How to increase the profitability of research and insight businesses

WIN/Gallup ConferenceDublin

27th May 2015

Our qualifications

• Background in strategy and marketing, with MBA

• 14 years in research– Systemic analysis of profitability across globe– Turn-around of poor performing divisions– UK lead for European change programme to improve profit and

revenue growth– Commercial Director for medium-sized agency

• Founder of Client Advocates– We help research agencies to be grow more quickly and be more

profitable

What measures of profitability should you track?

• Operating Profit as a % of gross revenue

• Revenue per head

• Net revenue to salary

• Operating profit per head

What should you aim for?

• Operating Profit as a % of gross revenue– Above 10%

• Revenue per head– £80k per head. Above £100k is very good

• Net revenue to salary– Below 50%. Below 40% is excellent

• Operating profit per head– £10k per head is good

The three most effective means of improving profitability (excluding growing the top line)

1. Cost accurately – including a provision for researcher time, and then review costs on live projects

2. Review charge-out rates and utilisation levels – and set targets or aspirations

3. Increase gross margin (contribution) by reducing project costs and securing incremental revenues

Case Study 1 – mid-sized ad hoc agency

• Turnover approx. £5m• EBIT approx. 4% or £200,000• Implemented:

– New costing sheet where full costs, including researcher time were included – this then suggested a price to client

– Charge-out rate review and introduced more accurate assumptions around utilisation (

– Renegotiation of main supplier relationships– Where commercially acceptable, charged clients for additional work and

analysis• Outcome was £100,000 improvement on EBIT within 12 months (with no

increase in turnover)

Case Study 2 – large research division with a number of large tracking studies

• Turnover approx. £10m• EBIT -£800,000• Implemented:

– Monthly cost monitoring on all major programmes– Review of utilisation and setting of targets for all senior staff– Outsourcing of project management to third party supplier– Focus on securing incremental margin rich additional analysis– Reduced salary to gross margin ratio

• Outcome was a return break-even within 12 months and grew revenues by 10%

Case Study 3 – small niche agency• Turnover approx. £1m• EBIT approx. 9% or £90,000• Cashflow very variable• Implemented:

– Review of costing and pricing, identifying opportunity to increase project profitability

– A new syndicated product with very strong margins, increasing revenues and margin

– Refined supplier relationships (accountancy, IT, HR) to reduce costs and improve quality of provision

– Cash-flow management (invoicing, bad-debt chasing) and improved banking relationship

• Outcome was a growth in the revenues of £200,000, improved cash position and an EBIT of 15% (£180,000)

In Summary

1. Cost accurately and price accordingly

2. Review charge-out rates and utilisation

3. Increase gross margin (contribution)

Questions?

For further discussion and exploration:

Paul Griffiths+44 7711344074

paul@clientadvocates.co.ukwww.clientadvocates.co.uk

@clientadvocates