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Is Your Agency at Risk: Part Three

Operating Profitability Issues

How does an agency possibly make a 40% Operating Profit? Answer: By spending only 60%! Ta-Da! In the average agency, if the top 5% = 50% of the income, that means the bottom 95% of accounts are the other 50% of the income. Where are the expenses being generated? Can you say “Profit Center Analysis?” When we look at it, the bottom 50% of customers in the average agency = less than 10% of the revenue and the bottom 25% = less than 5% of the revenue. So again, this is a profitability issue.

Contingency/Profit-Sharing Income

How would you like to have a year without any contingency/profit-sharing income? All agency owners are great managers in March and April! That’s because when we look at our P&L, we’re looking at our total profit, not our operating profit. So while it may appear that we are doing phenomenally well, it may not accurately reflect our true profitability.

Financial Model

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