How growing agencies can maintain healthy margins as they scale

Posted by: The Teamwork team /

Discover three strategies for preparing your agency to scale without compromising those healthy margins you worked so hard to achieve.


Maintaining healthy margins is a juggling act that only gets more complicated as a company grows. 

At first glance, there are only two main factors at play when you analyze your agency’s margins: how much you spend on salaries, and how much you make from billable hours. Earlier this year, we wrote about different ways to leverage and increase your margins under these circumstances.

But as you grow, new factors are introduced into the equation:

  • Accountability. When there are only a few people on your team, it’s easy for every person to have a peripheral view of who’s responsible for what. As the team grows, however, it’s easy for individual team members to lose sight of everything that needs to get done.
  • Quality. In the early days, you can work directly with new hires to get them up to speed. But as your company grows, it becomes more difficult to pass down knowledge, and the quality of the work you deliver might suffer. 
  • Communication. With a large team, communication starts feeling like a game of telephone—by the time a critical detail reaches the third or fourth person, it’s muddled. The longer the telephone line is, the longer it takes to implement any sort of changes, trade information and solicit feedback. 

The things that were easy with a small team become problematic as your agency grows in size. You have to find a way to address these growing pains without compromising your margins.

In a service-oriented business, you have to stay lean to survive—so you can’t deal with these growing pains by hiring a bunch of managers and experts. You have to implement systems that will improve how well your team works together and then streamline their work days so they can maximize their billable hours. 

Here are three ways to prepare your agency to scale while maintaining those margins you worked so hard to achieve.

1. Create Specializations to Increase Accountability

When your customer base is still small, responsibilities are extremely clear. You might pair each team member with one or two clients and periodically check in on the status of their work. As your team grows, however, you can’t personally supervise every single person. 

This is when most agencies hit a period of disorganization. Many people have been around for a while so they’re entrusted to keep track of their own work while simultaneously managing and training new hires. Veteran team members are spread thin, and new hires may not receive the guidance they need.

Eventually, a flat structure devolves into no structure at all. 

Specializations

At this point, a product-oriented business would start hiring managers and introducing a hierarchy to the company structure. But in a service-oriented business, it’s harder to see an ROI on those managers. Every person you pay who doesn’t do any billable work drastically affects your margins.

Let’s say you hire a manager (earning 70K annually) for every five employees (50K annually). If your agency charges $80 per billable hour and logs 7 hours per day, here are the margins you’re looking at:

Margins

You shouldn’t have to compromise your margins 20% to improve process and team performance.

Replace managers with specialists

A better team structure can be developed if you consider the following diagram:

specialists

A team that’s run by managers is in the bottom right quadrant. They function as a team but aren’t autonomous. This creates a top-down structure that doesn’t enable individuals to work together to generate the best solutions. 

Instead, you need to create an autonomous team (upper left quadrant), that’s lead by a specialist rather than a manager. That specialist still does billable work but also supervises team members who are growing towards that same specialization. Under the specialist-led model, teams are free to make more of their own decisions and the need for hourly supervision from a manager is eliminated.

Depending on the services that your agency offers, you might want to create specializations based on:

  • Campaign type (e.g., social ads, pre-roll video ads, search ads)
  • Customer vertical type (e.g., media companies, publishing companies)
  • Customer size (e.g., companies with <100k ARR, companies with <500k ARR)

From there, you’ll need to clearly define the role of your specialists and team members. Try to keep supervising responsibilities down to about 20% of a specialist’s time, and have them spend the rest of their time leading by example. This might mean tweaking your hiring process to recruit people who are autonomous and capable of succeeding without a rigid structure.

This setup will create a growth trajectory for your agency.

2. Scale Your Expertise to Improve the Quality of Work

In the beginning, you personally train every hire—but as your team grows, that’s no longer possible. You have to create an onboarding process that guarantees consistent results without your personal involvement.

According to one survey, 44% of leaders consider their organization to be ineffective at onboarding new employees, and 66% consider the organization to be ineffective at transferring knowledge to their replacements. This happens because it’s virtually impossible to pass down experiential knowledge completely.

Let’s say you’ve worked in marketing for ten years. In the best case scenario, you design a really great onboarding process that enables you to transfer 90% of the onboarding information down to the first generation of hires. Once the company grows, those same hires condense what they’ve learned and are only able to transfer 90% of that to new hires. Four generations later, only two-thirds of that knowledge remains. If your onboarding process isn’t quite as great and only 50% of knowledge is passed down to the first generation, less than 10% makes it to the fifth generation.

Here’s a comparison of three different scenarios:

scenarios

With this system, each generation essentially acts as a filter that only passes down what they deem important, which can vary greatly among individuals. No matter how great you are at passing down information, a good portion will get lost along the way to personal perceptions and priorities. 

When a founder sees the quality slipping, they often go for the most obvious solution: hire people with more experience, even if that cuts into their margins. They figure that an improved ratio between novices and experts will result in more oversight and better outcomes.

But people with more experience aren’t necessarily great mentors. They might create better ad campaigns or conduct more thorough market research, but they’re not necessarily improving the existing team’s quality of work. This solution is both expensive and temporary. 

Replace experts with onboarding resources

You can’t instantly transfer your expertise to a new hire or train each one yourself, but you can create onboarding resources to ensure that all of the essential information they need is in one place. If you can codify your experience, you can pass it down to not just one generation of employees, but all future employees.

Here are a few ways to get started:

  • Internal documentation. Keep a database that includes technical walkthroughs, step-by-step instructions, and tips and suggestions for how to handle various situations. This database can include email templates and call scripts for engaging with customers, resources for great market research, a protocol for new client onboarding, and internal policies.
  • Onboarding videos. Not all your team members will learn effectively through written walkthroughs—some are visual learners. You can use a tool like Soapbox to create split screen videos that show you and your computer screen. New team members can watch the video and follow along on their own screen as they learn your agency’s internal tools and workflows. If Soapbox isn’t the right fit for you there are a plethora of other tools to choose from including WalkMe, Screencast-O-Matic and Jing.
  • Solicit ongoing feedback.  Provide a place for team members to leave feedback on documentation so that it can be improved over time. They might point out gaps in the knowledge docs as they attempt to handle a new type of client or suggest changes based on more efficient ways of collaborating on projects. You can gather feedback by sending around surveys or creating a Q+A forum where questions can be asked about the documentation. 

A few videos and some “best practices” in your onboarding documentation is enough to get started. Over time, you can add more resources to expand the knowledge base available to your team. 

3. Use Technology to Reduce Meetings

When your team consisted of a handful of people, a single, ten-minute meeting was enough for any kind of knowledge sharing. But as you hire more staff, you’ll start hearing things like “Wait, since when?” or, “I don’t know anything about that.”

Shopify’s product director has illustrated the problem with this diagram:

Better communication

This visual shows how the number of meetings grows exponentially as you hire more staff. With four people, you’re looking at 11 possible meetings, and with five, that number triples to 31 potential meetings.

For example, a marketing analyst might only need one meeting with three people to discuss the campaign everyone’s working on. In the twentieth stage, the same marketing analyst might be scheduled to meet once with their whole team, once with their manager, and once with every collaborator for all five of the ad campaigns, they’re working on. Without a limit on the number of meetings, each team member could spend all day in conference rooms. 

A quick twenty-minute meeting here and there might seem like it doesn’t take up much time, but if you include the prep time (30 minutes) and the amount of time it takes to refocus (25 minutes), it adds up and cuts into those billable hours (and your bottom line). 

Again, if you take five employees (paid 50K annually) who log 7 hours a day at $80 an hour, here are the margins you’re looking at each week:

Growing agencies can maintain healthy margins

Communicate more effectively anytime, anywhere

The main functions of meetings are to share information, discuss progress, and brainstorm solutions. Well-designed software enables teams to perform the same functions, but asynchronously. Team members can contribute to discussions from wherever they work without repeatedly pulling them away from billable tasks.

You can use a project management software like Teamwork Projects to improve communication, avoid interruptions to valuable work time and keep an instant record of discussions and decisions. The platform has three main benefits for agencies, specifically:

  1. An overview of project status where creatives can check in and get an immediate progress report at any given time. With the Project Summary feature in Teamwork Projects, you can see what tasks are late or nearing deadlines, time logged on the project overall, how the workload is distributed and more.

dashboard2. A platform for collaboration where team members can discuss, and work together on projects asynchronously. With Teamwork Projects, you can share information, ideas and documents with your team regardless of physical location.

taskdetails

3. A searchable, central location for knowledge-sharing where any team member can locate up-to-date details about a client, a project, or an initiative. Teamwork Projects’ powerful search function allows users to quickly find anything from a task to a file or message with just a few clicks.

teamworksearch

Use Growing Pains as an Opportunity to Improve

As your agency scales, you can use these strategies to expand and stay profitable. While in-person communication will never go out of style, new methods of training new hires and sharing information can help your team grow without draining your schedule or damaging your profits.

Prepare for this growth by choosing the right team structure, creating onboarding resources to help provide consistent training and using project management software to keep everyone on the same page without lengthy meetings. This reliable but flexible foundation will allow you to prepare your agency to scale without compromising those healthy margins you worked so hard to achieve.

enterprise

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