Profits, Margins and Pricing with Marcel Petitpas
In this episode of The Agency Accelerator Podcast, I am excited to be joined by Marcel Petitpas and we are discussing everything to do with your agency’s profits, pricing and margins. Another action-packed episode so grab a pen and paper and be sure to take notes!
Here’s a glance at this episode…
Let’s start by welcoming Marcel Petitpas, our guest for today’s episode. He is the founder of Parakeeto, which aims to help agencies become more profitable. Parakeeto is a software platform that helps users to create data-driven estimates.
The importance of focusing on agency pricing and profitability.
At what stage of an agency’s growth should they start implementing time-tracking systems?
The importance of understanding your business processes.
Pitfalls and tips to early prospect discussions
How to maximise profitability of a project?
How to calculate Adjusted Gross Income (AGI)?
What are key metrics for agencies to look at? Differentiate between Gross Margin and Average Available Rate.
How to make team members more commercial
How to implement the Agency Profitability Flywheel in your agency?
A business paradox: Slow down to speed up
What are the best strategies to raise your prices?
The ideal approach for value-based pricing.
Word of advice: “Say YES to things that scare you!”
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Useful links mentioned in this episode:
- • www.parakeet.com
- • Agency Profitability Flywheel
- • The Agency Profit Podcast (enter AA20 to get a 20% discount off your first 3 months)
Their ability to subsidize misquote projects over servicing with their own evenings and weekends is basically maxed out at that point and that's usually the forcing function that starts to get people reaching out to us and looking for a solution to this because they're going, I don't understand. I'm busier than I've ever been the whole team is busier than we've ever been and yet I'm afraid I won't make payroll next week, what the hell is going on and that's where we have to start digging into the numbers.
Rob Da Costa
Hey, everybody and welcome to today's episode of The Agency Accelerator Podcast. Now not only do we have a great guest this week, but we have an action packed, actionable episode all about finance profitability and everything to do with making sure that you are not being a busy fall but growing a profitable agency. So without further ado let's get on with today's episode.
Accelerate your agency's profitable growth with tools, tips, and value added interviews with your host, agency owner and coach, Rob Da Costa.
Rob Da Costa
So welcome everybody to today's episode of The Agency Accelerator Podcast. Now, I'm really excited to have with me today, Marcel Petitpas. Marcel helps agencies become more profitable and he's also the CEO and Founder of Parakeeto, a software platform that helps agencies create data driven estimates using the time tracking data that hopefully they record. Now this is music to my ears because it's something I'm always telling my agency clients about that they must track time and I guess that's something that we'll dig in to more in this episode. So today, we are going to focus on agency pricing and profitability and this is such an important topic if you want to grow your agency in a profitable and sustainable way and you don't just want to be a busy fall. So welcome, Marcel. Can we start off by you telling us a little bit of background? And how and why you started Parakeeto?
Yeah, great question! So my first ever business was an agency. I was doing virtual reality services for real estate agents so going into houses creating virtual tours and it's funny I actually just did one this weekend because we're planning on selling our own house next week. So that was a bit of a flashback to those days and that was kind of the first time that I was exposed to these challenges of trying to scale a service business on thin margins and you know how much risk there is in scope creep and this is one of those things where you go into a house and you try to estimate it based on square footage and then all of a sudden, you know, a shot doesn't come out right or the lighting isn't good and you know, what you plan to take four or five hours to shoot ends up being an entire day and I ended up leaving that business because there was a lot of price pressure in our market at the time. Real estate was very flat it was a buyer's market and agents were being very stingy with how much they were willing to invest to sell their homes and I realized very early in that business that there was not enough margin of my services to hire other people to do the work. And it just so happened that I hated the photography and stitching and creating of the virtual tours. I prefer like running the business that was what was interesting to me. And so after kind of doing that I became interested in tech and I want to start a tech company and then a friend of mine who ran a software company or software development agency out of boise came to me one day and said hey, I can't answer simple questions without building spreadsheets, and I can't find a solution to help me with this problem. You know simple questions like did we make money on our last project and did we scope this right? And can we take on this new work? Do we have enough capacity? When should we hire right questions that we're all asking ourselves in the agency every day that require data from different places? And so I you know I resonated with that having experienced this and that's what kind of set us down this path of saying, how do we make it easier for small agencies to have the same access to important information that big agencies have so that they can make better decisions and ultimately scale and grow without running into all the cashflow problems and margin problems that we see so often?
Rob Da Costa
Yeah, so it's such an important topic Lee, before I jump into my first question, you've made me think of another question which is, what stage of an agency's growth do you think they should start thinking about putting systems like this and even like basic systems like time tracking but then those dashboard systems to help you understand you know how profitable you are and you get off the I talk about clients being stuck on the client service hamster wheel of doom where they're just constantly servicing clients and they have no time to ever look at this data and actually think about, are we being profitable? Can we do this in a more efficient way? Did we get our quoting right, or do we need to do differently in the future and sort of what stage in an agency's growth should they start thinking about this?
Yeah, I mean, so there's a should and then there's when they usually end up doing it, as early as possible is my answer like even if you're just freelancing but you have a vision to start hiring other people. You should start modeling what it would cost you to hire other people and start tracking how much time it takes you to do things so that you can project. You know to some reasonable extent what your margins are going to look like when you start outsourcing and you start hiring other people to do that work for you so even if you're a solo person right now. I would say it's important to start thinking about these things. So as early as possible is the answer but when do I see people start to do this it's usually when they're closing in on double digit staff numbers. And the reason for that is usually a person can't be really effective with more than about 8 reports 8 direct reports and that's usually the agency owner. You know when you're up to eight 9-10 employees the agency owner is the person that everyone directly reports to. They're capping out, and their ability to subsidize misquote projects over servicing with their own evenings and weekends is basically maxed out at that point. And that's usually the forcing function that starts to get people reaching out to us and looking for a solution to this because they're going I don't understand, I'm busier than I've ever been the whole team is busier than we've ever been. And yet I'm afraid I won't make payroll next week. What the hell's going on? And that's where we have to start digging into the numbers.
Rob Da Costa
Yeah. So I think it's great answer. And I think if I'd been asked that question, I would have a client was asking me that question, I would say exactly what you just said which is start putting these systems in straightaway I always tell my clients you need to start behaving like the company you want to become. If you want to make that transition in that journey as easy as possible and I think systems and processes are a huge part of that I think sometimes people think they're cumbersome and they can get in the way. But of course, the absolute opposite is true, right? If you get the right systems and processes in place.
Yeah, absolutely. I get that pushback all the time of like I don't want this to hinder our creative process or all of our projects are so different from one another that like how can we ever create a process around this and then the reality is that having some rails down, really help you become more consistent with the creative output. And every experienced creative that I've spoken to the thing that really sets them apart from some of the younger. You know more eager creatives is that they've realized that they have a process. And I think you kind of deny that when you're early on in your creative career. And you, you want to believe that it's some kind of like divine inspiration that comes to you in these moments but like that's not really a sustainable business model. Your clients aren't waiting for you to have like a lightbulb moment in the shower they need you to deliver this thing on Friday. So you need to understand what is your process we're getting in that space where you can start to have this output. And it's in your best interest to start to document that and start to set up the way that you and your team works so that you can do this on command as opposed to you know just waiting for the right moment to have a you know, an output come to you so to speak.
Rob Da Costa
Yeah, and I think you know if you want to build an agency that is not completely dependent on you. As the agency owner, then you have to put these systems in place and the sooner you do it the less stressful you're going to have in your agency's growth. Otherwise, all eyes are on you and you know all the weight sits on your shoulder and every single client will want you in their approach and their project as well.
Rob Da Costa
So. So let me just let's just go back to the beginning. So I'm just interested to get some thoughts from you on some pitfalls and tips that agencies should be mindful of when they are sitting with that prospect. And they're discussing a project and then they're being asked to go away and scope it out and put together a proposal. What are the kind of pitfalls and tips that you see that you could advise people on at that stage?
Yeah, so I think one of the immediate things is not understanding that you start training the client on how to treat you in the sales process. And if your posture in that sales process is going to essentially set the agreement on what the relationship is going to be. So of course, early on in your agency you might not have a lot of authority in the space. You might not have people coming to you wanting to work with you because they see you as you know the thought leader in the business problem that they're uniquely trying to solve. So you might not have quite as much leverage but understand that there's a difference between a client that reaches out to you to work with you that's referred to you or you have authority in that relationship. So leverage it be very deliberate about. Hey, this sounds like the problem you want to solve. Let me walk you through our process for how we solve that. Here's the first second third, fourth step, start setting the expectation that you're going to take the lead and clients like that a lot of the time. You know like they don't want to have to tell their agency and micromanage their agency to tell them what to do but I think a lot of agencies fall into that kind of dynamic with their clients which immediately puts a lot of risk on scope. Because if the client is the person that's determining the scope and they get to change it whenever they want, then it's almost impossible for you to do what you need to do to have operational efficiency on the back end. So start with understanding your posture and where your leverage is in the sales process and start coming to the client with confidence and with the process, even if you're making it up on the spot. At least you're training them that you're going to be taking the lead and then the second thing is start to separate pricing and scoping from one another. They are related but they're not the same thing scoping is about what it costs you to deliver work to a client pricing is about what the client is going to pay you. And I think a lot of times even like time and material shops that are not really time and material shops are lying to themselves when they say like, you know I asked this question all the time how do you structure a contract with the client? They go, Oh we estimate how many hours it's going to take and then we build them on time and materials. And then I go, Okay, cool. Well, what if it takes you you know an extra 200 hours to get the thing done that you thought you were going to? Are you billing all those hours back to the client? No. So okay, so you're really pricing a flat rate you're just using scoping as a way to come up with that flat flat rate is and you're not giving yourself any additional compensation for the risk that you took on by doing that. So start to learn how to separate scoping from pricing and understand that the pricing conversation with the client really doesn't have to be related to the scope at all. And in fact, if your services are of high relative value to that client. For example, if they're hiring you for your specific expertise in an area or if the relative value of solving that problem is very high for that business. For example, if they have a million dollars in sales a month on their e-commerce website and you can double their conversion rate. Well, that is significantly more valuable than you know the other company that's doing $10,000 a month in sales on their e-commerce website. So understand what the relative value is use that to drive the price up and you scoping to make sure that there's enough margin there that you're hitting your goals. But don't put yourself in a position where you're taking on all of the risk with very thin margins. And then you know, eating that on the back end which is where we see a lot of agencies fall into cashflow problems.
Rob Da Costa
Yeah, it's really interesting, I talk a lot with my clients about value pricing which is kind of what we're talking about here. I think in that you know when you're doing the scope you're working out like you say how long it's going to take. What resources you need, and all the rest of it but that's not really what the clients buying client actually doesn't really care how long it's going to take except in terms of delivery. They don't care how long the agency is going to take. And I always use a dentist as a as a good example of this, like when you go to the dentist and you know, you've got really bad toothache and the dentist gets rid of your toothache and you walk up to reception and they say that's 300 pounds please! You would very rarely say Wow! that's a lot of money for 15 minutes work. And if you did the dentist would probably turn around and say, well if I took three hours to get rid of your pain 100 pounds an hour would that make it more valuable to you and you go. No, of course not because I'm thinking to get rid of my pain as quickly as possible. That's value value pricing and it's kind of what you're what you're talking about here. And I think it's it caught those two things that you talked about are really intertwined because if you meet a prospect and you show up as an equal to that prospect then you can have conversations around how the piece of work you're doing ties into their business bigger business goals what's understanding what the value of it is to the business and then of your pricing against that even though you're working out the scope as well. Then you are much more likely to be you know happy with the amount of time it takes versus the fee that you're charging. I had a really good example of this a couple of weeks ago I have a PR client and they had they want a new client and when they spoke in this process about some of the key goals to measure that project the client said we would really like to get our CEO on radio, blah, blah, blah, whatever the radio station was. And because one of the PR people in the agency used to work at that radio station she was literally able to pick up the phone. Make a phone call within 10 minutes achieve this massive objective that other agencies hadn't been able to to deliver. Now if all they charged the client was the time it took that person to deliver that they'd make no money. So you know, they obviously didn't and they put the what's the value to the client. So I think there's some really good nuggets in in what you just what you just said. So, let's just move that on to now we've got the scope of work and we've agreed the brief with the client. What are your thoughts around? How do we make sure the project we are delivering? Is process profitable? Again, what are the mistakes you see agencies making? What advice would you give to an agency to make sure they can maximize their profitability?
Yeah, so the first thing is making sure that you're designing the project to have enough margin from the start. And I think this is the first place where a lot of folks get very confused. And there's a lot of mud in the water in the industry about what the best way to even calculate this is. So in our mind the best practice around this is focus on gross margin at the project and client level. So what does that actually mean? Well, essentially what you're looking at is you're going to have a total amount of fees and then depending on what kind of services you're offering maybe some of that is passed through revenue, right? It doesn't actually belong to you. It belongs to other vendors that you're partnering with to get this solution done. So that might be Facebook for ads. It might be some print company to do print. It might be some video production company for video production, right? So take all that money out because that doesn't actually belong to you it's not your revenue it's just passing through you as an entity and then look at what I refer to as agency gross income. So that is the money that belongs to you that you're responsible for earning with your team's time and effort by getting deliverables done and delivering them to the client. So take that AGI number and then what you want to do is subtract your direct labor cost and the way that we want to calculate direct labor cost is not including overhead in that number. And so I just want to pause and double click on this for a moment. I think a lot of people try to get to a net profitability number when they're scoping projects or trying to estimate project profitability. And I think that that's kind of a huge waste of time. It's not really easy to do, it's a lot of additional effort. And what insight does that really provide for you not much your overhead doesn't shift at the same rate that your gross margin does the things are not really truly related. So what you want to do is think about what is the gross margin target that you need to hit consistently, so that you can afford 25 to 30% of your AGI going to overhead and still have a margin that you're happy with and then just start focusing on that gross margin number because it's way easier to calculate. And it's going to be way easier to compare projects to each other. If you're not including overhead because that's a variable that's going to change at a different rate. Whereas if you homogenize everything on gross margin then you can compare all your projects over any time horizon and understand you know how things are moving compare services to one another compare clients to one another and understand where you make more money. So with that said how do you get to the gross margin number you take your AGI against that's revenue minus pass-thru. And then you subtract your direct labor costs. Your direct labor cost is very simple to calculate. It's your team's salary plus whatever benefits they have health, dental stipends for equipment, etc. so they're fully loaded costs divided by the amount of time that you bought in their employment contract which for most people is 2080 hours of their year 40 hours times 52 weeks. And yes we are including their vacation time in there. We're including their paid time off we're including all of that stuff it's a gross margin. We want to remove all the variables that are going to change from person to person from agency to agency so that we have a nice flat metric to track our earning efficiency on so that we can use it horizontally we can compare it to the industry it's a nice useful metric that's simple. That's how you get to gross margin your target should be above 50% 50 to 70 is a good range. If you can shoot towards the top end of that 70%. You know if you have more risk in the project if you feel like there's a contingency there of 10 to 20%factor that in. So you know, if you're consistently hitting 70% margins on your projects. You're probably going to have a gross margin across the whole agency at the end of the year of 55 - 60%. Because you'll lose a little bit on pay time off and vacation and gaps in utilization and slow times. And then you'll be able to carry 25-30% overhead and you should still have 25-ish percent margin left at the end of the year to put in your pocket to compensate you for the risk you took for starting this business. And then everyone's happy. And you should be able to achieve that at. You know 65-70% utilization for your entire team annually. You don't have to work everybody, you know 60-70 hours a week to make that happen. I think that's a misconception in the industry. And a playbook that a lot of bad actors have run for way too long. That is not valid and really bugs me.
Rob Da Costa
Yeah, that's so interesting. It's, you know I run a group coaching program with about 30 SME agency owners. And I get asked this question all the time. And I really like the way you've simplified that I'm gonna have to steal that and use it with my clients because they say to Rob, what what should my margin what should what should buy IBM in my margin today? And you know sometimes clients are working on such that although their margin might not be calculated exactly how you've outlined but they're working on such low margins. They're working like 20% margin and then they end up being a busy fall because it just takes one thing slightly to go wrong and they've lost even that 20% margin and then they become a charity because they're doing the work for free so they're really useful really useful to know. And then when it comes to like I don't know your system really well. But what would you say some of their key metrics that agencies should be measuring on ongoing basis? I mean you've already alluded to some of them in in the margin that you just explained but any other kind of key metrics agencies should be looking at so they can measure all this stuff.
Yeah, so the way I look at it is there's kind of like two levels of the business that you're going to pay attention to. There's the client and project level which you're usually going to look at on a much tighter time horizon. You might look at that weekly bi weekly or monthly that just kind of depends on the rate of change in your agency. So if you do a lot of like small quick turn projects you're going to look at this more often if you do bigger projects that take you know a longer time to mature. You'll, you'll have a longer time horizon to look at this on but on the client and project level really what you want to have as an earning efficiency metric. And you want to pay attention to like utilization or effectiveness for your team. So essentially what that means is we'll start with earning efficiency. It's a metric that allows you to understand And how efficiently does your team earn revenue and you want that again just like gross margin to be a nice flat homogenous metric that you can use to compare across all of your projects or across other agencies as well. If you have the opportunity to do that in a peer group in a coaching program so on. So there's two metrics that I like for that the first is gross margin. Gross margin is a little bit harder to get to it's a little more costly because you have to factor in the individual cost rate of every person that worked on that project. So you know if you have some technology to help you with that like a time tracking tool that has cost rates included in it then that's great you could probably do that fairly automated. If not, another option that I like that's very very easy to track is what I call average billable rate. And that's really just taking your AGI number your agency gross income and dividing it by the number of hours that your team worked against that project. And that gives you essentially your actual hourly rate at the end of the project. And what you can do with that is look at your average cost per hour for your team. And that'll give you a rough sense of what your margin actually was in that project. And then you can easily start to compare all your projects to one another. So you might look and say like hey! you know, when we do website redesigns. We average $180 an hour but when we do like the content retainer on the back end. We average $153 an hour, and you can start to get these levels of insight of you know. Where are we more or less efficient? What projects were more or less efficient? And that's where you can start to have really insightful conversations with your team about why, why are we way more efficient over here and way less efficient over here? Is there something about our processes or something about the way that we scope that we need to adjust. And those process improvements that come out of those conversations is what really starts to close the gap from both sides. You know, you're going to have the data which tells you did we do what we thought we were going to do on this project. And then you're going to have the process which is going to start to help make things more predictable. I think that's a misconception about scoping is that the data can fix everything but the reality is sometimes we're trying to scope things that are just hard to scope because our processes are very well defined for how we do it in the first place. So efficiency is the first thing you want to track again that either gross margin or average billable rate. Utilization is the second thing you want to pay attention to and that's really just how much of your team's time is being used for earning revenue in your business. And it's important to look at those two things at the same time because I think traditionally a lot of people have focused way too much on utilization. And that comes from being in the time and materials world. If you don't run a time and materials agency utilization is not the most useful metric for you to be paying attention to because it doesn't actually indicate it's not a great precursor for your success. Your utilization might be through the roof but your average billable rate is tanking. That just means you're over servicing clients. So you want to look at those two things next to each other. And the way we calculate utilization is it's really objective. This is another thing that's got a lot of money in the water, what is billable time? Right, is it just time that your team is being productive? know the definition in our case for the purpose of these calculations is time that your team is spending earning revenue for the business doing work on client projects. So if they're working on your website that's productive but it's not billable time. And some people start to get upset with that. And it's like well, if you're upset about that it means you're holding your team accountable to utilization. And you should just stop doing that because it's not useful. It's not useful for them, it's not useful for you hold them accountable to earning revenue hold them accountable to being efficient. And if they don't have enough billable work to do that's your fault not theirs. So try to make it so that you're giving your team enough work creating enough clarity for them managing projects and and resource planning people effectively enough that they have the opportunity to hit 70-ish percent utilization on a net level on an annual basis week to week, that's probably 80 to 90 on the high end. If you can do that pay attention to utilization pay attention to your average mobile rate and those two numbers are good. You're averaging 65-70% utilization and your average billable rate is 2.5 times higher than your average direct labor costs then your P and L should look fantastic at the end of the year. And you probably don't even really need to look at it that often for being honest because you've got lots of gross margin there and you're being efficient. So that's at the project and client level at the agency level that's where you're going to go to your accountant your bookkeeper and it's going to be P and L stuff. So that's where you're looking at gross margin targeting about 60%. You're gonna look at overhead spending you want to keep that below 30%. And then that should leave you with a good. You know net margin at the end of the year to pay yourself and then overhead. You want to generally be paying attention to how much you're spending in each area administrative costs that's usually 8 to 12% of your AGI sales and marketing eight to 14-ish percent. But you can over invest there of course, if you just want to grow fast and then lastly, facilities so that's like your rent or if you're at remote team it's how much you're giving your team for stipends. Basically whatever costs you to put in a working environment over your team's head 4 to 6% of AGI so when you add those up 25 maybe 30% on the high end. If you run a remote team you might be able to get that down closer to 20. And that includes your salary as the owner. By the way, if you're not doing client work then you're you fall into admin or sales and marketing because that's probably what you're doing with your time. So yeah, those are some metrics and benchmarks to look at but I would encourage everyone to don't overthink or over invest in the P and L and the financials. If you're early on start paying attention to your client and project metrics the P and L will take care of itself if those numbers are good.
Rob Da Costa
Yeah, brilliant advice. So good. So many really good, great nuggets there. I find it really interesting that a lot of the time agency owners are not making their teams commercial enough. So the team members just don't have access to so much of the information you've just talked about. So what they're tasked with doing is doing a great job for the client with no sense of how many hours it should take and, and behold they over surface the client. The client might be delighted with what they've done. But now of course they're created refer their own back because the client asked them to do more work and has this expectation that it will be delivered at this high level. So is that something you see as well? And would you agree with me that we need to make all our staff commercial because they need to be in control of these numbers?
Yeah, I mean I think this is how you change the entire dynamic around time tracking. And there's, there's this is a bit of a double edged sword, right, I think a lot of employees resents the idea that they have to track their time. Resents, you know a lot of this stuff because they don't see how it's being applied to making their lives better and making the agency better for them. And a lot of times it's not being used in that way. So that's part of the problem but really if you think about the the flywheel here that makes your agency more profitable it has to involve your team. And that flywheel is we estimate how much time it's going to take us to do something. We measure if it took us that much time or not. Then we talked to the team about why there are gaps between our expectations and reality because the team is the best you know set of resources to like surface actual granular insights from the ground floor. I'm like what happened during this project. And then that should inform process improvements that in turn make things more predictable. And if we do all these things, well, the end result for the team should be when we schedule you to work 40 hours on a project. It takes you that long and then you go home in the evenings and on weekends. You don't have to because like the deadline is rarely the elastic part of a project, right? So when we under scope something who pays for that the team does and they pay for it with their evenings and weekends. So that's part of the conversation of like, we're gonna engage you in the process of using this data to make the agency better and this is what you're going to get in return. We're gonna be more profitable that means we can pay you better. It means we can have cool perks for the office. It means we don't have to lay you off the second that we have a dip in utilization or new business loads up. It means that you know, you get home on time more consistently. These are all the benefits to them. And that part of that is getting them involved in the conversation of here's the data that we're seeing here's how it's impacting us. And we'd love to learn from you what opportunities exist for us who you know make this better?
Rob Da Costa
Yeah, it's interesting because I think time tracking fails so often because people did the team members are not given a clear context. So they think, oh, you're want me to do time tracking? Because you want you don't trust me, and you want to, you know, keep an eye on exactly what I'm doing and making sure I'm not on Facebook or something. And actually, that's completely the wrong context. The context is everything you just outlined. And if people just slow down a bit and spend time, it's kind of selling that and communicating that to their team, then they would be much better. I mean, Blimey, when I ran my agency, we're talking 15 years ago, we we did many things wrong, but one of the things we did right was time tracking. But in those days, time tracking was an Excel spreadsheet. And that was much tougher than the tools that are available now that make it so much easier. I mean, a lot of my clients use tools like harvest, and I think your power key to connecting with harvest, doesn't it? So you can, you know, take that information and use it in a really kind of smart, intelligent way. And I think you sort of talked about this already. But how do we get smart about feeding that back into future work? So I've done this project, I've done this analysis, I've talked to my team, I'm, what do I do to take those key learnings and then help not make the same mistakes when I talk to the next client about a project and I, you know, over promise and all the rest of it.
Yeah, so we have a four step framework on how to implement what we call the agency profitably flywheel into your agency so this is the in the consulting work that we do this is we're just basically helping people implement this. If you want to learn how to do it on your own for free. We have a video course that you can grab absolutely free, and it includes all the templates and spreadsheet templates that we use for reporting and stuff like that with our clients so you can grab that at piercy.com forward slash toolkit, and I'll make sure to send you the link, Rob in case you wanna include that in the show notes.
Rob Da Costa
But we'll include that in the show notes for sure.
The high level of it is there's two feedback loops we need to create one is about data. It's about what was our estimate and what was our actuals and the reason that a lot of folks don't even get that part installed is because when you hold up their estimate for the project and you hold up a timesheet they look completely different. And so reconciling those two things together requires massaging the data figuring out like okay, well this task for wireframing, the design, UX, copywriting, whatever is, is that design as a copywriting like, what do we estimate this against. And so because there's so much resistance, we don't do it. So the first step is actually auditing the way that you structure your assumptions of a project and your scope document. And the way that you structure your time tracking data and making sure that they match up so that the resistance to answering that questions as low as possible. That creates your first feedback loop that you can within a minute or two go in and run a report at the end of the week and say, did we spend as much time on these projects as we thought we would? And break it down at in very high level buckets? Generally, you want to align those buckets to how you resource plan. So they're generally going to be functional roles, design development, project management, account management, etc. If you can do that well, that creates your data feedback loop that's the objective part. Now, I think where people get steered wrong, is they get excited about this idea of having data help them answer questions and then they start to try to rely on the data to answer all the questions. And that's a recipe for disaster because what that does is it pushes you to start adding way too much complexity to your data schema. So now you're asking your team to track time on a sub task of a sub task of a deliverable within a phase within a right and now your data schema is just totally unmanageable. All these problems about reconciliation come up again. So the the right answer there is keep that simple, keep it high level, and then use it to inform where you spend your time talking to the team, about the areas of the business that need attention. And it's in talking to the team about hey, this project was way more efficient than the other ones we did last month. What did we do differently on that project that allowed us to do it? And you know half the time that we expected? surface the insights. Oh, we did this thing it worked out really well. The handoff between Dev and design was different this time. And that was like awesome. It's like, cool. That's an amazing insight. Do you guys think you could create a process, we could do that again next time? And now the team is bought in because they came up with the idea they're immediately seeing how that process would benefit them. And then it's about carving out the time for them to actually build, maintain update processes. And it's in seeing the data. And then having the processes get more and more defined that we gradually close the loop and get to a place where we can very confidently scope projects. And what we've realized and the you know, the almost four years now that we've been doing consulting in the spaces, without accurate assumptions about the scope of a project. You can't really build efficient operation systems for your agency. You can't resource plan effectively. You can't plan for profitability effectively scopes of work are the foundation of almost all of your operational systems that are related to forward visibility. Which becomes more and more important, the faster that you start to grow. And the faster you need to start hiring people. So if you can install that process, get a data feedback loop, and then a people feedback loop and have that essentially just bake into the way that you run your business credit cadence around that. So it's always happening then you should start to see your scopes of work get to within 10% of what you thought they were going to be that is a perfectly acceptable level margin of error. And that will, you know create so much more predictability so much more for visibility for your agency. And hopefully, it'll get everybody back to a regular 40 Hour workweek. And it'll also allow you to plan time to work on the business and not have it just constantly get cannibalized by client work which. Of course, is what we see happen all the time. Yes, great!
Rob Da Costa
Such great advice. Again, I think one of my favorite expressions I use all the time is slow down to speed up. And this is definitely one of those examples because what I see happening is clients lurching from one project to another and they may do like a project wrap up call with the client and get some feedback from the client about what went well and what didn't but they probably don't do that whole feedback loop both on the project time and also the team input as well. So I would really encourage people to listen to this and, and apply it and figure out. You know, it's a vicious circle isn't it because if you don't get all of this right, then you're over servicing clients and you've got no time to do anything. And then you're over servicing clients. And you've got to find a way of breaking that cycle.
So and I want to double click on this, because there's a lot of folks that are listening that might be stuck between a rock and a hard place on this. And this, this might resonate with you as well Rob. Like, maybe you're doing retros now for you try to do retro, sometimes you get them in sometimes you don't. And then the team surfaces all these ideas of a processes that should be improved. Everybody agrees that they should be implemented. And then every time you try to schedule the time to allow somebody to space to work on this it gets bulldoze by client work. It gets bulldoze by and it's just constantly getting pushed back, push back, push back. If that's happening to you then that's a sign that it's a sign that you need to do this even more because what it means is the time that you plan for client work is not the amount of time that it's taking and of course, you're going to cannibalize the 40 Hour workweek before you start eating into evenings and weekends. So any scheduled time for work The business is gonna get taken away. The way that you create a little bit of space for that is you raise your prices. And that is like an easy way you raise your prices that allows you to, you know, ideally start spreading projects over a little bit of a longer time horizon. But the mistake I see a lot of people make is they just raise their prices. And then the pain is kind of alleviated. It's like taking a painkiller. And then they think, okay, the problem is gone now. But that problem that you, you don't know how long it takes you to do work, it's still there, and it still needs to get solved. So use the space that that creates to actually start getting these processes in place. And that's how you kind of get over that hump, and get to a place where you can actually start working on this consistently. So if you find yourself in that kind of trap, that would be my advice is like, just raise your prices by 15 or 20%. Use that breathing space that it creates to just start attacking this scoping and process problem. And you know, by the end of this year ideally, you'll be in a place where you're like. Wow! I can't believe we ever run our business that way.
Rob Da Costa
Yes, great. Another great piece of advice. I find especially clients that don't take a value pricing approach and they sell on day rates or hourly rates are really fearful about raising their prices. And so I spend quite a lot my time trying to get people over that so that they can do that. But here's another reason to do that. Because it will give you that breathing space to look at your, your systems and processes and get some of this stuff, right. So listen, this is such a great conversation, we could go on for hours. But this episode is packed with really useful advice. I really appreciate that myself. Now, a couple of things. Let me ask you the question I ask all of my guests. Which is if you could go back in time and give your younger self just starting out in business. One piece of advice, what would it be?
Yeah, I think one of my biggest fears when I was younger was choosing the wrong thing and wasting my time. And I think looking back nothing that I did over the last decade ever made sense while it was happening. But it makes perfect sense. In retrospect, I can see how every single project I've worked on every single business I've been involved in, is serving me today. So that's probably the word of advice is like don't worry about it, just say yes to things that scare you and he'll be fine. And that that playbook has worked pretty well for me so far.
Rob Da Costa
Good, good advice. Your fear sometimes keeps us stuck, doesn't it? So feel the fear and do it anyway. Last thing, so I will make sure I include the link to the toolkit that you mentioned in the show notes, but people wanted to find out more about Parakeeto, well get in touch with you, Marcel, where would they? Well, the best place for them to go be?
Yeah, absolutely! So head on over to parakeeto.com. There's lots of information on the product there. And if you want to connect with me directly find me on LinkedIn, Marcel Petitpas, PA, there's not a lot of us and I'm wearing the same shirt and all my social profiles are easy to find. And if you download the toolkit you'll get emails from me. So you can just reply to those if you want to have a chat, get on a call. I love to nerd out on agency profitability. So if you're hearing this, and you just want some advice on how to better implement these systems, I'm always happy to find some time. So don't hesitate to reach out and make sure you check out if you're you know, listening to podcast consistently check out the agency profitability podcast or sorry, the agency profit podcast. I can't believe I just messed up my own podcast, the agency profit podcast where we talk about stuff like this all the time. And it's, you know, I think a great outlet for talking about this side of the business that doesn't get as much attention as new business, unfortunately but it's equally as important in my mind.
Rob Da Costa
Yeah, and I confess. You know, this isn't a sort of deep understanding of financials isn't my area of expertise. But this is so insightful. And I've certainly learned a lot. And you've helped me answer some of the questions that my clients ask me. So I know, listeners will find this really useful. I'll also put a link to your podcast in the show notes as well. So just want to say a huge thank you for giving up your time to share your wisdom with us today on the podcast.
My pleasure. Thank you so much for having me.
Rob Da Costa
What a great conversation and what an episode action packed and full of useful tips to help you make sure that you're getting your pricing right and you are as profitable as possible. And I don't know about you but some of the stuff that Marcel shared with us today got me thinking a bit differently about how I run my business. And I hope that that has done the same thing for you because that is what this podcast is all about and having fantastic guests like Marcel. So if you enjoyed the episode, please make sure you hit the subscribe button, share it with your colleagues and please consider leaving a review as it helps us we'll reach a wider audience. But other than that, have a fantastic rest of your week. And I'll be back with you next week for the next episode of the agency accelerator podcast.