One of the most effective ways to boost your profit margins in a marketing agency is by increasing the gap between your cost of goods sold (COGS) and your revenue. While this might seem straightforward, the key is to do it slowly, strategically, and without compromising the quality of your services. This process involves systematically reducing the percentage of your revenue that goes toward fulfillment—whether that’s through labor, software, or other operational expenses.
Gradually Reduce Fulfillment Costs as Revenue Grows
As your agency’s revenue increases, it’s tempting to spend more freely. You might feel that bringing in more money justifies splurging on new software, hiring additional staff, or adding unnecessary services. However, boosting profit margins means resisting these temptations and taking a more disciplined approach to spending.
To boost margins, your goal should be to slowly reduce the percentage of revenue that goes toward fulfillment. This means that while your revenue grows, the cost of delivering your services should not increase at the same rate. In fact, it should decrease as a proportion of your overall revenue.
For example, let’s say you start with 50% of your revenue allocated to fulfillment costs. As your revenue increases, your fulfillment costs should stay relatively steady, eventually dropping to 40%, 30%, or even lower. This increase in efficiency will result in a wider gap between revenue and COGS—leading to higher profit margins.
Avoid Unnecessary Hiring
One of the most common mistakes agencies make when scaling is hiring too quickly. While it’s important to have the manpower to deliver excellent service, hiring more people isn’t always the best solution for handling an increased workload. Instead of automatically expanding your team, consider whether you can train your current staff to be more efficient or implement systems that allow your existing team to handle more work without adding headcount.
By delaying new hires until they are absolutely necessary, you can significantly reduce labor costs. This doesn’t mean you should overwork your current staff; instead, focus on refining processes, automating repetitive tasks, and cross-training team members so they can handle multiple roles when needed.
Be Disciplined with Software Purchases
In today’s digital world, there’s no shortage of software tools designed to make your agency’s operations more efficient. But with so many options available, it’s easy to fall into the trap of buying software that you “kind of need” but don’t really need.
To boost your profit margins, you need to be much more disciplined with your software spending. Every time you consider purchasing a new tool, ask yourself if it’s truly necessary. Will it improve efficiency in a way that justifies the cost? Can you achieve the same result with the tools you already have? Often, a little creativity or additional training on existing software can help you avoid unnecessary purchases.
Focus on Training and Efficiency
Many agencies assume that the solution to scaling is more people or more tools, but often the answer lies in improving the efficiency of your current team. By investing in training and developing better systems, you can handle more work with fewer resources. Efficient processes allow your team to work faster and smarter, which means you can reduce the percentage of revenue allocated to fulfillment without compromising on the quality of your service.
Encourage your team to identify bottlenecks in their workflow and brainstorm ways to streamline tasks. Implementing leaner processes can significantly boost productivity and reduce costs, helping you widen the gap between COGS and revenue.
Beware of Shiny Objects
There will always be shiny objects that catch your eye—whether it’s a new piece of software, an exciting hire, or a new service offering that you think might “take your agency to the next level.” However, resist the urge to buy into these distractions unless they are absolutely essential to delivering the services your clients need.
Remember, every unnecessary purchase reduces your profit margins. To keep margins high, you must maintain discipline in your spending and focus on what truly moves the needle for your agency.
Conclusion
Boosting your profit margins doesn’t happen overnight, but by taking a disciplined and strategic approach, you can steadily increase the gap between your cost of goods sold and revenue. The key is to reduce fulfillment costs slowly as your revenue grows, avoid unnecessary hires and software purchases, and focus on training your team to work more efficiently. By doing more with less, you’ll see your profit margins grow, allowing your agency to thrive without sacrificing the quality of your services.