Recession-ready Staffing

The “R” word has reared itself again. A bad word that we wish could just be bleeped out by a censor.

You know… r#cession.

And whether or not the U.S. Fed or other national, regional or global factors put us into economic arrest today, tomorrow or next time, it’ll become a recipe for cost-cutting. And the pot seems to be simmering right now.

So, it’s timely to do a little gut check today and go the preventive route versus waiting.

The Build a Better Agency podcast from the Agency Management Institute hits on the topic of weathering economic change in episode 365.

Marketing-agency owner Drew McLennan heads up AMI and is the podcast host, with those viewpoints and commentary cited in this article.¹

A good place to recession-proof a marketing agency is with staffing. Drew McLennan suggests reviewing current personnel and taking steps to further embrace those unicorns and heavy-hitters and rainmakers and other all-star employees.

Ensure those who are adding great value to the agency are happy, growing and challenged. Continue to invest in them and retain them.

AGI Arithmetic

McLennan also suggested that agencies take a hard look at the flip side… those not adding so much value. He’s candid and states that recession or not, if enough business is lost for whatever reason, the primary way to right-size financially is to cut staff. That is, if 20 percent of your adjusted gross income goes away, have a plan in place to keep the agency in ratio.

And a way to do that is be conservative about how much cash the agency has. If there’s enough in the checking account to pay all salaries and expenses for 6 months (6 months of retained earnings on hand) with NO revenue coming in, then that is TOO MUCH.
 
Why? Because keeping too much cash on hand can cloud objective thinking. As in, “I can keep everyone on board because I have enough money to pay them.”

He suggests keeping only 2 months of retained earnings in the agency account to cover expenses. In other words, if a client walks out the door (20 percent of adjusted gross income), that approach is a general guideline. And you can always keep two months of the same in your own personal account as a set-aside, in case you’re in a position where it’s wise to lend it back to the agency in the future… for a post-recession expansion, for example.

If the client is twice that big (40 percent of AGI), then go with twice that much… 4 months of retained earnings. And 4 months as a set-aside.

If 20 percent of your AGI goes away, have a plan in place to keep the agency in ratio.

In good economic times, get the money out of the agency. Invest it. You can always lend it back, and the money is working harder for you in the meantime.

As a result, you’ll be able to quantify staff cuts with a clearer perspective. Laying off part of the staff is no fun. So, we can all imagine what laying off all of the staff would feel like.

Keep Calculating

He also suggests getting contracts renewed now. If it has just been understood with annual client renewals, find a reason to formalize it. For example, suggest that a formalized contract renewal includes a free seminar program going forward or a dedicated employee dream-team or a free project or faster turnaround times. Sweeten the pot to prompt a renewal.

Also, make sure there is business development going on. Something in the pipeline. It can be easy to put the brakes on because “no one” is doing business. But the truth is, business is always happening, but clients take longer to decide in a recession. So, stay at it longer.

And review any hourly rates. Don’t be afraid of $200 if you have bigger clients. An average number is around $150 right now so consider at least $175. If clients have become used to paying project prices anyway, then you don’t even have to mention the rate change. Just price your work accordingly.

Turn Fixed Costs Into Variable Costs

If you need to staff up due to whatever reason, consider outsourcing. You can get up to three full-time equivalents for the cost of one full-timer. It’s a wholesale cost that gives you more flexibility. More skill sets for less. 

For things like design, PPC and web-dev, outsourcing can take the distraction of those commoditized production tasks out of the agency yet still deliver on the bigger initiatives those skills enable.

You’re only paying for 100 percent productivity… about $39 to $69 per hour².

Cost of Outsourcing

any FTE or Specialist $39 to $69 per hour

To put it in perspective, right now, a full-time, in-house Sr. Ruby on Rails back-end developer commands average total pay of $150,000 annually ($118 salary + $32k add’l pay)³.

Sr. Ruby on Rails

Back-end Developer $150,000 ($118 annual salary + $32k add’l pay)

That’s just one developer.
Granted, a good one.

McLellan concludes by acknowledging that we’ve all been through this before. And even though some numbers can be a bit daunting, we’ll get through this again, together, and be just fine. Now is simply the time to remember that prevention is the cure. Be proactive about the metrics that keep business in check. And surround yourself with smart people.