Marketing, media and advertising agencies are different! Not only in what and how they do things but also in their commercial arrangements which affects how they measure and report financially. Take a read and learn what makes agencies different and can improve how they forecast.
Traditional accounting devises budgets around Cost Centres. Within marketing companies the costs are focused around people, projects and campaigns. Customers are much more central in the model, not unlike professional services companies. This makes forecasting much more fluid and dynamic, and the accountants need to up their game to keep pace.
More dimensions to measure profitability
The holy grail for many creative companies is being able to measure and forecast profitability by Customer and Campaign. People often represent both revenue and cost. The ability to identify costs and revenue according to where people charge their time is the critical. Added to this is the complexity that people may be split across many projects and campaigns, and charged differently in each!
Using traditional accounting methods it is difficult to capture so many strands of information in a useful format, and even harder using existing tools like Excel.
The final presentation needs to hit the mark too. Relevant visual dashboards rather than tabular numeric reporting is far more likely to get the message across to the typical Agency audience. This all adds up to a lot of time and complexity in producing budgeting and forecasting packs for the finance team.
multiple REVENUE STREAMS
As a company that builds forecasting models as our day job - we accept that revenue always needs to be built bespoke. A typical company has many revenue streams with multiple drivers.
The variety of revenue streams has expanded as organisations find new ways to structure their income and offering. In an agency, a customer may have a full outsourced service on a retainer; a project based delivery invoiced in arrears or a time and materials contract based on chargeable time. Its not unusual to see customers with all three at the same time.
This portfolio of services may be charged by multiple teams of people along with with associated supplier costs and expenses. Matching all of these together to give views by company, agency, customer and campaign is quite a challenge. This demands a far greater degree of flexibility and functionality than Excel can provide, to model and predict future profitability.
All about people
When profitability hinges on people, hours worked and projects, being able to forecast forward is critical to manage resourcing efficiently. When to hire or expand a team as well as the impact of empty roles all makes planning critical but tricky.
In order to attribute costs and revenue by people, the data needed to feed this information comes from time-sheets and payroll. This can be difficult to access with a great deal of sensitivity around how it is accessed and treated. Whilst this information maybe fed into GL's, it isn't readily available in planning tools, or not in a format which is usable!
The Spark 44 story
We have a tried and tested solution for Agency based businesses. If you, like our customers Spark44, (JLR agency) Cheil London, (Samsung agency) and M&C Saatchi, want to learn more about putting people at the heart of your forecasting read more in our recent blog article.
Spark 44 is a client agency joint venture, with global offices and revenue structured from retained contracts. They needed to be able to measure and report profitability and activity not only internally but with their joint client partner. Multiple currencies and truly pan-global project teams added to the complexity.
Measuring and forecasting project costs
The challenge for the agency was being able to measure project costs which was largely driven by the costs of people. Whilst they could attribute projects to GL accounts, and projects against people in time sheets , pulling these two strand together to measure profitability of projects was not. It was a classic case of all the right information but not necessarily in the right places. Using our inbuilt integration tools and a modern cloud based planning solution meant they were able to have better visibility of profit by project, client and team.
Cloud tools integrate your data for one source of truth
Cloud based planning tools offer the capability of pulling in data from any source, including personnel, time sheet, and many more. Using many streams of information in one pool provides a single source of the truth for your numbers and allow you to build many scenarios. Then mixing up the parameters to see what makes a difference to your profitability becomes a breeze.
Data analytics, creative reports that everyone understands
Add to this reports can be built and run by end users in minutes. Whilst access restrictions ensure sensitive information remains secure - which is of particular importance when salary details feed your forecasts. One of the challenges of any modern day FD is being able to communicate the numbers to all areas of the organisation in terms they will understand. Modern analytics tools can help deliver graphs, dials and visual indicators to help translate the numbers. The importance of this is emphasised in Agency world where creative minds may prefer information in different formats. More generally though the importance of better reporting and analytics is the ability to get everyone engaging with important decisions and how they impacted and can affect the outcomes.