The issue of per-project profitability might be a difficult approach to go after. We’re going to talk about the owners of digital agency that says: “I make a 70% of the marginal profit.” What they’re talking about is that they’re making a gross profit of 70%.
They can sell some of their projects for more than $10K while paying some offshore web developers or team just $3K to get the job done. But, they fail to think about one thing: the fixed costs of their business or competitive wage.
The reason is that these numbers are essential as it happens each month despite the number of the projects you work on. Do you like to learn more about the issue? Then simply continue reading on for the details.
How Does It Work?
Figuring out the results of the math is simple. But, the problem we found that most owners of the digital agency don’t pay a fixed remuneration. Especially it happens with agencies that are earning less than one million dollars per year.
They just pay the leftover that remains after a week or a month. We always ask the owners of the agency to find out the profitability. What they tell us is that they need to pay each month. We’re all set to confirm them more aching while considering their remuneration creates the math.
But, it was very realistic. When they sell projects of $10K, their owner makes a salary of $60K for every year. Also, they have another thousand costs that are fixed for internet, hosting, and others.
Be Aware Right Now
Before we show this math to the owner of the digital agency, they proclaimed to us that they have profitable work. But, we don’t get the care of it much more as they’re not paying and their business is going to redline. At this point, we usually them this way: “How it feels to identify what’s just about in your business?”
This makes us a bit depressed. It’s because an unbeneficial business makes everyone depressed. But, by now, you know it, so its issue is much clear to you. You can solve the issues in some better ways just than not paying you.
The final solution should be the decision of not paying the issue of the business issues. Because you’re keeping away from hard decisions, it’ll not be happening every month. And it’s just possible if you be aware right now.
Channeling The Strength
You could get two comparatively simple variations to your business and see long-lasting benefits if you go with the said example. In this issue, at first, you may find a smaller update to in the pricing structures.
It doesn’t mean that all solutions will come by doubling their costs. But, you should have a target of a minimum 15% of their net margin payment after you pay them the wage.
Month 1 and 3 work at a zero percent margin because this instance uses good round numbers. This is how you can raise prices to 15% with some other things that are holding we can get from the aimed margin.