In today’s competitive landscape, running a profitable marketing agency is about more than just bringing in new clients—it’s about maximizing the profitability of your existing client base and service offerings. If you’re not actively working to increase your margins, you’re leaving money on the table. Implementing a few strategic adjustments can lead to significant gains in your bottom line, even without acquiring a single new client. Here are three proven strategies to accelerate profit in your agency.
1. Raise Prices on Legacy Clients
One of the simplest and most effective ways to boost your agency’s profitability is to raise prices on legacy clients. Many agencies hesitate to increase rates for long-term clients, fearing that they’ll leave for a cheaper option. But consider this: if you haven’t raised your prices in the last five years, you’re likely losing money due to inflation and rising costs. It’s time to take action.
Start by reviewing your client list and identifying those who haven’t had a rate increase in the past few years. Then, implement a price adjustment of at least 15%. This might seem steep, but it’s necessary to keep up with the cost of doing business and to ensure your services remain profitable.
You might be worried about losing clients, but even if a few choose to leave, the increase will generally lead to a net gain in profitability. For example, let’s say you have 10 clients each paying $2,000 per month. A 15% increase would bring that to $2,300 per client, resulting in an additional $3,000 per month. If one or two clients leave, you’re still making more overall. Plus, the clients who stay are likely to value your services and be more willing to pay the new rates.
2. Evaluate and Adjust Profitability per Package
Not all services are created equal when it comes to profitability. It’s crucial to regularly evaluate the gross profit margin for each of your service packages. As a rule of thumb, you should aim for a minimum of 65% gross profit on each package. This means that after covering all direct costs (like labor, tools, and materials), at least 65% of the revenue remains to cover overheads and generate profit.
Start by calculating the gross profit for each of your service offerings. If you’re unsure how to do this, subtract the direct costs associated with delivering the service from the total revenue generated by that package. Divide this number by the total revenue to get your gross profit percentage.
For example, if a social media management package generates $5,000 in revenue per month but costs $2,000 in labor and software, your gross profit is $3,000, or 60%. In this case, you’d need to either raise the price or find ways to reduce costs to hit the 65% target. Adjusting your pricing structure can have a significant impact on your profitability without requiring additional sales or new clients.
3. Assess Client Profitability and Adjust Pricing
Once you’ve evaluated the profitability of your service packages, the next step is to look at your clients individually. Not all clients are equally profitable, and it’s important to ensure that each client relationship contributes positively to your bottom line.
Identify any clients whose gross profit margin falls below 65%. For these clients, it’s time to have a conversation about adjusting their pricing. Be transparent about your reasons—rising costs, increased value of your services, or a change in the scope of work—and propose a new rate that meets your profitability targets.
Raising prices on underperforming clients might feel risky, but it’s necessary to maintain a healthy business. If they’re unwilling to pay more, it may be time to part ways. Remember, it’s better to have fewer, more profitable clients than a large number of clients who are draining your resources and time.
4. Implement a Setup Fee for All Packages
Adding a setup fee to your service packages is an excellent way to boost your margins instantly. Whether it’s a new client onboarding process, strategy development, or initial content creation, almost every service you offer involves some upfront work that isn’t covered by the monthly retainer. A setup fee ensures that this initial investment of time and resources is compensated.
When implementing a setup fee, you can either charge it as a separate, one-time fee or build it into the first few months of your package pricing. Even a modest setup fee of $1,000 can significantly impact your profitability, especially if you’re onboarding multiple clients each month. If you’re concerned about pushback, consider offering a discount on the setup fee for new clients or including added value, like a free strategy session or additional deliverables, to justify the cost.
A setup fee not only boosts your immediate revenue but also sets the tone for a professional relationship. It shows clients that your services are valuable and that you’re not willing to undersell your expertise.
Conclusion
Accelerating profit in your marketing agency doesn’t always require finding new clients or expanding your service offerings. By raising prices on legacy clients, optimizing the profitability of your packages, adjusting pricing for underperforming clients, and implementing setup fees, you can significantly increase your margins and overall profitability. These strategies might feel uncomfortable at first, but they’re necessary for building a sustainable and profitable agency. Start making these changes today, and you’ll see the impact on your bottom line in no time.