For agencies, who rely on a rolling roster of clients and projects, revenue visibility is an important factor influencing their ability to confidently make business decisions. These decisions, which include making high-value strategic hires and investments, can introduce a significant layer of financial risk. However, if agencies are able to accurately plot their incoming revenue, they can act more confidently.
Unfortunately, attaining that level of revenue visibility is not always simple for agencies, whose business structures are necessarily more fluid and responsive than that of a ‘standard’ business. We spoke with agency expert Joe Hine to learn more about the best ways for agencies to navigate this challenge, and introduce a larger element of revenue visibility within their structures.
The corporate finance view
Joe Hine is Partner at SI Partners, and a specialist in corporate finance who provides merger and acquisition advice on deals across marketing and technology services. His experience with agencies within the M&A space have given him a unique insight into what constitutes the most valuable business structures – and where agencies have historically missed the mark.
We spoke with Joe for our report on agency retainer use, where he identified current trends within the agency landscape, such as the “cautious optimism in agencies” as we progress beyond the pandemic. “People are investing,” says Joe, but, “they are also looking at it with a slight lens of trepidation.” Agencies are, “looking for a way to de-risk these decisions.”
This, he suggests, is the role of retainers and “retainer-like revenue”. Joe explains, by securing a retainer, or retainer-like agreement, “You move an agency from having 3 months visibility on revenue, to being able to start the year with 50-60% of their revenue booked. The higher the retainer, the more certainty you have, the easier it is to make those investment decisions.”
Make the most of your agency’s retainers.Use our insight report to help you reimagine your retainers and raise your profits.
Why revenue visibility matters
To ensure a healthy cash flow, it’s important that agencies are able to maintain visibility over the money coming in – and going out. Without this visibility over their financial situation, it’s increasingly difficult to make informed financial decisions, or to efficiently plan ahead. On the other hand, revenue visibility offers agencies the opportunity to:
1 More easily make investment decisions
With a clear view over your financials, it’s easier to make decisions that carry an element of risk, like those involved in investing. Joe identifies retainers as providing, “stability in business.” The better your understanding of your current (and future) financial situation, the more confident you can be in the potential outcomes of investment decisions.
2 Better plan capacity for upcoming projects
Accurate forecasting means that agencies can understand how much time, money and resource they need to allocate for future projects. This means being able to understand what work is upcoming, how many staff are necessary, and also whether you’ll be able to take on any additional projects – meaning the opportunity to grow without the risk of becoming overwhelmed, under-resourced, and being unable to deliver to your usual standard.
3 Provide clear benefit to potential buyers
Should an agency decide to merge or sell, showcasing an outlined pipeline of ongoing work and relationships is a clear benefit to any potential buyers, as they illustrate the position and health of your agency. “In today’s marketplace so many buyers are private equity backed, and one of the things private equity likes is security of earnings and quality of earnings,” Joe explains. “So retainers play into that. Anyone who has aspirations around realising value in the future, aside from their own investment and the stability of their own business, should be looking at growing retainers.”
How to optimise your business structure
So, the benefits of a retainer-based business model are increasingly clear – but optimising those retainers can prove to be another hurdle for many agencies who have historically struggled to make the most from their pre-existing client relationships.
While retainers give you, as Joe says, “the most successful business model,” the further success of that business is reliant on how well those retainers perform – especially in terms of client uptake, ROI, and agency profit. Our agency retainer report identified a new best practice based on research from nearly 200 UK-based agencies. It showcases how agencies can maximise their revenue and profit by reimagining their approach to retainers, including by:
- Creating set packages to optimise time spent, which will increase your margins
- Creating a strategy focused on retainers which specifically targets new business
- Ensuring that you are maximising the web hosting mark-up opportunity to increase profit
You can see the full best practices checklist by downloading the full report.
The benefit of forward-planning
By focusing on establishing a strong basis of retained clients, you allow your agency the freedom to pick up new projects and make further investments, with a clearer visibility over your time and resources. It’s for this reason that bringing a number of clients onto retainers is, according to Joe, “the ideal model”. And while agencies may not be planning to merge or sell, it’s worth mentioning that the better your revenue visibility, the more valuable your business in the eyes of potential buyers – and investors, too.
The most effective way to structure your retainer offerings is at least in part dependent on your agency’s approach, industry, and specialisms. But there are many factors which all agencies can – and should – consider when working to improve their revenue visibility. The added benefit? These best practices can have a positive effect on your bottom line, too.
You can hear more insights from Joe Hine
As well as receive a more in-depth look into the report findings, when he joins our Managing Director Mike Crook for a webinar on 7th October, 10am.