Your Agency Financials are one of the four most important shifts you need to make to grow an agency model business. By making this shift, it will ensure that you have the right delegation and financial strategy in place to pay a team and continue to pay yourself too as you continue to grow.
I’ve heard so many times from business owners that they’re afraid to have an agency because of the expense. This episode will help you feel more confident by giving you the information and tools that you need to make your agency work financially – now and as you grow!
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Hey everyone. Nicole here and welcome back to the show. So today we’re talking about one of the major shifts that goes into moving from being more of a solo done for you service provider, meaning that you are the only one offering the services to being a really strong, sustainable agency. And so the shift that we’re gonna be talking about today are your financials.
And this is a question that comes up a lot when people are either considering an agency model or maybe you already have an agency model and you haven’t quite figured out how to make it work financially, or you’re wondering if there’s any ways you could streamline. It may also be for you if you had an agency and hired people in and it didn’t work and you burnt it down and you’re looking to maybe try again, but don’t wanna repeat the same mistakes.
So understanding these shifts it’s really helpful for you to grasp these concepts and then figure out how it applies to you. And so these four shifts are included in what I call your agency. Operations foundations. So these, this is the foundations of your business and what we wanna do here, and the reason why we wanna shift these four areas is because we wanna make sure that your foundations are set up to support the team that you are growing.
The business that you are building, so maybe you currently have three team members and you have an influx of clients and you need to expand to six. We need to take a look at the foundations of your agency to make sure that it is built to support that level of growth. And so this isn’t something that you just do once, it’s something that you continue to do over time as your business evolves.
So I wanna go over what the four major shifts are. And then, like I said, we’re going to be diving into the one area, one shift today. But if you are interested in learning more about all four of these shifts, you can check out my freebie, which is four steps to Delegating Client Delivery in 12 months or less. And you can access that by just going to my website, nicolejacksonmiller.com. It’s on the homepage. You’ll see it right there. We just recently revamped this freebie for you and it has way more information than it had in the past, so I’m really excited about it. So again, just head over to the website and you can just put in your name and email and you’ll get the updated guide.
Okay, so the four major shifts are: Clients. So are the current clients that you are serving working with a team versus just you delivering that service. And this is what I call really auditing your ideal clients to make sure that the clients that you thought were ideal before are still ideal for your team.
So some signs that you might not be working with ideal clients is that it may be very hard for you to hand over their work to a team. Now, sometimes I have business owners that like to still work with a client or two, and they like it because it lights them up. Maybe they have a longstanding relationship with a client or they’re also a friend and they really love.
That they’re doing and they can do it while also running their agency. If that’s the case, then do it for as long as it makes sense for you. But other times, p agency owners are holding onto clients because they don’t really feel fully. Comfortable and confident that their team will be able to take over that particular client’s work.
Or maybe they tried to shift them over to a team and the client didn’t want to, and the business owner didn’t wanna lose the client. So they’re continuing to work with them. That’s where we really have to dig in and examine, is this still an ideal client for our business? Based on a lot of different factors.
So ultimately we wanna get you to working with ideal clients that your team can support, because that’s the only way that you’re going to continue to be able to grow and evolve and really not be dragged down by clients that just aren’t a fit for you anymore. So the next area that we look at are your packages and making sure that your packages and the scope of your packages are set up to have a team deliver that work versus just you.
So this is what I call your scalable offerings and how scalable are your offerings. Now, this doesn’t necessarily mean that you remove a bunch of things from your packages or that you. that you just take a bunch of stuff away from it. Cause I think sometimes people hear scalable or leveraged offering or any of those things and they think they have to strip away all of the components of that offer so that the team can deliver it a little bit more easier.
That’s not what I’m talking about. What I mean is that the packages that you have in place work for both your team to deliver and for your ideal clients. And oftentimes what this looks like is making your packages a little bit less customized. So it’s not that you can’t change things a little bit based on the client that you’re serving, but we don’t want it to be overly customized because it’s hard for team to be able to follow a process and really.
The timelines and the quality control expectations that you have when everything is super customizable. It’s also very hard to manage team members’ capacity, and this is something that will come into play as you grow your agency, where you’re really trying to have to figure out how many clients a particular team member can serve before you have to hire in more people.
And the more customized your packages are, the harder it is to do. Your delivery process is the next major shift that needs to happen, and this goes hand in hand with your packages. So you’ll wanna make sure that your delivery process is specific and efficient and as repeatable as possible, so that, again, it becomes easier for a team to know what’s expected within each package versus.
Guessing or having to ask you questions about it or having to pull you back into that process. And then lastly, are your financials. So paying a team to deliver client work and to be able to manage the client work and yourself too. Okay. And so this is what we’re gonna be talking about. So why do your financials need to shift?
So I wanna explain the idea of direct expenses and overhead expenses, and I hope I don’t lose you . And if you want more information on this, we definitely have more resources inside of my agency program. We actually have a financial expert that comes in, Amy Bradbury. That helps support business owners around really a lot of the money strategy when it comes to hiring in team members and managing the financials of their business.
But I wanna just lay out this more generalized concept so that you can understand how important this is because this is really a. Area that I hear hold people back from wanting to continue with an agency model is really making the financial component of it work. Okay. So let’s talk about what needs to shift.
So let’s say you started out your business as being the only person to deliver the service. So for example, with me, I was a project manager and I started out working with clients directly. So anytime I would get a new client, I would pay myself based on the money that I was receiving for that package. That was one expense.
And then I had other expenses that I was paying for. So software expenses. I was paying for a coaching program. There were other expenses that I was paying for. But my salary or my pay. It came from bringing in those clients and then paying myself based on that specific client package. So I was considered a direct expense of that package. So if I got another client, I could pay myself more. If I got another client, I could pay myself more, right? Because I was slowly increasing my revenue. And that didn’t mean as the business owner that I always did that, but the idea is that my pay was directly tied to the number of clients that I was working with, which is why it was considered a direct expense.
However, when you start to hire in team members to deliver those services, so let’s say you were to delegate all of the client work associated with a package. Now that direct expense is going to a team. or a team member.
Okay, so then if you are not paying yourself as a direct expense, then what are you paying yourself as what you end up paying yourself as? As you shift away from doing client work is as an overhead expense. And what an overhead expense means is this is something that you get paid regardless of how many clients you have.
Similar to the software costs. Similar to the program costs, right? Really allowing yourself to be able to take home a consistent amount of money every month.
So what that means is that your package profitability, so after you take your. Whatever the package is. Let’s say you charge a thousand dollars a month for one client, you pay your team $300, that package profitability is $700. So multiply that by however many clients you have, whatever that total amount is, needs to be large enough to compensate you.
For running the business, right? That’s like the leftover money that has to go towards paying your overhead expenses, which you now are as the business owner. So what I wanna share here, because sometimes people get. A little wonky around this point because they’re like I, I don’t have enough package profitability in order to pay myself and pay other overhead expenses.
That’s okay. That is okay. I’m gonna talk to you about a transitional strategy. This is why I call them shifts, because you going out tomorrow and delegating all of client work and management is probably not. Going to work for your business, probably not. Instead, what you create is a strategic delegation strategy based on what it is that you need to delegate Next, what the most important is that you need to delegate either first or next in your business tied to what your financial numbers look like, so that you can slowly over time, remove yourself from the right.
So that eventually you get to a point where you can pay yourself as an overhead expense, if that is your goal, right? To totally get out of client work. So quickly before we go into more depth around the financial strategy, I just wanna talk briefly about what. Package profitability is and how it’s different from business profitability.
So package profitability is only looking at one of your packages, or you could call this your service. Maybe you offer three different packages or three different service offerings. So the profitability is the price of the package. So let’s say it’s a thousand dollars a month, minus any of those direct expenses that are going to team for that package.
So we’ll stay with the same example of $300. So a thousand dollars minus 300 is $700, and that is your package profitability. , okay. That’s just for let’s say one service offering. Your business profitability looks at the entire business, not just one package. So it’s your total revenue minus all of your expenses, so your direct expenses and your overhead expenses.
And then whatever is left over is your full business profitability. So you can start to see the differences. Between the package profitability and the business profitability, both are important and a lot of what we’re focused on today is your package profitability, right? Because we’re looking at what are those expenses going to be that you’re going to be paying out to a team, and then what is left over.
So let’s talk next about some things to figure out to help you build this financial transitional strategy. Okay. So the first thing that’s important to figure out is how much you need to pay yourself or want to pay yourself. So some people have one number. They’re like, I need to be making this amount of money. It will pay my bills, it will give me extra, whatever that number looks like. For others. Some have a minimum amount that they need to pay themselves, and then a better amount. That would be a nice to have. And then others sometimes will have a good, better, best, which is three different numbers.
I always recommend people understanding what their minimum amount is and then having a little bit more of a ideal amount that they would like to take home. I think it’s just good to know what’s the bare minimum that we’re working with and then what would be a nice to have? This is going to help us figure out, based on the business that you have right now, how much you can pay to a team and what you might still need to be involved in.
So the second question that I like to ask business owners is what other overhead expenses do you have in the business? So if you are looking to shift your. Your pay from being a direct expense to an overhead expense. What else is in that category? Do you need to shift any of those things? So you can take a look at your software, you can take a look at educational programs, but you might also have team members that are an overhead expense versus a direct expense.
For example, if you were the one who was delivering most of the client work, then. Maybe you had an assistant in your business that was helping you do that because you didn’t have an implementation team, and so you needed somebody there to make things very streamlined for you so that you could continue to deliver the work.
Now, as you shift to actually hiring and implementers to do the client work, how does that change the assistance work? , does it change the assistance work? Will they be doing different things? Are they needed at all? Now that you don’t have that work on your plate, could you maybe handle some of the assistance work?
Let’s say they were responsible for onboarding new clients because you didn’t have time to be able to send out a contract cuz you were so focused on getting some of these projects done or implementation work done. But now that you have implementers, you’re already having the sales call and so you sending out a contract is really gonna take you no.
Again, this is different for every single person, so I’m not saying that you, this is a hundred percent what you have to do, but it’s important to consider. What shifts as you bring in different team members to support you inside of the business. Okay. And the same thing goes with software. Sometimes people are spending a little bit more on software because they don’t have any other support.
How does that change? How does that shift some of the software systems that you have and really understanding? What’s needed as you shift to having a team that’s handling more of the client work. So the next thing that I like to consider, and I touched on this a little bit before, are, what are the most important things that you need to get off of your plate next?
So with my clients, I have them do what I call a delegation task assessment, and this is where they rate the tasks that are on their plate. And they rate it in a very specific way so that they can see what items are the priority to get off of their plate. Next, a big question that I get asked from people that I don’t work with directly is, who do I need to hire next?
for my agency, and my genuine answer is, I don’t know, . Because it, it varies from person to person based on their experience, based on their preferences, based on their agency. And it’s very it’s very difficult to give generalized advice over who exactly you need to hire next without going through this delegation task assessment audit.
And then also, without taking a look at the financials inside of their business to know where they’re at financially, to know what needs to happen next. And so the second piece of this is the financial analysis. And this is something that I have my clients do. They do what I call an offerings, that scale exercise where they actually can see.
What the profitability is of each of those packages and what would need to happen financially in order for them to be able to get all client work off of their plate. And then based on where they’re at, figure out who is that next hire and how can we make it work financially within the packages that they have, or what might need to change with the packages that they have currently.
So maybe you look at your numbers and wow, my packages are really profitable and I actually have the funding to be able to pay myself and hire in probably two or three more team members. So that’s a great situation to be in, but you’ll never know unless you actually take a look at the data.
Another option is that maybe you look at the numbers and your current revenue can’t fully cover the salary. That you wanna make, plus the other overhead expenses that you’ve determined that you need. So maybe instead of fully delegating an entire package, you delegate pieces of it, right? The most important pieces that you determine when you do your delegation task assessment, and you still keep some of the work, but it’s the work that is easier for you to be able to deliver.
And then you can determine what needs to happen with my sales goals, or maybe I need to do a pricing increase to get me to the point where I can delegate more of what’s on my plate right now and still be able to pay myself. Okay, so there may be times where you are in a position, maybe you have. Business savings and you wanna invest that money to help you get out of client delivery faster and do less of this longer term transitional plan because you know that you have opportunities out there.
You wanna get more business. Maybe there’s. Just something that needs more of your time and attention and you’re like pretty certain that if you’re able to focus that attention, you’ll be able to get those new sales faster. That’s totally fine. There’s lots of ways where people will maybe they offer a service.
Themselves. Maybe they start investing in a team sooner rather than later. It just depends on a person’s financial situation. A lot of bigger companies will start their companies already having a team of employees. Typically they have investors. They have a way to get those funds to be able to do it.
And so there’s nothing wrong with that. But if you’re somebody who maybe doesn’t have those funds or investments, you can still do this. And I would even say you could probably do it. And more of a streamlined way because you’re going to be learning so much being the one who’s delivering the services, to be able to know what needs to happen next to be able to fill out these assessments and be able to make this transition without having to have.
Investors inside of your business, there’s nothing wrong with that, but it’s just not for everyone. So the point is to be making informed decisions, understanding what are the numbers I have to meet and by when. And this will give you information so that you can measure your progress and know when the strategy might need to shift.
So maybe you do have some extra funds, maybe you’ve been saving to hire team members, you have some extra funds you can still go through. This exercise to determine for yourself, okay, if I use this funding to pay for four months worth of a team member’s salary or pay, then what do I need to do within those four months to make sure that at month five we have the sales coming in to be able to continue to pay that team member?
What needs to happen, what do the numbers look like? And that’s where having that spreadsheet, that’s like my offerings, that scale spreadsheet is so helpful because you’re able to set some of those goals and see, okay, what needs to happen? And then if you find that in month two or month three, Getting closer to month four, you’re not meeting those goals, then you can start shifting things in advance versus getting to a point where all of a sudden you’ve run out of all of your money and you need to make some more immediate changes.
There’s nothing wrong with that too that does happen. As entrepreneurs we have to be risk takers in some ways, right? And so you are, you’re going to be taking risks and it just, again, depends on how you wanna play it and what works best for you.
So let’s say, I just wanna bring this back here. So why is it so important to do these exercises? You know what happens if you don’t do this? So you might not have been doing it up until this point. What are some clues that you need to focus in on your financials? So some clues are one, you’re guessing.
What to price your services. You’re like, I don’t really know. I wanna hire in. Some team members do. Maybe I need to raise my rates. I’m not really sure. So I want you to be crystal clear on what your pricing needs to shift to and what you need to be charging to be able to pay team to be able to pay yourself and to be able to continue to run the business.
Cause it’s gonna be a lot easier for you to go and sell to clients if you have a number. And that number has a meaning behind. Another clue is that maybe you’re guessing how much to pay team, you’re not really sure, and so by doing this financial assessment, you’ll have an idea of exactly the numbers that you need to hit in order to be able to pay a team to deliver.
You know, You’re hoping and guessing that your investments will pay off, but you’re not really sure. Now again, We’re always gonna be taking risks, so there’s definitely a balance to this. But if you are just buying things left and right, or investing left and right, and you’re crossing your fingers, we just, we want you to go in with more of a plan of what to look for so that if you do need to change something, what needs to change And maybe you’re not sure when you can give yourself a raise you really wanna give yourself a raise, but you’re not sure when, if any of those things ring true, it’s time for you to look at your financial strategy.
Now, when you do really take some time to look at your financial strategy, you feel confident in your pricing and you feel really clear communicating it to clients because you know the reason why you’re charging what you are and it’s not like you don’t feel bad about it. Maybe it might feel a little intimidating cuz maybe you haven’t gone to your current clients before and shared a rate increase with them. So it’s more like fear around doing something new, but you feel very confident in what that number is because that’s the number that you need in order to continue to do business, right?
So it’s not personal. It’s just what needs to happen in order for your agency to be able to continue to serve your clients. You know what your budget is for your team. When you need to change a service or retire a service because it’s not profitable. So really being able to look at those numbers.
I’ve had clients go through this exercise and they were thinking about not offering a package because it was a drain, and then they looked at the numbers and they’re like, this isn’t even profitable. I’m deleting it. It really helped them make that decision because they saw the information and data behind it.
It also helps you remove yourself from client delivery while still being able to pay yourself. Okay? So if you’re interested in diving into this more and really setting your agency up to be more efficient and to work smoother and actually. Set up those foundations to allow it to grow. Then we actually, we have another round of my AGENCY accelerator coming up.
This is a sixty day program, and we addressed all of your foundations, so your clients, your packages, your delivery process, and your financials, everything that we talked about. There’s some special bonuses, including this delegation task assessment. If you sign up now.
You can get all of the info on that at nicolejacksonmiller.com/accelerator. If you have any questions, you can either email us at email@example.com, or you can send me a DM on Instagram at Nicole Jackson Miller.
I hope that you are having a great week. I hope that you are feeling a little bit more empowered when it comes to your numbers or at least having some clarity around knowing what you need to do next, and I will see you next week. Bye everyone.