Running a firm that specializes in marketing, design, advertising, and similar creative agencies is a challenge. Budgets are always tight, and you can’t predict what technology needs your client may bring you. Covalent’s low cost and high quality make us a capable subcontractor for creative firms, allowing for higher profit margins.
Our network of professionals and studios provides access to a variety of skills. Imagine being able to provide a wide range of profitable services, without having to keep a full complement of professionals.
According to recent research, the biggest ad agencies enjoy profit margins of around 10%. Additional reporting (PDF) shows that 40% of firms achieve less than 20% profit, with another 15% not even tracking their profitability. Covalent’s experience has found there two ways to increase the profitability of your firm:
Increase utilization. The more you and your employees are able to do work that is billable to a client, the more revenue you start with, making profitability more achievable. But utilization has its limits; the typical advice for operations is to optimize utilization rates at about 70%. Too low, and you risk not covering expenses. Too high, and you lose resiliency, important tasks that may not be billable – like marketing, sales, professional development – don’t get done, the staff gets burned out, and your capabilities suffer. But, by outsourcing the right projects to Covalent you can increase overall utilization — you only pay for the work performed and don’t carry payroll.
Profitable projects. It’s possible to run at 100% utilization and still have an unprofitable firm, if your projects are not run profitably. This frequently happens when projects are not estimated correctly, and you expend un/underpaid hours to complete work. Some clients may not have the budget you need to do the work profitably. Covalent helps here because our cost basis allows us to do quality work more efficiently — allowing for profit you need, and quality that even price-sensitive buyers demand.
By partnering with Covalent, you pay as you go – not for underutilization. Our expense for work with quality agencies is often lower than freelancers.