incredibly profitable. This profitability led to a lot of practices that, in hindsight, have proven misguided.
Agencies gave Clients gave things like research for free. They were included in the “service”.
Significant work was done on new products without charging for it.
Clients became accustomed to having Agencies develop full scale campaigns to pitch for the Account. In effect, the intellectual property was offered up before the contract was signed. This is the equivalent of a lawyer providing his advice and then agreeing to be compensated only if you were satisfied with it.
Compensation scales were very flexible. Salaries, bonuses and perks for a select group of employees were sky high.
The industry has changed drastically over the last few years with the unbundling of services, the fragmentation of media and the arrival of the internet. But new and equitable compensation systems have still not been agreed to and the Agency is still held hostage by what it used to offer in the past.
With holding company finance directors fully involved in all the decisions of the company, and with Clients consistently lowering Agency compensation, the challenge has become how to do more with less.
While the finance people will know more about how to massage P&L statements than I could ever dream of, here are a few tips on how improve profitability.
Importantly, these tips focus on how things are done, and can be done better, and not how they are recorded on the financials.
But by doing these things better, faster and cheaper you can make a significant positive impact on the financials.