How To Increase OFM Agency Profitability

One of the biggest draws to starting an agency in the OF space is the prospect of profit + cash flow. Oftentimes, you hear agencies throw around crazy profit numbers in extremely short periods of time, so it's easy to look at yourself and your agency and feel bad about your profit. 

Before I get too deep into this article, I want to identify that there are two different ways to really profit from your OF agency.

Identify Your Goal

What most people do, is sign creators to high % 's, very strict contracts, and employ cheap overseas labor. The pros of this are extremely high profit margins, the cons are you have pretty high attrition despite strict contracts, as well as the brand image of your agency could be harmed by creators feeling trapped and telling other creators to stay away.

What others do, who are more looking to build in the long term, is: Sign creators to monthly agreements, smaller % 's (less services), and employ expensive USA employees (when feasible) and high cost Va’s if USA are priced out (i.e. smaller account). The pro’s are a lot higher retention (despite monthly agreements, creators actually stay longer if you perform well knowing they are not trapped), as well as creators being able to leave means less reputation trashing. Most of the largest agencies in the world choose this method, which is what this article will be majorly based on.

Retention

The first step to profitability is retention. Retaining creators long term means you can ADJUST what teams are on their account. For example, when you start a creator it's always in your best interest to OVER cover the page. Meaning put the best people on, for more hours than you think necessary, and really wow the creator. Over time as you learn the account, you will start to understand pricing, efficiency, traffic, and other data points to where you may be able to pull off certain chatters / team members without affecting the creators revenue or performance. 

Although you may take the profitability hit at first, you can really optimize once the creator is impressed and trusts that you will always do a good job on their account. Now, this does not work if the creator’s revenue or services go down, so make sure if you are to do this that their performance remains at the highest level. 

Invest Early

The second tip is to invest early. A lot of agencies get so focused on short term profitability that they forget about LONG TERM growth in profit. That being said, in your early stages you should be investing in your brand, creating social presence on platforms, taking risk on advertisements, employees, etc. It may sound counter intuitive to increase costs to increase profitability long term, but imagine where your company would be if you had the social presence of a top tier agency. If you feel like you might not be around in a year, would you rather say “well at least I bought that Mercedes for $50,000” or would you rather have $50,000 worth of business assets/social and brand presence that you could use to help you make money elsewhere? I would rather have the assets than the cash. Invest in your personal brand, your agency's brand, trips for creators, take the risks and they will pay off.

Operational Efficiency

The third tip is operational efficiency. If you have a creator with no traffic, and your employee is just waiting for messages to come in instead of poking spenders and subs, then you are LOSING MONEY. You do not pay people to sit around and not generate income. Having software tools like Chatterly that allow you to see every message employees send in real time, per creator, you can quickly analyze which employees are not carrying their weight. You can also log in to the account and check if they are actively sending messages, if they are bumping subs, etc. They should be FINDING the money if it is not coming to them. If all employees are being held to a high standard, all creators will be making more and you won’t be forking over any extra employee costs. ONE good employee can single handedly change your entire business. I know this because they have entirely changed mine, they have helped grow creators, keep them around, and if we didn’t have a select few of them I don’t know where I would be now. 

Intelligent Partnerships

The fourth and final tip is monitoring partnerships, and making sure they are scalable. Typically, agencies are very competitive and not welcoming of partnerships. However, with the recent rise of recruitment agencies, creator market places, and lead generation businesses, partnerships with agencies/individuals have increased drastically. Making strategic partnerships can sometimes hurt your profitability massively at scale. For example, if all of your leads are coming from one place, and that recruitment funnel is an agency that charges 5% of net revenue, you jut lost 5% profit. If your entire company is composed of creators from that agency, you are instantly 5% less profitable than everyone else.

Cash Flow

This can also produce cash flow issues, if you are having to pay out your referral partners on the first of every month, but creators are always 1-2 weeks late on payments, you end up seeing less money every month and less consistently as a result.

The same also goes for chatting companies. The costs of chatting companies can vary by hour or %, but it is ALWAYS cheaper to handle your chatting internally. Oftentimes, you will even have better quality of chat in comparison. Especially if you have picky creators and want to scale, it is key to have your own team. Your profit on a creator signing to 50%, but an agency takes 10% to chat and recruitment company takes 5%, instantly is only 35%. That's before any of your own advertising or internal costs. That is the difference between $50,000 a month and $30,000 a month in billable for a creator doing $100,000 / month. $20,000 in pure profit evaporated just like that. 

In conclusion, although profitability is a very important metric, it is always important to remember that it is sometimes better to forgo short term profit for long term gains. Don’t be afraid to take risks to grow your business and better your brand.