-10% to 40%+ EBITDA in 9 Months - Part 2/4

What did I look for to bring this agency back from the brink?

This week in part 2 of 4, we’re going to do a deep dive into the finances behind this agency that was losing money.

If you missed part 1 last week, read it here.

I’m Nick Avaria, agency owner, and founder of Agency Acquisitions. Every week I share case studies and insights of growing businesses while making more profits.

We’re getting into it in-depth as promised from last week’s email.

Financial / Business Model Analysis

Let me start by telling you the macro things I look for:

1. A reminder: AGI = Agency Gross income = Total revenue - passthrough costs

2. Unburdened compensation <45% of AGI - I’m ideally looking for less than 40%. 

   1. So no more than 45% of AGI is going to employees, including yourself (before dividends)

3. SG&A (sales, general, and admin.) <20%

   1. If you’re following along here it means that at worst you will make 35% profit based on your AGI.

   2. If it's more than 20% that means where we are overspending. Just have to find the leak in the system.

4. Revenue per FTE (full-time equivalent) >225k. Less than 5% of agencies can hit this metric.

   1. I’m trying to get a sense of what the potential is for the agency with this number

   2. If the agency is doing value-based pricing and fall below 180k per FTE that is a big flag

5. Billable to non-billable FTE ratio. There should be at least 3 billable people for every 1 non-billable person. Best practice there should be 5 billable people for every 1 non-billable person.

   1. If you are under 3 to 1, this is a red flag.

Here’s the full video breakdown:

What did I find?

A lot of passthrough revenue could easily be brought in-house thereby pumping up AGI and lowering contractor costs. This added 20% to the profit line alone (from -10% to 10%)

Also, it was clear that unburdened compensation was above 45% even after we brought work in-house and increased AGI. The culprit was billable to non-billable FTE ratio. 

The owner was not willing to right size. So there was only 1 thing left to do. Add billable people.

The only problem was that everyone internally was telling their manager that they were already working at maximum capacity even after we began hiring. 

Next week I’ll walk you through how we solved this with Revenue + Workload forecasting.

Use this link to apply to see how I can help you scale your agency before the end of 2024.

Nick Avaria