increasing the profitability of your ppc or digital agency - heroconf 2016

@AnnStanley

How to increase the profitability of your PPC

team or agencyby

Ann Stanley

Managing Director of Anicca Digital

@AnnStanley

A bit about Anicca and Ann!

Founded in

2007Team of

24

PPaid

OOwned

EEarned

TTechnical

@AnnStanley

Contents

Part 1 - Evolution of agency structures• Skills required to manage a PPC account• Typical organisation structures of a PPC agency as it grows• Managing an agency with multiple services and channels• Hierarchy vs Pod (or Matrix) management

Part 2 - Improving agency profitability• Understanding factors that impact agency profitability• Use of automation to increase efficiency of PPC account management• Use of agency resource management software to track capacity and

utilisation

Part 3 - Agency KPI and benchmark studies• KPI for measuring agency financial performance and efficiency • KPI data from Benchmarking studies

@AnnStanley

Part 1 –Evolution of agency

structures

@AnnStanley

Skills required to manage a PPC account

@AnnStanley

Jack of all trades doing all aspects of PPC management (freelancer or in-house PPC’er)

Routine technical activities

Account creation, bid management, optimisation, reporting,

Project and client

account

management

Account strategy

(R & D, testing of new features,

commercial expertise)

Technical support

– tagging,

tracking, feed

management,

CRO, attribution

1 senior consultant or freelancer

@AnnStanleyIntroduce “low cost” automation as early

as possible (for reporting and optimisation)


Account creation, bid management, optimisation

Project and client

account

management

Account strategy

(R & D, testing of new features,

commercial expertise)

Technical support

– Tagging,

tracking, feed

management,

CRO, attribution

Automation – reporting, optimisation ideas

@AnnStanley

Delegate more routine duties



Project &

client

account

management

Account strategyTechnical

support

Automation – reporting, optimisation ideas



Your role

becomes

more

strategic

Employ or

train an

executive to

do routine

activities

@AnnStanleyNeed to consider specialisation i.e.

use of teams with different skills

Project & client account management

Account strategy Technical support


Account creation, bid management,

optimisation



optimisation



optimisation

Project & client account management

Account strategy



optimisation



optimisation



optimisation

Automation – reporting, optimisation ideas (possibly bid management, feed management and shopping ad management)

@AnnStanley

Team and organisation structures

@AnnStanley

Issues influencing the agency structure

Size and maturity of the agency• Role of founder(s) and owner(s) – are they working in or on the business• Age/maturity of the agency• Number and proportion of staff that generate income

• Direct staff - number of income generating staff • Indirect staff - number of support staff

Number, size and type of the clients• Total number of clients• More routine projects with lower budgets (for smaller clients) – team members

generally have to manage (or work on) more than 10 clients each• High quality of service and larger projects/budgets – may require less clients per

team member and often teams of staff working on a single project

Positioning and diversity of the services offered • What was the original focus/service of the agency, was it PPC only, or a web or

SEO agency that offered PPC as an add-on?• Number of other services offered• Are projects single service or multi-channel

@AnnStanleyTypical evolution of an agency –the early years

Freelancer

Sales and

marketing

Technical &

Delivery

(operations)

Finance

and admin

Founders/Directors

specialise in specific

areas and start to

employ staff to help

delivery and growth Experienced

account

managers

TraineeExecutives

Experienced

account

managers

Freelancers that work on

their own or leave another

agency to “go it alone”

Co-

founders

Co-

founders

Co-

founders

Group of 2-3 friends or

colleagues decide to

form own agency

Co-

founders

Co-

founders

Co-

founders

Group of 2-3 friends or

colleagues decide to

form their own agency

@AnnStanley

Offering multiple services and channels

@AnnStanleyTypical departments structure –

larger agencies with multiple channels

Sales & marketing

Finance and admin

Operation director

Head of paid media

Account Director

Account manager

Executive Executive Executive

Account manager

Executive Executive

Account Director

Head of SEO

Technical SEO account director

Technical SEO account manager

Content marketing account director

Content marketing account manager


Content marketing executive

Outreach and online PR account director

Outreach and PR account

manager

Technical Support

@AnnStanley

The main role of heads of department

Technical specialists and thought leaders• Technical specialists, carrying out daily research on latest techniques and tools

• Regular thought leader blogging

• Speaking internally and at external conferences

Team management• Team management (staff capacity and skills)

• Knowledge sharing of techniques, including internal training of new and existing staff

• Run regular “show and tell” sessions on latest techniques

• Admin and HR duties

Working on client projects• Carryout random quality control checks

• Coordinate testing of new techniques (or tools) on live accounts

• On-call for client meetings and pitching – where a technical expert is required

@AnnStanley

Adding client services specialists into the mix –acts as the conduit for client communications

Sales & marketing

Finance and admin

Operation director

Head of paid

media

Account Director

Account manager

Executive Executive Executive

Account manager

Executive Executive

Account DirectorClient account

manager

Head of SEO

Technical SEO account director

Technical SEO account manager

Content marketing

account director



Content marketing executive

Outreach and online PR

account director

Outreach and PR account manager

Client account manager

Technical Support

@AnnStanley

Implementing a Pod or matrix structure

@AnnStanleyReasons for going from departmental

to pod/matrix structure

• Tendency for teams to work in silos – each with their own technical and account management

• Introduce client account managers to act as a bridge between the client and technical teams

• Non-technical client account management – acting as a conduit for all communication in both directions

• More commercial and technical client account management – providing first line support

• Introduce multichannel teams or “pods” – with client facing account manager (or client account director)

• Flexi-pods – teams brought together for each clients’ project, but teams change for each client

• Permanent pods – same team working together for all their clients’ projects

@AnnStanley

Examples of team structures by channel

Head of department

Account directors Account managers

Executives Totalstaff/days in

team

Earning potential at £650/day

Direct incomegenerating days/month

5 10 15 18

Paid media Head of paid media

Account directors (AD) x 2

Account manager (AM) x 2

Executives(EX) x 2

7 staff91 days

£59,150

SEO, Content, outreach and PR

Head of Technical SEO

Technical SEO (TS) x 2 340 days

£26,000

Head of Content,

outreach and PR

PR account director x 1

Content market (CS) x 2

Outreach (OS) x 2

PR manager x 1

690 days

£58,500

Social Head of Social Social (SO) x 1 Social (SO) x 1 3 30 days

£19,500

@AnnStanley

Creation of pods and matrix management – allocation of staff per client team

Client account director

Client account director 1 Client account director 2 Client account director 2

Clients 1 5 6 10 13 2 7 8 11 12 14 17 3 4 9 15 16

Head of

paid media

AD1AM1EX1

AD1AM2EX2

AD1AM2EX2

AD1AM1EX1

AD1AM1EX1

AD1AM2EX2

AD1AM2EX2

AD1AM2EX2

AD1AM1EX1

Head of SEO

TS1 TS2 TS1 TS2 TS1 TS2 TS1

Head of

Content, outreach and PR

CS1

OS1PR2

CS2

OS2PR1

CS1

OS1

PR1

PR2

CS1

OS1

CS1

OS1PR1

CS1

OS1PR2

CS1

OS1PR1PR2

Head of Social

SO1SO2

SO1SO2

SO1SO2

SO1 SO1SO2

@AnnStanleyThe main roles of client account directors

(POD managers)

• Client communication at a strategic level and as part of monthly reviews

• Overseeing client satisfaction and quality of work

• Business development and sales

• Account development (cross and up selling)

• Contract renewals and future sales

• Reporting against financial targets

@AnnStanleyPros and cons of working with a POD

and matrix management system

Advantages Disadvantages

• One point of contact for the client • Only works once an agency hits a certain size

• Client account director owns the relationship

right from the start of the BD process

• Account director has to learn a lot of new skills and

have the confidence to answer the clients’

questions

• Should increase revenue from upselling and

increased client satisfaction and retention

• Additional cost for agency to provide management

• Agency still retains channel expertise within

the heads of department

• Staff may not know which manager they need to

turn to

• Takes away some of the problems caused by

departmental silos

• Client will often want to still talk to their original

technical contact

• More commercial and strategic approach • Relies on the client and client account director

having a good relationship

@AnnStanley

Traditional

Mar

keti

ng

&

even

ts

Lead

gen

erat

ion

Qu

alif

y

Au

dit

Pro

po

sals

& P

itch

Ord

er S

ign

ed

Han

do

ver

Differences between the business development processes

Clie

nt&

pro

ject

M

anag

emen

t

Marketing

and BD

Pod and matrix


and technical teamMain

responsibilityAssist

in task

Assist

in task

Main

responsibility

@AnnStanley

Traditional process

Han

do

ver

Kic

koff

mee

tin

g

Clie

nt

Co

mm

s.

Tim

e an

d t

eam

m

anag

emen

t

Rep

ort

ing

and

QC

Up

sell

and

Cro

ss s

ell

Pro

ject

rev

iew

s

Differences between client and project management processes

Co

ntr

act

Ren

ewal

Marketing

and BD

Pod and matrix


and technical team

@AnnStanley

Part 2 –Understanding agency

profitability

@AnnStanleyFactors that affect agency

profitability

• Income factors – charging model, day rates etc.

• Efficiency of the project management and staff utilisation etc.

• The project outcome – what happened during or at the end of the project - termination, renewal, upsell, retention/churn etc?

• Cash and cost management

• Automation of processes – the use of tools and resource management software

@AnnStanley

Income factors

@AnnStanley

Charging model• Attitude/culture towards pricing - transparency, day rates, value-

based fees

• How do you charge? - a % of spend, fixed prices, monthly retainer with a price per day or based on the hours worked (billable hours)

• Contract type and duration - do you mainly have short term projects or long retainers with a fixed number of days per month or maximum spend per month?

• Type of service often influences charging model:• Consultancy/strategy – fixed price or day rate (with a premium price)

• Paid media – could be percentage of spend or commission from supplier

• PPC, Social and PR - often days or fixed price per month

• SEO - setup days/cost followed by a retainer with fixed price or days per month

• Web – fixed project price or billable hours/days

@AnnStanley

Day rates• Do you have a published rate card or do you just give a price for the

job?

• Typical day rates – (see detailed rates in subsequent slides)• Freelancers - £200-£500 per day

• Regional or small agency - £400 - £750 per day

• Larger or London based agency - £500 - £1000+ per day

• Are you charging enough to make a profit?

• Are you competitively priced or expensive in your market?

• Does your day rate vary according to the level of staff working on the account?

• Do you have a USP or add extra value that allows you to charge more?

• When did you last put up your prices?

@AnnStanley

Other factors impacting incomeQuality of the prospect/client

• Effectiveness of branding, marketing and new business development

• Quality of leads and ability to convert prospects to sales

• Positioning and perceived value in the market – what is your reputation (awards, current clients, case studies) - so do you attract the right size of prospect with sufficient budget?

Size of contract secured

• Actual amount charged – did you give a big discount (e.g. to fill capacity or cover overheads) or did you charge a premium for bigger brands?

• Did the client contract you for more than one (or all) of the services that you offer?

• Original and actual duration of contract - was there a break clause or did they renew?

Other methods of income generation

• Can you get additional income from other services, commissions, fees etc?

@AnnStanley

Efficiency factors

@AnnStanley

Efficiency management of the project

• Was the quote and scope accurate – or did you need more time?

• Number of days worked vs contract (over-service) = what was your actual day rate vs quoted day rate?

• Did you have enough skilled staff by department to deliver projects (capacity management and utilisation by department)?

• What level of staff worked on the account – did you get a mix of staff with different levels of experience and salary costs?

• Did you have full utilisation of direct staff or were they working on too much non-income generating activities?

• Can you automate processes to save staff time?

@AnnStanley

Outcome of the project

@AnnStanleyWhat was the outcome of the project? (renewal, retention, termination, upsell etc.)

• Did the contract finish early – e.g. did the client activate a break clause or did they terminate the contract early?

• Did you upsell and cross-sell other services?

• Retention rate – did they renew their contract and for how long?

• Was the client happy with your service and results - would the client reuse or recommend you?

@AnnStanley

Cash and cost management

@AnnStanley

Cash and cost management

• Credit control – what are your payment terms, who is responsible for credit control, how long does it take to get paid (debtor days)?

• Bad debts - did you receive the cash or did they go out of business (did you do a credit search before agreeing your terms)?

• Are you using GoCardless for collecting direct debits for retainer clients?

• Did you keep other costs under control or did you recharge expenses, e.g. for the use of tools, travel costs etc?

• Does the income generating staff have to support a high salary bill and costs of support staff (i.e. non-income generating)?

• How quickly do you get the information from your accounting systems and any management dashboards or reports (e.g. use of Xero and Fathom reports) – does it give you the data you need?

@AnnStanley

Advice on how to get paid faster*

Source: WOW accountants

@AnnStanley

Use of automation to increase efficiency and

productivity

@AnnStanley

Automation of PPC processes Option 1 – reporting software

• Start with low cost reporting systems that have API access to AdWords and Analytics – as this could save 2-4 hours per project each month as compared to manual reporting

• Many packages offer a free trial and then a low monthly fee based on the number of accounts

• These packages are not necessarily designed for PPC management and can often be used for other services like SEO

Option 2 – PPC management software

• Invest in PPC specific software with reporting and additional optimisation (or recommendations)

• Some packages may have bid management functionality

Option 3 – PPC enterprise software

• For larger agencies with bigger accounts it may be worth investing in enterprise PPC software with more sophisticated functionality

• One disadvantage is that some packages charge a percentage of spend, and often have a minimum monthly fee of more than £1,000

Specialist functionality

• There are other tools like Whoop and Twengo that can be used for managing shopping ads

• You can speed up ad testing with tools like AdAlysis or use A:B testing tools to improve landing pages e.g. UnBounce

• There are a whole range of feed management and shopping platform management tools available

@AnnStanley

Packages for reporting only

Name Monthly Pricing

Campaigncoa.ch $1.35- $2.70

Dashthis $39- $599

Marketflare Free

NextAnalytics $40- $95

Ninjacat $599- $2599

Quantify Free-$699

Raventools Free- $107

Report Garden $49- $389

Reportingninja $20- $120

Reportingsuite Unstated

Supermetrics From $49

Swydo $60- $360

@AnnStanley

PPC specific tools

Monthly Pricing % of ad spend pricing

Aquisio $149- $1899 No

Altus £79- £812 No

Optymzr $116- $449 No

Wordstream $249 No

Shape $299- $499 No

Clicksweeper Unstated Unstated

Kenshoo Unstated Yes

Marin Software Unstated Yes

Adspike N/A 4% of monthly PPC Budget

Adspert £299 2.5% of monthly PPC Budget

@AnnStanley

Use of resource management software

(including - timesheets, task management, capacity planning and utilisation)

@AnnStanley

Features of resource management toolsOption 1 – simple recording time and task management (sometimes free)

• Use of task management tools such as Asana, Trello

• Use of time recording software such as Harvest

Option 2 – as above plus project and capacity management

• Project scheduling based on tasks

• Capacity management for each member of staff

• Matching of tasks and staff – so gaps and utilisation can be measured and managed

• Sphisticated time recording and reporting

Option 3 – as above plus more complex agency management including project finance

• Automated resource allocation

• Burn down (billable hours) and retainer projects (hours per month)

• Day rates charged by client, project or staff vs salary costs per staff or team role

• Quote creation and invoicing

• Expense management

• Profitability by project

• Integration with account packages (such as Xero) and other software e.g. CRM packages

@AnnStanleyOther functionality –

depending on package

• CRM - prospect, lead management and contacts

• Messaging and team communication

• File storage e.g. for contracts and reports

• Project management functionality including agile development, Gantt charts, critical path etc.

• Full accountancy functionality

@AnnStanley

Simple time and task management

Task management and tracking

• Asana

• Britax24

• Podio

• Trello

Time recording

• Harvest

• Toggl

• MyHours

• Tsheets

• PayMo

@AnnStanley

Resource management packages

@AnnStanley

Pricing models

• Freemium – some have packages where it is free for 1 user with a limited amount of projects

• Price per user per month – most offer this model with prices from £10 to £50 per user per month. The different packages vary depending on the functionality

• Fixed monthly fee – some offer this model and have packages which increase in price depending on the number of users and features

• Typical packages for different agency sizes• 5 staff/users – free to £200 per month• 10 staff/users - £100-£500 per month• 20 staff/users - £200 - £1000 per month

@AnnStanley

Part 3 –Agency KPI and benchmark data

@AnnStanley

KPI that you should be tracking - accountancyTotal revenue or sales

• This is made up mostly of the work you actually do for your clients i.e. your fee income

• However, the total revenue or sales will also include any ad spend, third party costs, commission, grants, events etc.

Growth in revenues

• Most agencies are growing their revenues year on year – this is expressed as a percentage

Gross profit

• After you have deducted the cost of sales, such as referral fees, ad spend, freelancers etc. you will be left with the real income you have made; consequently gross profit is often used as a basis for many other KPI

• For agencies that don’t pay their clients’ ad spend, gross profit will be around 90-95% of their sales revenue

Operating profit (or net profit)

• This is the profit left after you deduct all the wages and running costs of the business

• Net profits for digital agencies are typically between 5-20% and can be used to reinvest in growing the agency and/or to pay dividends to the shareholders/owners of the company

Salary cost as a percentage of revenue

• Agencies will typically have salary costs of around 60% of their gross profit, unless they are over-staffed or experiencing salary inflation

• Salary inflation occurs when there is a shortages of skilled staff and you need to retain good staff. This varies according to location and type of agency but salary inflation can have a big impact on reducing profitability

Other costs of running an agency

• Other costs will be 20-30% of the revenue and a larger percentage of this will be for marketing and cost of tools or software

• Costs will vary according to location (which influences rent and office costs) and how much an agency is trying togrow (which influences marketing costs)

@AnnStanley

KPI that you should be tracking - efficiencyFull time equivalents (FTE) and direct/indirect staff ratios

• Staff that work on income generating projects are often called direct staff as compared to indirect or support staff

• The number of full time equivalents is the total number of direct staff taking into account any part-time workers

• Agencies with 10+ staff often have 75-80% direct staff and 20-25% indirect/support staff. Smaller agencies will have a lower proportion of support staff

Utilisation rates

• Direct staff should each be allocated a target number of days per month for income generating work. This will be 25-80%, depending on their management and other duties

• The utilisation rate is the total number of allocated direct hours as compared to the total number of hours for all the direct staff. This needs to be at least 50% of the total direct hours (for a team of 5 or more managers and technical staff)

• Certain types of agencies (such as PR and media buying) and smaller agencies often have much higher utilisation rates resulting in higher net profits

• You also need to compare the actual direct days against the allocated days!! This needs to be calculated by project to determine under or over servicing. Low utilisation rates and over-servicing clients can have a big negative impact on profitability

Earnings per FTE

• Earnings per FTE is a common method used to determine the average amount of fee income per FTE (often measured using gross profit). This can be expressed as earnings per month e.g. £6000 or per year £72,000

• Earnings per FTE gives you an idea of the utilisation of staff and the average project size, but it does not give an indication of profitability - as it does not take into account the cost of the staff working on the projects

Ratio of the revenue divided by salary for each employee

• This measure is used to give individuals an idea of the amount of revenue they need to earn as compared to their salary –this is typically 3 to 5 times. So if they earn a salary of £24,000 they should work on projects that generate more than £72,000 of income per year.

@AnnStanleyExample of an agency dashboard -

includes BD and client KPI

Source: WOW accountants

@AnnStanley

Agency benchmark studies

@AnnStanley

Sources of agency benchmark dataEntrepreneur.com (November 2015)

• Research by Alex Tachlova – agency survey of 1000 international agencies

• https://www.entrepreneur.com/article/252933

Kingstone Smith Accountants (November 2015)

• Top 50 UK agencies and top 30 digital agency

• http://www.kingstonsmith.co.uk/wp-content/uploads/2016/04/MarketingMonitorSpring2016.pdf

Kingstone Smith Accountants (Summer 2016)

• Top 30 digital agencies

• http://www.kingstonsmith.co.uk/wp-content/uploads/2016/07/Marketing-Monitor-Summer-2016.pdf

WOW accountants (March 2016)

• 347 independent UK agencies

• http://www.thewowcompany.com/files/5414/6114/8194/Wow_BenchPress_Report_2016.pdf-

@AnnStanley

Services offered and payment models

@AnnStanley

WOW – type of agency (out of 347)

@AnnStanley

Entrepreneur.com – services offered

@AnnStanley

Entrepreneur.com – payment models

@AnnStanley

Day rates

@AnnStanley

WOW - Average hourly charge 2016

The average day rate was

the same for 2016 and 2015

@AnnStanley

Entrepreneur.com - Hourly rate - UK

Conversion rate $1 = £0.67

@AnnStanley

Entrepreneur.com –Hourly rate US and EU

@AnnStanleyAverage day rates 2016 (Wow and Entrepreneur studies)

$ hourly rate

Equivalent £ hourly rate

UK freelancers

UK small agencies

<50

UK large agencies

>51

<$50 <£33.5 3% 0 0

$51-$60$60-$75

£33.5-£40.2£40.2-£50.25

19% 11% 0

$76-$100 £50.25-£67 25% 10% 4%

$101-$150 £67-£100 21% 47% 12%

$151-$200 £100-£134 17% 6% 9%

$201-$250 £134-£167 5% 13% 11%

$251-$350 £167-£234.5 7% 8% 19%

$350-$500 £234.5-£335 3% 5% 40%

Hourly Rate WOW 2016 % charging

this rate

£25 1%

£26 - £50 2%

£51 - £75 32%

£76 - £100 44%

£101 - £125 14%

£126 - £150 1%

£151 - £175 2%

£176 - £200 1%

£200+ 1%

Day Rate

£200

£201 - £400

£401 - £600

£601 - £800

£801 - £1,000

£1,001 - £1,200

£1,201 - £1,400

£1,401 - £1,600

£1,600+

@AnnStanley

Project size

@AnnStanley

WOW - Minimum project value

Note this is project value

– so for retainers this

might be for 6 or 12

months

@AnnStanley

WOW - Average project value

@AnnStanley

Entrepreneur.com - Client size

@AnnStanley

Average monthly retainer - UK

@AnnStanleyAverage monthly retainer –US and Europe

@AnnStanley

Revenue, growth and profitability

@AnnStanley

WOW - Turnover band

Only 31% of the agencies in

this study had a turnover

above £1m

@AnnStanley

WOW - Turnover growth

@AnnStanleyKingstone Smith – 2015 vs 2014

Income growth and profit margins

@AnnStanleyKingstone Smith - Comparison of revenue

vs operating profit – 2008 to 2015

@AnnStanley

Efficiency and staff costs

@AnnStanleyKingstone Smith 2015 vs 2014 –

top 30 independent agencies (digital)

• Revenue grew by 11%

• Employment costs at

58.8%

• Other costs 35.2% -

which these have

significantly increased

@AnnStanley

Kingstone Smith 2015 - top 30 digital

• Gross income was up 11%

• Staff numbers were up 8% but salary costs increased by 12%

• Average employment costs per head rose 3.5% to £54,669 as

compared to ~£93,000 earnings per head

@AnnStanleyKingstone Smith Summer 2016 –Operating profit, income per head and %

employment costs for top 30 digital agencies

@AnnStanley

Critical success factors to increase agency

profitability

@AnnStanley

Critical success factors for increasing profit• Increase contract value

• Increase actual day rate charged (increase rate card and do not discount)• Increase size of contract - by offering more services/days per month and longer contract durations

• Increase actual day rate achieved• Do not over-service contracts – accurate estimate of days and scope during negotiation, get work right first

time and manage clients demands

• Increase sales from existing clients and retain happier clients for longer• Sell more to existing clients• Reduce client churn at the end of projects

• Staff utilisation and capacity management • Increase utilisation of staff - ratio of direct hours to indirect hours worked• Optimise the type/cost of staff working on direct work - ratio of junior staff to senior management staff (as this

will reduce salary costs of the project)• Staff recruitment and retention (balance of remuneration vs staff retention)• Maximise revenue/direct staff vs support staff

• Find efficiencies running the business • Such as reducing wastage, managing other costs, economies of scale, credit control and cash

• Develop other revenue streams • Such as commission or referral fees

@AnnStanley

10 free tickets for ecommerce conference in Leicester on 31st Oct

@AnnStanley

Thank you [email protected]