Not all revenue is good revenue.
As agencies know, some accounts can suck up so much energy, time and resources that it strains profit margins and detracts from other clients. As a solution, Winston-Salem N.C.-based agency The Variable has created a proprietary algorithm for scoping work, called Fairly, that it is now pitching to rival—yes, rival—agencies.
“What is good for the industry is good for us, too,” says David Mullen, president and partner at The Variable. “Too many agencies are not getting paid fairly for their work.”
Based on a system The Variable has used for more than six years, Fairly is geared toward agencies of around 150 employees. Its big point of difference, says Jodi Heelan, director of business development and operations, is that it eliminates timesheets—often the bane of agencies—and instead forecasts costs and profit margin based on the value the agency’s work brings to clients.
Heelan, who is transitioning out of her role at the agency to run Fairly full-time to avoid conflict of interest, is running a beta test with a handful of agencies she declined to disclose. A full-scale launch is slated for May or June.
The system, claims Heelan, has allowed The Variable to more than double its margins, upping them 115%, and to grow the shop’s organic client relationships by 370%.
“What Fairly does is help you understand the difference between good revenue and bad revenue,” says Heelan, adding that “85% of agencies don’t know they are making their economic opportunity threshold from clients.”
The five-step algorithm allows shops to add inputs including the estimated percentage of time allocated to key staffers on the account, project price and the desired profit margin on the business. It can also calculate adjustments based on higher or lower margins.
Fairly, she says, shifts the focus from “input to output,” allowing “more meaningful conversations with clients.” Adds Heelan: “Time is still an input, but it is a backburner input.”