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Creative agency margins: What should they be?

As a creative agency owner profit was always on my mind. If our margins were good, we’d make a profit and like every business, this is the key to success.

But being an agency owner, we often work in isolation away from our competitors. I spoke with a client last week who commented that creative agency owners should come together and chat more. The benefits are clear to see, but many of us prefer not to show our hand to our competitors. And I’ll admit, I was one of those people. My reply was that “I’d have never shared sensitive information relating to my agency while I was a competitor.”

And yet, here I am with no skin in the game, no agency behind me and none of you reading this article are my competitors. I’m in a unique and enviable position where I can share the knowledge and experience gained working with creative entrepreneurs like you, for the benefit of all my clients and future clients.

This benefit is wide-reaching across every business function, but if we start with our profit, how do we all compare?

The figures noted below will give you an indication of profit margins I’d expect to see from creative agencies at different stages of their business. And I say that loosely because the factors that contribute to your creative agency margin are unique to your business.

When I’m asked the question about what a good creative agency margin looks like, the answer generally starts with “more”.

Creative Agency Margins

20-30% Net Profit

If your agency is making between 20% and 30% net profit, this is an incredibly strong position to be in. I’ve seen small and large agencies alike make this profit level. Each have an acute awareness of cost control, optimisation of process and a significant focus quality of creative output.

15-20% Net Profit

The majority of creative agencies will work to these levels of margin in their business. There is the risk of over-staffing and reducing profit during growth phases, but at this level, there is a strong base to grow and build opportunities for growth in both revenue and profit margin. Generally speaking, a few small tweaks to optimising processes, sales functions and procedures can help break into higher profit levels. But this will vary from agency to agency.

Under 15% Net Profit

There will be many reasons in business why your profit levels rise and fall annually. You may be in a start-up or high-growth phase of business. There may have been significant investment in systems, process or business development. In my experience, anything below 15% would be on the lower side of profit margins for a creative agency, but it’s not unheard of and there often is a valid reason for this.

Here at Move at Pace, we’re able to benefit from a collective view across a breadth of creative agencies. We see what works and more importantly what doesn’t, so that our clients can benefit from this shared experience. As part of our client programmes, we deep dive into creative agency finances and every area of your business. If you want to find out more about our Creative Mastermind and Agency Growth Network Programmes, fill in the contact form and we’ll schedule a call when convenient for us both.

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