Fractional CFO Strategies for Marketing Agencies

I've witnessed instances where marketing agencies experienced rapid growth, resulting in substantial challenges such as heightened stress levels, workforce layoffs, and even closures. Conversely, there are situations where agencies must accelerate their growth. 

In this article, I'll draw on my extensive expertise as a Fractional CFO and discuss how to achieve marketing agency growth. Throughout, I’ll cover reliable cash flow strategies, forecasting models for marketing agencies, and balancing stress and success. However, it's important to note that these concepts also apply to other service-oriented industries, where similar overlaps can be observed.

Balanced Growth for Marketing Agencies

Finding the right balance is crucial when it comes to building and growing your marketing agency. It's about challenging yourself and progressing without overextending too quickly. To illustrate the point, consider a recent experience I had while dining out with my brother. We enjoyed a delicious steak dinner, but as I finished, he posed an intriguing question: "What if you had to eat that same meal again right now?" What once seemed exciting and delectable became almost torturous at the thought of a repeat. 

The same principle applies to business growth; too much expansion can be overwhelming, while too little can be equally detrimental. Today, I'll share in-depth financial strategies for marketing agencies seeking to achieve sustainable growth. 

Reliable Cash Flow for Agency Stability

Cash flow is the lifeblood of any company. Once your cash runs out, the business cannot grow or even function. Marketing agencies must contend with normal business cash flow, such as payroll and operating expenses, media costs, pre-billing, and seasonality.

As a Fractional CFO, I have some experience with agencies that get significant costs upfront so they can pay the media vendors on time. Most marketing agencies only get a percentage or flat fee for the media they run for their clients. Cash can get out of hand if you front those costs. You want to properly separate media cash from operating and cash available for investment, distributions, or bonuses. Here are some tips I recommend. 

Consolidate Your Cash and Maximize Interest

Consolidate and get the best interest rate on all your cash. For example, by separating client media cash from operating cash, marketing agencies can earn better interest–in some cases, 5% or more. We have found some very conservative investment approaches to cash. For example, a client of ours received $6 million upfront for holiday spend. Many of these bills will be paid in January or February. They should earn $25k of interest income with proper cash management. 

See also: 5 Ways a Fractional CFO Can Help a Marketing Agency

Secure a Large Line of Credit

Make sure you have a large line of credit. Typically, this is based on Accounts Receivable (AR). Depending on the size of AR, I have seen Line of Credits get to $1-2 million for agencies with $5-20 million in annual billings. You should have a line of credit in place before you need it.

Maximizing your cash and securing your credit is important, but without staying on top of future cash trends you risk losing money over time. Next, we’ll discuss forecasting models for marketing agencies, and why I recommend them as a Fractional CFO to businesses looking to achieve growth. 

Forecasting Models for Marketing Agencies

What if you had a system to understand the impact of all your agency's decisions, from pricing and hiring to investment in training, marketing, and any other overhead expense? Would this help you make better decisions, sleep better at night, and alleviate the overwhelming fear of the unknown? A sound forecasting system cannot solve all your problems because we don't know what the future will bring, but we can guess much of it, especially in the short term. 

As your marketing agency grows, all the clients, services, new business, employees, hiring, overhead, and cash flow decisions become too numerous to keep up in your head, so you need a system.

The Weather Forecast Analogy

The best analogy is the weather forecast. Regardless of what you believe about the accuracy of the weather forecast, meteorologists are becoming more accurate due to data models, historical information, and weather trends. Anomalies and storms happen, and we make fun of the weather forecasters–but do you stop checking the weather forecast every week? No. Do they get closer to the temperature and precipitation forecast than if you had no information? Yes, they do.

Improved weather forecasts save lives and money and help people be more prepared for their plans. The same is true for a quality forecasting system for marketing agencies. Not only will you better understand how your revenue and expense translate into profit, but you can also mitigate risks and see challenges or opportunities ahead. It can be encouraging or discouraging, but a quality forecast can put you on the right track in advance. Who wouldn't want more information about where you are headed than nothing or your gut feeling?

If you're interested in a forecasting model for your marketing agency, partner with a Fractional CFO today to start anticipating future peaks and valleys. 

Profitable Recurring Revenue Streams

Recurring revenue streams are incredibly valuable for any service-oriented business. Having a steady stream of contractual revenue coming in each month is not only exciting but also significantly enhances the overall value of your business when compared to those relying solely on one-off projects. When it comes to seeking a higher valuation, building monthly recurring revenue (MRR) for your marketing agency is key to future success.

Upon conducting further research, it's worth noting that Software as a Service (SaaS) businesses are valued even more, sometimes twice as high, when their revenue includes lifetime plans. Now, while marketing agencies may not typically fall under the SaaS category, they can still establish various forms of recurring revenue models in areas such as SEO (Search Engine Optimization), ad service fees, consulting, social media management, creative services, website development, maintenance, hosting, reporting, and more.

Ensuring Profitability

Another crucial aspect of revenue growth is ensuring its profitability. You might charge a client $4,000 a month or even $10,000 a month, especially for larger agencies, but profitability hinges on how many hours are spent serving that client. It's imperative to understand the profitability of each client. Establish a minimum fee that you won't go below to avoid a scenario where your top-line revenue grows, but you're not making any money– an incredibly frustrating situation for a marketing agency.

Achieving Balanced Growth

Imagine a scenario where you're experiencing steady growth at a healthy pace, maintaining 20-25% profit margins, and feeling less stressed and overwhelmed. Wouldn't that be exciting? On the flip side, what if you were barely growing, merely holding on by cutting expenses and slowly fading away? Neither of these extremes represents the happy medium.

Achieving a balance is possible with the right financial strategies and a skilled Fractional CFO behind your marketing agency. While high-growth stories like Amazon or Apple may be inspiring, marketing agencies can be a different story, especially if you’re just getting started. 

Not every agency needs extreme scaling to succeed. Instead, focus on balancing growth through a financially stable model. Why not take a path that balances success with a reasonable level of stress? 

Ready to Strike the Right Balance at Your Agency?

Partner with Bender CFO Services. Our expertise in financial management and strategic planning can guide your marketing agency toward sustainable growth without unnecessary stress. With reliable cash management, an informative and practical forecasting system, and a focus on cultivating profitable recurring revenue streams, you can find that happy medium and position your marketing agency for long-term success. Partner with a Fractional CFO for your marketing agency to achieve your financial goals today.