The general business accounting principles that advertisers, marketers, and creative agencies follow look like this:
- Invoicing and accounts receivable (how you get paid and keep track of who owes you)
- Bill payment and accounts payable (vendors you need to pay and keep track of who you owe)
- Account reconciliation (this includes reconciling bank accounts, credit cards, and other balance sheet accounts for accuracy and substantiation)
- Classifying transactions that come through the business (could be cash and/or accrual)
- Expense reporting
- Financial statement review
But for Creative Agencies, accounting is more than just keeping track of taxes and balancing books, it’s about securing success and growth.
Our UK clients have been able to maximize their financial potential by focusing on these three operational areas:
- Track client, project and campaign profitability
- Boost profits by reviewing and analysing their pricing structure
- Improve transparency from digital advertising partners
1. Tracking client, project and campaign profitability
The Return on Investment, or ROI, is a common way for a digital agency to measure its success. ROI can be defined as the ratio of net income (sales) to the cost of marketing activities or campaigns.
For creative agencies, it is important to track:
- Time Spend: Employees should track their time and allocate it to clients/projects within the agency
- Entertainment & Travel Spend: Agencies often have to take clients out to dinner or travel in order to close that special account. When employees incur these expenses, they need to be able to tie them to specific projects as well as control the amounts spent.
- Payments to freelancers and influencers. How are you going to pay these people? If they are sourced through a third party, will there be a markup?
- Digital Downloads: If you have a digital product, you can easily compare the number of downloads to the cost of your campaign
Benefits of Accounting Campaign ROI:
- Real-Time Accounting Analytics of a digital agency creates trust between clients means that the agency can provide its clients with access to campaign performance metrics at any time with the help of dashboards. This promotes credibility, an important characteristic of customer loyalty
- Generate impressive reports on ROI and conversion rates in seconds
- Reliable measurements of ROI are just the starting point for a successful campaign run by a digital agency
- Customer lifetime value (CLV) is a forecast indicator that gives an overview of the total value that a client will have over the next 12 to 24 months. Being able to provide clients with accurate CLV quotes and acquisition costs helps ensure that marketing costs are being used in the right places and are invested in channels that are expected to serve the most valuable clients.
2. Boost profits by reviewing and analysing your pricing structure
One way to boost your profits is by making informed decisions around your pricing structure. It may be time to increase prices if certain clients end up being lower margin clients. To improve cash flow stability, more digital agencies are switching to subscription-based pricing models over project-based or hourly rates. If you charge the same fee each month, your clients will be more likely to automate their payments.
3. Improve transparency from digital advertising partners
Financial transparency in digital advertising is becoming increasingly challenging for CFOs in creative agencies. This is because many agencies are turning to partners and suppliers in the ecosystem who can offer all-in-one solutions. Bundling services, technology, media, and data can obscure the net cost of media. As a result, agencies are finding it difficult to be confident that their partners recommendations are objective, impartial and free from vested self-interest. Creative agencies can use strategies to navigate the non-transparent digital media ecosystem and increase transparency from their media partners.
- Work with transparent partners in your media supply chain, and contractually request that transactions are auditable. Eliminate partners who are reluctant to work with you in this manner.
- For in-house software and tech suppliers, make sure that you have reviewed and restructured fees to ensure that you only pay net for technology and a fee for agency services that are commensurate with the work being done.
- Review contract terms and conditions annually to ensure it’s up to date with the way the market operates. Some agencies separate the services contract from the ad spend. This ensures you have more detailed invoice reconciliation and better control of the way your agency manages its digital spend.
- Monitor the quality of your ad spend so that you obtain transparency on any fake ad spaces as well as to avoid paying for non-human traffic (ads “seen” by bots instead of actual people).
As accountants with knowledge and expertise specific to the digital, creative, ad agency space, we can help you proactively keep your business ahead of the curve. Set up a free consultation with a Square Mile accountant, to assess your needs and considerations you should make for switching from your current provider.