With a difficult fiscal year for agencies behind us, reflecting on what worked and what didn’t can help us move forward more confidently and tactfully in the future. In this particular case, the one thing that didn’t work wasn’t a complete failure — our employees.

This is a double-edged sword because agency owners reported having the best teams ever in 2023, a high note for the industry. On the other hand, a tough economic year made it difficult to have enough work to keep those teams busy, and for some agencies, the best option might be cutting back on staffing temporarily.

As Drew McLellan of the Agency Management Institute explained in a recent podcast, many agencies have been carrying a staff workload and payroll that is too heavy relative to their revenue.

The last 12-18 months have been especially challenging. Biz dev has been slow to materialize into actual projects and revenue. But agencies held onto team members for a couple reasons:

  1. They anticipated delayed projects would eventually kick off and require those staff levels.
  2. Ironically, many agencies have assembled their best team yet over that period.

The result is excess payload and pressure on profit margins that can’t be sustained indefinitely.

So what should agency owners do? If you feel like you might be overstaffed, it’s time to take a hard, data-driven look at your numbers and have an honest conversation with yourself.

How much longer can you sacrifice profitability to maintain current staff? Do you have a robust sales pipeline that supports those headcounts? Or is it time to trim expenses more in line with revenue?

Drew’s predictions see the market remaining soft through the first half of 2024 before picking up significantly. But don’t rely on gut feel — let the data guide your team size and payroll decisions. If the numbers support staying overstaffed a bit longer, that’s great. But beware of robbing too heavily from future profits just to maintain personnel.

And if signs point to needing reductions, act sooner rather than later. Handling it proactively will minimize disruption and preserve agency culture.

No agency owner wants to lose great team members, and many agencies report having the best teams they’ve ever had. But avoiding necessary cuts can risk far greater pain down the road, or even threaten the business.

Review revenue trends, sales pipeline health, and profitability levels to right-size your staff and payroll wisely. A leaner team positioned to capitalize when activity rebounds is better than overstaffing now and creating a financial hole.

Stay focused on the big-picture health of your agency. Make data-driven decisions on ideal team size and payroll, not emotional ones. This will ensure you’re ready to scale efficiently when the tide turns. And to learn more about what successful agencies did to remain profitable in a difficult economic year, tune in to the latest episode of the Progressive Agency Podcast.


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