How to Calculate and Eliminate Scope Creep to Drive Agency Profitability

<p>As a Certified Management Accountant, a Certified Internal Auditor, and certified in Strategy and Competitive Analysis, Naten Jenson, co-founder of <a href="https://agencydad.money/" target= "_blank" rel="noopener">Agency Dad</a>, is certainly the best person to help you establish a strong business and drive your agency's profitability. Today, he joins us to talk about scope creep, a topic that many agency owners struggle with but should definitely learn more about. Remember that if we can get a hold of scope creep, we're going to increase our profit.</p> <h2>3 Little Nuggets</h2> <ol> <li><strong>What gets measured gets managed.</strong> Many agency owners get so focused on that next client that they forget to measure and they are not managing the profitability of existing clients. First mistake, because you cannot identify a problem when you fail to measure. <a href= "https://jasonswenk.com/marketing-agency-financials/" target= "_blank" rel="noopener">If you don’t have the data</a>, there’s nothing to analyze.</li> <li><strong>How to get those numbers.</strong> There are three numbers that you need to know. The first one is your bill rate. The second thing you need to know is your gross profit on a client, and finally, you need the number of hours that you spent on a client. The formula you will need is: <em>gross profit ÷ bill rate</em>. So let's say your gross profit on a client in a month is $1,200. If your bill rate is $120 an hour, you get an answer of 10. Now, what if we had 10 hours budgeted and we use 17 on a client? Well, we've now measured our scope creep. It was 7 hours, and 120 x 7 is $840 of revenue that you’ve lost.</li> <li><strong>Is the problem coming from the client or the agency?</strong> Before doubling your rates, you could look at the origin of the problem. If you do this scope creep analysis over three months and clients are consistently using too many hours, then it’s time to <a href= "https://jasonswenk.com/agency-team-management/" target="_blank" rel="noopener">look internally</a> f