Our highly consultative search engine optimization services include link building, on-page optimization, content development creation and more.
We take a holistic look at Social Media strategy including blogging, Twitter, Facebook and industry specific social networks to come up with a campaign that works for you.
Thunder SEO has extensive experience in creating and implementing local search campaigns for single location, regional and nationwide businesses.
Our company has been working with web designers and internet marketing people for over 10 years....
Maximizing Campaign Profitability at Thunder SEO
Back in February, we conducted a thorough internal time audit of how everyone at Thunder spent their on time on Thunder, clients, campaigns and nearly everything in-between. The goal was to determine how we spend our time, where we are efficient, where we are inefficient and which campaigns are profitable. I talked about the inspiration and structure for the time audit in an earlier post on Productivity Evangelism at Thunder.
In this post, I review what we learned about campaign profitability and how we arrived at the figures. I also touch on the big “aha moments” for Thunder in regard to how this information impacts how we operate now and how we grow. My goal is to share our process and hopefully inspire other agencies, as well as learn from those who’ve gone further than us in this regard and would like to chime in.
What Are The Campaign Costs?
Okay, so we want to know which campaigns are profitable. Well, first we need to define costs. To determine this figure, I’ve used a basic formula of:
Let’s break it down further into its parts:
Hours X Salary
This is the number of hours (per the Time Audit) associated with a particular campaign times the hourly salary for the people who worked on that campaign. As such, the hourly fee for someone more senior is higher than someone who is more entry-level; this seems obvious but part of the exercise is also to determine where we can shift the efforts of people involved on a campaign so that we can see where some campaigns might require fewer hours from a senior person while other campaigns might merit more senior level time.
This is the figure of 1.2 that we calculated to reflect the costs of payroll-related taxes and administration, health care and similar costs. This multiplier is for costs directly related to the employee. As such, it does not reflect company-wide costs such as overhead, utilities, infrastructure, computers, etc.
These are any per-campaign costs that are not reflected in payroll, primarily writers from our network who are paid via 1099.
This accounts for the hours associated with internal communication, Thunder’s blog, business development and administration. Whether it’s campaign execution, client support, internal communication, sharing knowledge or administration, nearly everything we do is in support of clients and their campaigns. As such, I decided to associate the costs of our support of these activities directly to the campaigns rather than lump them into marketing and operations. To calculate how much of Thunder Time goes into each campaign, we used a weighted average that is derived from dividing each campaign’s costs (Hours x Salary x Multiplier) by the total costs for all campaigns.
Which Campaigns Are Profitable?
Now that we know the costs, we can determine which ones generate profit and how much. To determine profitability, we subtracted the Total Costs (outlined above) from the amount invoiced for the same period. We conducted the Time Audit in February, so we are using the data for one month, and then extrapolating out for the entire campaign. The following chart illustrates which campaigns generate profit (above 0%), loss (below 0%) and break-even (at or near 0%), with the campaigns listed along the horizontal axis:
With this picture, we can quickly see which campaigns lose money or break-even and, more importantly, where we might determine a minimum “threshold of profitability” for all campaigns, say 20% or 30%.
Which Campaigns Grow The Company?
While the above shows profitability on a per-campaign basis, another way to slice the data is to show the impact of each campaign to the overall profitability of the company. To help illustrate this, the following chart shows the same data but weighted by the size of the campaign. This was determined by dividing the revenue for that campaign (we used February’s invoice) with the total revenue for the same period (sum of all the invoices).
While we still have three campaigns that stick out as unprofitable, here we see that there are more campaigns that hover around the 0% to 1% range, as well as fewer and more pronounced outliers at the higher end of the scale. Because this chart reflects how much a campaign contributes to overall profitability, the higher percentages of these outliers indicate that they contribute disproportionately more to the company’s profit than the lower margin campaigns, which contribute less.
This raises some vital questions and opportunities for Thunder:
Stop the bleeding: For campaigns where we lose money, can we change the way we support those campaigns or migrate those campaigns out of Thunder altogether?
Increase efficiencies: Given our current operations, Thunder has a lot of campaigns that contribute around 1% to the total profit of the company. That’s a low margin, especially given the company’s desire to invest in new methodologies and technology, as well as increase salaries for staff. Can we increase the margins for these campaigns or should we transition them out of Thunder altogether?
Increase campaign scale: Thunder is definitely in a transition period of migrating from smaller campaigns to larger campaigns. While there are some “large” campaigns that hover around 1% or lower (which reflects higher operating costs or lower efficiencies), the top contributors to Thunder’s profitability are all large campaigns that have higher profitability margins. This highlights the company’s strategic goal of working on larger campaigns with greater productivity that results in higher profit and more resources. As we maneuver the waters of campaign size and building up Thunder to support those campaigns, we will no doubt get smarter about which clients are our sweet spot (I look forward to writing that post in the near future for Thunder’s blog).
Growth strategy: Are we an agency that supports smaller clients or larger clients? Do we target enterprise level clients? While Thunder currently supports a range of clients from all these areas, these figures highlight where we see our opportunity and how we see our growth path. At present, we are a high-touch, highly consultative services company that sells our expertise and our time. If we focus only on small clients, then we’ll be hampered by scale because we will over-deliver in regard to services which will result in smaller margins and then less resources to invest in resources and talent. If we focus on large clients, then there’s a better fit for the quality and style of our services, but we still grapple with productivity and efficiencies. This is an area we’re working on in regard to our internal processes. It’s also an area where we see the opportunity for developing internal tools and programs to support greater productivity and also new services (again, topics I look forward to writing about in the near future).
What Steps Can We Take Now?
For Thunder, there’s a lot we want to do in terms of our web presence, internal education, building out the team and investing in technology. Some of these are in the works, others are near-term but not happening today. So, what steps can we take right now, given our resources and current organization?
1) Fish or Cut Bait
Now that we’ve identified which campaigns lose money, we can decide if they can be “let go” or if their campaigns can be handled with greater efficiency. When we look at the data and what goes into supporting these campaigns, the typical pattern is that Thunder’s services are not a great fit (primarily because they cost more than the value of the leads generated) OR the campaign requires more support than the client’s budget allows. In all the cases above, we decided to end the campaign and support the migration to another provider. On paper this is easy, in practice it’s a little more daunting. In the end, it was relatively smooth once we explained that we weren’t “dumping” them but rather “supporting their transition” to a better solution, which in some cases resulted in changing their online strategy and approach altogether. Our goal has always been to help clients with their campaigns so we’ve always done our best to support this goal even when transitioning a campaign to another vendor.
2) Evaluate Low-Margin Campaigns
With the unprofitable campaigns addressed, now we can look at the campaigns that are profitable but have low margins and, thus, contribute less to the bottom line. We decided that we would not end any of these campaigns right away. Rather, we are figuring out whether we can increase efficiencies (and their consequent contribution to the company’s profit) and then re-evaluate whether or not to continue when they renew. For those campaigns where we can increase efficiencies, then we’ll probably retain those; for those campaigns where we cannot, then we will most likely not renew them.
3) Re-Allocate Resources
From the time audit, we know how much time people spend on campaigns and specific tasks. We also know how profitable different campaigns are. We can use this data together to determine the best use of people and resources to best support a campaign as well as increase the margins, whenever possible. One area where we identified immediate resource allocation improvement was in regard to writing blog posts: Many senior account executives are also good writers so when they need content, they’d write it themselves. While they create great content, the downside in terms of productivity was that they were using their time (which has a high value) on a deliverable that could be supplied by a high quality and lower-cost provider, in this case a writer. Our solution has been for account executives to work with writers on idea creation and content development, and then revise the final draft. This involves more steps but it also frees up the account executive to focus on strategy and higher-level tasks while utilizing the writer for a task that s/he does best. In the end, this approach has resulted in greater efficiencies. We’re monitoring to see the final impact on margins of these changes.
4) Target Higher-Level Campaigns
In looking at the business development funnel, we are focusing on larger scale and higher margin campaigns early on. As our lower margin clients drop off, we are replacing them with higher margin clients AND smarter campaign execution in terms of resource allocation and efficiencies from the get-go.
Altogether these changes increase Thunder’s margins which enables us to increase salaries, invest in technology, grow our talent and expand our operations all of which, in turn, result in better campaign support and performance. All in all, a win-win for everyone involved.
What About You?
The above questions and considerations aren’t unique to Thunder. With this data, we’re able to see some realities about who Thunder is and how we operate. This, in turn, gives us the power to make more informed decisions about how we function and how we grow. We’ll keep you posted as we learn more and make more strategic changes.
I hope you found this to be helpful information. As I mentioned early on, it’d be great to hear from other agencies and companies to hear what they’ve learned about their business and choices they’ve made.
Read all of our posts about Productivity Evangelism at Thunder SEO!