Good People = Growth, A Financial Analysis

Not so long ago, I was helping run a digital agency - and our paid media guy was the bees knees. He knew it too. He'd grown our biggest account by simply being very good at his job, and his salary demands increased in line with the size of the client.

Running a digital agency is hard work. It's hard because you don't have a physical product, you are a service that is a combination of process and people, built on the same technology that everyone else has. Some agencies have their own tech, sure - but at the heart of it, there are two things agencies can control - process and people.

And can you really control people?

Basic Digital Agency Maths

Most agencies work on a retained basis, too. It's good for cashflow and projections. And you can grow those retainers over time if you grow your client or if you add on new services that provide growth.

The finances can look relatively simple, too. If you want one person to service £10,000 worth of work per month, then they look after 4 clients each paying an average of £2,500 per month.

But given the mix of skills, that's not possible, so let's say you have two people covering two disciplines of digital marketing, and they now need to look after £20,000 worth of work per month - that's 8 clients at the average of £2,500.

Those are basic underlying figures that many digital agencies work towards.

But you can modify them.

The Value of Good - or Bad - Employees

A really talented employee can increase the value of retainers, without even putting in more time. So they could actually be delivering £12,000 worth of retained value every month - another £2,000 onto the bottom line.

A less talented employee could lose a retainer, simply by not getting good results. So they'll end up churning through your clients, reducing the available pot and eventually potentially not even working to a profit.

You can have all the processes you like internally, but if they're mucking up your clients' ad campaigns, all of that hard work is destroyed - as is your reputation with that client.

The Cost of Departure

There is, of course, a cost to hiring - which includes the cost of losing people. There have been studies over the years that put this figure at £30,000, which feels a bit MADE UP, but let's throw in a few financial factors that would make up a more accurate figure:

• Reduced productivity during their notice period (intangible, perhaps)
• Recruiter costs, 20% fees
• If not using a recruiter - the cost of your time to write job specs, post on job boards, source candidates, interview them (estimated at 3-4 working days depending on interview volume)
• The cost of freelancers during an interim period without this person in place
• The reduced productivity as new person on-boards and gets up to speed

If everyone has a one-month notice period, then it's highly likely you'll have a period without someone in place - putting a strain on your existing team members. Or yourself.

Mitigations

We're not here to talk about retention - but obviously the longer you can keep your good people, the better. But nobody stays forever - the best you can be is an amazing stepping stone, and often you need a bit of churn to keep things fresh.

But hiring is a significant cost as outlined above - in both tangible and intangible terms (which become tangible once you put them in motion).

There are ways agencies can mitigate against this.

When we lost our paid guy, we hadn't mitigated. The result was a succession of people who just weren't as good, and clients noticed.

So what did we do?

• We decided we'd get to know EVERYONE in our area who may one day want to work for us
• That was split up into our disciplines (SEO, PPC, Account Management)
• We connected with as many of them as we could
• We marketed to them - expertise, culture, values...
• We reviewed our hiring processes & made them as quick & as testing as we reasonably could
• When anyone told us they were leaving, we could activate our talent pools
• Amazingly, they knew all about us already!

This also meant that we could plan ahead. Not only would we be able to account for the inevitable churn - we'd be able to plan ahead so that - say - in 6 months' time, we would have this person in place, and in 9 months' time, we'd have that person in place.

Good people = growth

Agencies frequently go through periods of stretch and strain as they grow. Clients come on board, they go into existing teams until there's too much strain, and then new people come on to manage the stretch.

That's a solid way of growing an agency.

And if your pipeline is full of really talented people, then you can mitigate against the costs of people leaving and start planning for your growth in advance.

Remember, you are not just a digital agency - you're in the results business. People turn to you not just for your processes and your methodology, but for the quality of your talent - and they leave agencies because of the lack of quality of their talent.

It's that simple. Good talent can add extra margin on accounts, grow the size of your accounts, and keep them for longer.

Losing talent can reduce margin on accounts, lose those accounts permanently, and can even have a knock-on effect within the team.

If you'd like to know more about how we can help you attract better talent, reduce those recruitment costs (including ours), and plan for growth, get in touch. We've been there. We've worn the t-shirt. We won't make you wear it too.

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