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SAGA Newsletter: Pay yourself properly as an agency owner

As an agency owner, are you paying yourself properly?

I don’t mean that from a tax or legal perspective — although that is certainly important and you should absolutely be working with professional advisors who can help you make the best decisions in that regard.

What I really mean is are you reaping the appropriate rewards for both the work that you are doing and the risk that you are taking?

I have written previously about the two income streams you should be receiving from your agency: a salary for your work and a dividend for the profits that you produce.

Proper pay means not just receiving these two flows but also ensuring that they are lucrative enough that you feel that what you do is worth it.

After all, running an agency is hard work that can often be stressful, so why wouldn’t you want to be paying yourself generously.

I’ll talk more about this later in this week’s newsletter, but first let’s get to Jen’s roundup of useful resources.

— Chip Griffin, SAGA Founder

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Below are some articles, blog posts, podcasts, and videos that we came across during the past week or so that provide useful perspective and information for PR and marketing agency owners. While we don’t necessarily endorse all of the views expressed in these links, we think they are worth your time.

— Jen Griffin, SAGA Community Manager

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Pay yourself appropriately as an agency owner

I say it often, but I’ll say it again here: there is no reason to take on all of the risk and stress of running your own agency business if you aren’t getting what you want from it, including generous compensation.

That means that you need to commit to paying yourself properly, both for the work that you do to run the business and serve your clients, as well as in the form of profit payouts as a reward for your risk-taking as an entrepreneur.

Many small agency owners simply peek into the business bank account periodically and decide how much money they can take out of the business. In lean times, that usually means paying employees and contractors at your own expense.

This type of compensation management typically leads to bad long-term decision-making. It often increases the owner’s stress and decreases the satisfaction with the agency.

That’s why every owner should set a salary for themselves as pay for the day-to-day work that they do as an employee of the business.

Before you jump up and down and tell me that your accountant told you that wasn’t the most tax efficient approach, you can relax. Let’s put “salary” in quotation marks so you understand that this pay can come in whatever form your tax and legal advisors suggest is optimal for your own personal situation.

The key point is that this should be a fixed amount that you receive from the business into your personal account on a regular schedule.

It isn’t an amount that should be sacrificed when business is a little slow. You don’t do that to your other employees and you certainly shouldn’t do it to yourself.

But how much should this “salary” be? The easiest answer is probably more than you are paying yourself right now. When I first look at most small agencies, the owners are not paying themselves nearly enough for the work that they do, let alone any profit stream.

So how much is enough? There are many variables that go into setting your own compensation, but I would suggest that the most important thing is that you should make sure that you are paying yourself more than your next highest paid employee.

And I don’t mean Price is Right style $1 differences in pay. You should be receiving measurably more than anyone else on your team. That’s important both to recognize your own contributions as well as to help ensure that you don’t end up developing feelings of resentment toward your team members that often develop in stressful times.

Keep in mind that this “salary” is just one piece of the puzzle. In addition to these regular payments, you should be receiving dividends from the profits the agency generates.

I suggest taking these profit dividend payments on a quarterly basis, but the schedule is less important than the principle and the structure that you create around it.

Unlike your salary, these dividend payments can — and likely will — vary. Profits rise and fall in just about any business from time-to-time. Strategic decisions around investments and cash reserves will evolve over time, too.

Ideally, you should be generating 20% profit margins that create the dividend pool for you to draw from — and this number is calculated only after subtracting your “salary.”

Realistically, very small agencies where the owner is still directly engaged in a significant amount of client work usually have trouble hitting that benchmark. As you are able to extract yourself from those basic client service requirements, you have a greater opportunity to reach your profit goals.

The most important first step is to create a structure that delivers these two income streams to you as an owner. So if you don’t already have it in place, start there.

Set a “salary” and start depositing it into your personal account on the same schedule as you pay employees and contractors. Initially, don’t worry about whether it is the “right” number. The habit matters more than the amount.

Then do the same for dividend payments. Even if you only give yourself a tiny profit reward every quarter to start, you have established the mindset while also building a way to track the actual success of the business beyond merely paying yourself for your time.

By paying yourself properly as an agency owner, you will improve your own satisfaction and receive the rewards you deserve for the risk and stress you take on as an entrepreneur and business leader.

Webinar: Don’t repeat my biggest mistakes as an agency owner

As an agency advisor, Chip Griffin spends a lot of time trying to help clients avoid the same mistakes that he made as an owner.

In this webinar, he will dig into some of the biggest mistakes he made over the years so that you can benefit from the insights into his own failures.

Chip will explain what he did wrong and how he would have handled the situations differently if he encountered them today.

If you share Chip’s belief that there is more to learn from failure than success, this will be an excellent educational opportunity for you.

This event will be on Wednesday June 12 from 12-1 PM ET, and you can register here.

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