Part of our job as accountants is to manage cash flow and make sure the best system of process (SOP’s) are in place to support a firms revenue growth. When a new digital creative agencies comes to us, one of the biggest pain points they have is managing ad spends. While there is not a “one shoe fits all” solution, there are some critical practices that must be followed to ensure successful and profitable outcomes.
Managing Ad Spends Starts with the SOW.
The first step to running a successful agency is learning how to develop a solid + comprehensive Schedule of Work (SOW) agreement. Most creative firms will have a topline budget for hard costs (such as advertising / media spend) and a topline budget for creative services. Building out budgets based on hard costs and deliverables is much easier than sharpening your skills of projecting time allocation costs associated with a job. Throw ad spends into the mix of complexities and you must really master the art of what it means to be a creative marketing agency.
The key to becoming a thriving agency is having a comprehensive understanding of all key elements involved in each component of managing time and expenses related to the SOW. Understanding how much work and re-work is involved in managing ad spends for your clients is a critical element to mastering the initial engagement and budget projections for hidden service fees.
Even if you feel you have mastered the components of SOW costs, it is also equally important to leave room for any variance in ad overspends and clarification on what is considered billable. Be sure to set quantitative allowances for changes and alterations to avoid scope creep or paying out-of-pocket.
Good habits make or break a project.
Good habits make or break a project. Project management is one of the greatest hurdles for firms of any size to overcome. Having a project manager that is aware of all elements you budget into the job is crucial to the success of the project. If the project manager is involved in thinking through all aspects of the job they become more aware about all work tasks that need to be built out before the job begins. Having the project manager involved from the start gets them on the same page with all key players in the process.
Using a task management software is imperative to developing good habits, making sure the team is doing time tracking and that there are WEEKLY meetings to review the job with all staff who are assigned to the job. Make sure these WEEKLY meetings include anyone with any involvement on the job from interns to the accounting departments assigned to track costs or billings for the job. The minute you stop working collaboratively with all assignees or the minute your project manager is no longer staying disciplined with documenting time and expenses, your project management has just fallen off the rails. Develop rhythms and keep those rhythms in place.
Since you now have a project manager who is responsible for keeping track of all elements of the project, they are now able to communicate with the team about how they will be running ad spends on the project. If an agency is not using some form of Customer Relationship Management (CRM) or a uniform standard of practice they will need to make sure that ad spendings are reported WEEKLY and the accounting department knows when to bill the client. The accounting department will be confident in the project managers ability to track spending in a timely fashion beascue the company has a consistent rhythm and they know the project manager has thought through all processes needed for the job. Everyone will be on the same page with good project management.
Billing Ad Spends May Affect Your Bottom Line.
It is very important to define how you want to bill your clients for ad spends. Do you want to bill an allowance or flat rates? Do you want to bill clients for last month’s ad spend in the current month or on a more frequent basis? Some ad spends can get out of control if you have not set budgets, which may mean that your client needs to be billed more frequently. If you are collecting a flat fee budgeted amount and your client requests to extend that amount, are you billing the client before or in the next period, how will this affect your monthly financial reporting? Again going back to the SOW, make sure you have thought this through and worked this out before the project starts.
If you are using a CRM, you may be in a better position to bill more frequently with less work. If you are doing manual ad spends, your project manager will need to extract costs per job and report the details to the accounting department. The accounting department can then record the expenses with job costing. When doing it the manual way there will inevitably be a delay in budget vs. actuals. This process is fine if you have budgets attached to the ad spends, you’re not going over budget and your client is okay with waiting for project completion for requested results. However you will need to know that project profitability reports may be skewed until the results match and there will most likely always be slight variances. There is the option to develop a markup on budgets. If you know what the internal service cost is per budget you develop your own internal costing methods to create a formula for embedding cost in SOW. All of these factors involve taking the service time of your team into consideration.
Cash is king, keep a constant pulse on your cash position.
More frequent billing is better for your cash flow but more expensive in terms of service cost to your firm. If you decide you want more frequent billing, think about the fact that the busy project manager will need more time to get their data in more frequently and that your accounting team will need to do more frequent reconciliation. Both of these will eat up service time on your end and make billing more frequent, and more expensive. Make sure you factor in these differences when building out cost on a job. Underestimating the need to understand each component of the project to develop a solid SOW for the start will ultimately eat at your bottom line profits and make future forecasting extremely difficult.
Finding the right CRM can help.
CRM platforms that can help integrate various parts of your agency that interact with customers and can be the key to making the process of managing ad spends much more seamless. Some of our clients have used Salesforce to be able to attribute ad spends to customers. The results have shown that this drastically decreases the cost of services work on the backend.
“Accounting software and CRM work together to share data between sales and accounting, including customer information, sales orders, expenses, and invoicing. Connecting with QuickBooks reduces duplicate data entry, increases productivity, and drives more insights for better forecasting.” – Salesforce
Agencies can build out a bridge through AppExchange to link Salesforce to QBO. From there, you can then integrate the two systems to match internal data to your external accounting team.
Ad spends can be tricky but if you are able to think through which process you would like to use for your firm you will be able to factor all costs involved with manning the ad spends and then you will not have to worry about cutting corners and risking your liability to pay out of pocket.