Agency Profitability and Project Managers

At the start of my career, I worked for two different agencies. Both hired project managers (PMs) to support client delivery. Despite leading the delivery teams, I often found myself project managing my project managers.

When I transitioned to an in-house position and hired an agency, the pattern repeated—I was managing the agency's project manager.

As a result, when I started my own agency, I was strongly against hiring project managers. Throughout my career, I saw little value in the role, both as a client and from the agency's perspective.

3 years this lasted.

Then I came across this visual:

To be clear the table is showing multiple different agencies with the same level of income but the agency with more project managers had a smaller overall team and as a result higher profit margins.

Despite being extremely generic and lacking context or details on exactly how having more project managers contributes to a smaller team and more profit, I was intrigued.

When I saw this table we were at a point where we were planning to sell the agency to the staff. To prepare for a sale, you focus heavily on EBITDA and reinvest profits into scaling growth.

However, with the agency's sale, the employee ownership model would only be successful if we changed our focus to being hyper-focused on profit margins. That's why the visual above caught my attention. I wondered if it could be a quick win for us in terms of profitability.

Fast forward six months, and we hired our first project manager.

It was a disaster.

We extended her probation period and eventually ended it.

I then decided to maximise our budget to hire a more experienced project manager who could work across the agency globally and not just within specific pods or services.

Fast forward another 18 months, and I now have my own visual that aligns with the one shared above to showcase the contribution PMs can make to your bottom line.

The most significant impact we saw was reduced freelancer spending due to better management and planning, followed by a smaller team delivering the same amount of client work.

From day one, it was clear PMs alone don't achieve the above visual

It's a company mindset change towards more structure, dedicated resources to policing budgets and time, holding individuals accountable and avoiding over-delivery to existing clients, time that can then be used for new clients or marketing. 

The aim is for someone without your discipline knowledge to be able to manage and understand what is being delivered each month. These should align with what is outlined in your SOWs and contracts, so there is no doubt about monthly expectations from your clients and your delivery team. 

The bottom line is that time is an agency's most valuable asset, so PMs allow you to get much more insight into how and where that time is spent. This allows them and the wider team to ask why and make changes on a weekly basis. 

Here are my learnings from building out a PM team:

Maximise your budget

Maximise your budget and hire the most senior PM you can. We made this mistake with our first PM hire; the salary savings we made are just subsidised by the additional time it takes for the directors or founders to train, support, and handhold. 

Hire an agency PM

Hire a PM with agency experience who understands critical metrics like utilisation, realisation, bill rates and billable capacity. Ideally, you'd hire a PM with agency experience similar to yours. Based on my previous experience with PMs working in a development agency, which is incredibly structured, output-driven, and project-focused, it is very different to a more strategic, consultative, performance-driven agency working mainly with retainers over a 6 to 12-month basis.  

Sort out operational foundations first.

Ensure the core operations are in place, i.e. a PM tool like ClickUp/Asana, etc., as well as a time tracking tool. At this stage, it's not a priority which specific tool you use; a PM can come in and recommend better tools and train the team. The most important part of this recommendation is that the PM is coming into an agency with a culture around tracking work to deadlines and tracking time. If you don't have this way of working, it can take the PM much longer to become effective.

Standardise or productise delivery outputs

Standardise your delivery output as much as possible. I'll write about this in a future post, but when we hired our senior PM, there was nothing for her to actually PM in one of our services; we were overly focused on the individual's quality and needed standardised outputs each month. So, every client was getting varied deliverables each month. If this sounds familiar, keep an eye out for future content around this topic as it's transformed how we work as an agency: aligning expectations on outputs from sales to delivery. This is common for agencies that operate more on a retainer basis, where the activities per month can vary. 

PMs should manage £1m

Don't worry too much about the general 'rule of thumb' that a PM should manage £1m worth of clients per pod. Our PMs work globally across the agency, working closely with our CFO consultant, and it's still working well with a team of 2. That said, going back, I would have hired our first project manager around the £1m-£1.5m mark. 

Hierarchy and chain of command

Finally, ensure you have a clear hierarchy and structure specifically around how operations interact and work with the delivery team, as the PMs typically straddle these two departments.

To conclude, I was wrong about project managers. Hiring project managers at the right stage of growth for your agency can strongly impact your bottom line. However, as an agency leader, hiring the right project manager is crucial. You must establish the right culture, provide the necessary infrastructure, and empower them to make decisions and challenge the delivery team. All these factors enable them to contribute to the agency's profits. However, they can't achieve this alone; it requires a mindset shift from you and the business.