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Profit & Growth Tips for Digital Agencies

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8 Reasons Small Agencies Fail (And How to Overcome Them)

Posted by Nicolas Jacobeus on Sep 21, 2016

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How healthy is your digital agency? Is it thriving, or are things feeling a bit unstable?

Growing a digital agency is full of uncertainties, and success is by no means guaranteed. So today I’m looking at 8 common reasons why small digital agencies fail – with tips on how to overcome them.

1) Lack of Strategy

A lack of strategic direction can be a killer for any business. If your agency has no goals, no growth targets and no direction, you’re just treading water, hoping that everything will be OK.

Solving this problem is simple, but not easy. You need to put together a defined, measurable strategy for your agency – something which will take a lot of time and effort. But creating a strategy for growth is the first step towards stabilising your agency and securing its future.

2) Too Generalist

A generalist agency has nothing to set itself apart from its competitors. Agencies with a specialism will have a more experienced, skilled team compared to your agency. The work your agency does won’t be as good as that done by a specialist agency, because you will have so many services on offer and your employees will have a wide breadth of skills, but no depth.

This can be avoided by identifying your agency’s most profitable types of work, and then specialising your agency accordingly.

3) Not Focusing on Profitability

This is linked to being a generalist agency rather than a specialist one. You will have so many different types of project to work on, and will most likely be focusing on generating revenue rather than profit. But working in a profitable way is essential for agency health and growth.

If you’re prioritising revenue rather than profit, then it’s time to refocus your attention and work out the profitability of all your projects. This will help you understand where to prioritise your efforts in order to grow your agency in a sustainable way.

4) No Procedures or Processes

For creative agencies, the thought of establishing processes and procedures for their way of working can seem like it will stifle their creativity and impact the quality of their work. However, processes are simply a way to document and share your team’s learnings from past mistakes and failures. They will also help improve your efficiency, which in turn can boost profitability by cutting down on wasted time.

Learn more: 7 Processes Your Digital Agency Should Be Documenting

5) Poor Hiring Strategy

Hiring mistakes are one of the biggest, most costly mistakes your agency can make. Hiring at the wrong time, for the wrong skill or at the wrong level of seniority can all be devastating, as your agency’s cash flow will take a major hit. And if you’ve hired the wrong person (whether for the wrong skill or at the wrong level), you’ll need to re-hire to fix that mistake.

Fortunately, with the right insights you can drastically improve your agency’s hiring strategy.

6) Trying to Grow Too Fast

This can easily stretch an agency to breaking point: you take on more work to increase revenue, then hire more staff to cope with the increased workload, but if the work dries up then you’re left with higher costs with no source of revenue.

Instead of trying to grow as quickly as possible, you should focus first on laying the foundations for sustainable growth: a stable workload and a talented team, and clearly defined processes, before you accelerate your agency’s growth.

7) Poor Financial Management

Whether it’s not sending invoices promptly, or not chasing up unpaid invoices, poor financial management can seriously damage your agency by hurting your cash flow.

The best way to improve this is to either outsource the financial processes (though financial strategy should still be handled by your agency directors), or hire someone who specialises in financial management to handle that aspect of the running of your agency. This will cut down on mistakes and reduce the drain on your time and energy.

8) Not Prioritising Team Growth

The success of your agency depends on your team. In a small agency, it’s not possible to have a clearly defined route of progression for your employees to advance their career, as it’s often quite a flat structure. So it’s important to offer opportunities for your employees to develop in other ways: learning new skills, improving existing skills or transitioning into new areas of the business.

how to make your digital agency profitable

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