Do you really know what profitability means?

Before we can discuss if your agency has the right approach to profitability, we have to describe the concept itself.

Profitability is the most important financial metric: it shows how much money your company is making, how efficiently you're allocating resources, and if your pricing is adequate. It's also a metric that will predict the long-term success of your business.

Understanding profitability will help you concentrate on the needs of your agency. Pay attention to the metrics you use and how you interpret them. Do you measure your success by how much you sell? Sales profit won't be helpful if you don't know how much time it takes you to finish a project or how many people are needed to close a new client. That's right. Profitability, profit and cash are different things.

You can be profitable and still have cash flow problems. There are misconceptions about profitability that go beyond understanding the basics of accounting and the definition of each term. Making a profit doesn't increase your profitability.

Profitability is more of an overview that tells you, for example, exactly how much of "A" produces "B", and if there's a way to minimise A and maximise B. When measuring profitability, it's best to compare your statements with previous ones. It also helps to measure your agency against industry standards. You can find here some ways to measure profitability here.

Many companies and programs can help you with data analysis. HubSpot discusses on its approach to data analysis that "from proving ROI, to developing a strategy for growth, data analysis will continue to be critical for driving the future of inbound businesses." So, you don't have to be an expert in statistics or data analysis to evaluate metrics.

However, most of this programs don't take workforce into account. Computers will help you figure out the mathematics behind some of your marketing and sales efforts but, just as with any other human interaction, you can only learn about the productivity and efficiency of your team when you talk directly to them. How do they respond when they get stuck on a task? How long does it take to solve a problem with a difficult client? Most importantly, when was the last time you talked to your team about this?

Your agency should have a system to track challenges and the amount of time allocated to each task. It's easy for managers to forget about employee satisfaction, especially if your agency uses HR tools or productivity platforms. If your team is happy and there are good communication channels for everyone, it'll be easier to track and understand common problems.