Financial Tricks for Running a Digital Agency
At Blue Label Labels, we refer to ourselves as a digital product agency as our services extend far beyond on-demand app development. Our team of over 60 people is dispersed around the world which boasts both advantages and disadvantages across every aspect of the business.
Taking advantage of everything the Internet has to offer makes running a business easier but it's also a bit like nuclear technology. You can use it to provide clean power, but a slip up can result in catastrophic damages.
Imploding as a business starts with relatively innocuous actions that eventually spin out of control when left unchecked. There wasn’t a great guide book on how to succeed with this model when we started. Fortunately we figured most of this out for ourselves. Here's how to bypass many of the roadblocks by, well, not having to commute on a road, period.
Why our digital company works well as a remote model
The main goal of a successful agency is to save money by circumventing unnecessary expenses.
Being in Manhattan, the cost to relocate everyone on our payroll to one (or more) office spaces would create a massive dent in our current revenue of around $5 million a year. While a physical workspace does help facilitate better professional relationships, the supposed average for New York office space is around $83 a square foot, and the de facto standard space for an employee is said to be an 8 x 10 square foot area (or 80 square feet, though this figure varies substantially). Based on this sadly conservative model we could be spending $6640 a head, every month, for our staffers.
To me the overall cool factor of a work environment is heavily dependent on the price. My staff agrees that it’s better to get together at someone’s house once a quarter, and catch up in person, than to fork over hard-earned loot just to sit in a slick-looking office after battling the daily commute.
Other expenses of a digital product agency
Regardless of whether you operate from a physical location or furnish software that allows your teams to work remotely, other expenses need to be factored into your finances.
We aim to operate at about 50% gross profit margin. From this we factor in our salaries, healthcare and other costs which consume 30% after it’s all said and done. We don’t use a formal, static working space but we do take advantage of WeWork for our employees. This, and other tools, impact our bottom line.
Comparatively, this is a small component of much more significant expenses such as employee salaries and healthcare expenses. Even though these costs are far higher than basically everywhere else in the world, it’s still worth it as these people are not only human beings, but everyone works better when they’re physically and mentally well.
We also do have to pay for software our employees use to communicate, build software and keep projects on track. These costs are relatively minor in the grand scheme of things. You may be fronting a few hundred dollars per employee for software, yet it’s way cheaper when stacked against the costs of office space.
Snagging the best clients
The idea is to not only transition leads into clients but keep them onboard for as long as possible. It’s not always feasible as some projects are clearly a one-time thing which is sometimes, but not always, obvious from the get-go.
Of course, this isn’t always the case. We’re more than willing to get the right people up to speed with a Design Sprint then hand the reigns over to a competent team but we’re a bit biased and feel we can best support a system or app over the long run.
For short-lived relationships, it’s really not our responsibility to ensure things go smoothly after fulfilling the terms of a forerunner-esque arrangement. We prefer to maintain a relationship and cultivate both the business model as well as ongoing software development. It doesn’t always pan out this way so we try our best to provide an internal, or external, team with all the information they need to succeed.
Like any agency, we prefer to have higher-paying, long-term clients. For example: One client generating $200K for upfront development then $50K a year to maintain is usually preferable compared to one client that pays $250K. Naturally such ideals don’t always come to fruition as we understand both the complexities and effort involved in this line of work. While our preferences might seem overly idealistic, understand that any software development company is looking to keep you around for as long as possible.
Sure it’s great to be around the people you enjoy every day, but it’s also rewarding to be able to wear your pajamas for the better half of the day and get work done on your own time. You don’t need some slick, overpriced workplace environment to be a great company. You just need to deliver a solid product.