Hey, thanks for tuning in to another Partner Interview at AccountsBalance.
My name is Connor Gillivan. I’m the CMO and an Owner of AccountsBalance.
We’re on a mission to help 1,000+ businesses better understand their numbers, and industry partnerships is a big way that we’re able to make it happen.
We’re all about creating win-win partnerships where we are able to grow with other companies in the agency, SAAS, and online space.
In this exclusive interview, we interview Marcel Petitpas from Parakeeto.
Marcel Petitpas, the co-founder and CEO of Parakeeto, is widely considered the leading expert in optimizing profitability for service-centric businesses. He is the voice behind “The Agency Profit Podcast,” the #1 podcast on agency profitability.
His expertise has led him to speak at international conferences and be highlighted in esteemed industry publications. He’s helped thousands of agencies around the globe measure and improve their profitability through his talks, workshops and publications.
We hope that you enjoy the interview and that it brings value to you as an agency business owner.
Connor: Hey Marcel, thanks for taking the time to chat with us here. We love getting to know our partners better so that our community can benefit from what our partners are offering and doing in the industry. To get started, can you give us a high-level overview of Parakeeto and how it got started?
Marcel: Parakeeto helps digital agencies measure and improve their profitability. We got started when the founding team had run agencies in the past and found that we were spending a whole bunch of time in spreadsheets trying to answer simple but not necessarily easy questions about our business: Were we making money on clients and projects? When can we take on more work? What were their utilization rates looking like? Were we profitable? Those kinds of things are just much harder than they should be when your data is spread out across a whole bunch of different places and you don’t have the right tools or the right processes to measure them.
So we decided to take on this problem and we spent the last five years really developing a methodology and a technology system to help make all this stuff a lot easier. and also trying to establish some best practice, which is really nonexistent, around how to measure professional services businesses beyond financial data, which is just not not adequate for measuring the business in the same way that financial data wouldn’t be accurate for measuring a SaaS business, doing it in a timely way, and getting the right insights beyond just what has happened in the past.
Connor: That’s awesome! Can you dive a bit more into the products and services you offer on providing metrics? I’m sure our audience would love to know exactly what problems you could solve for them.
Marcel: We have three distinct service offerings.One is a one-time product and the other two are ongoing.
The first one is an audit and that is a one time exercise. Some clients choose to do them every year or every quarter and we come in. We audit the agency, look at financial data, time tracking data, project management data. We do stakeholder interviews. We look at estimates.
We look at contracts and we really get an understanding of how much money they’ve left on the table over the last 24 months and exactly where that money was left on the table. What metrics or areas of the business are responsible for profit leaks and then how much money they could make in the future. If they addressed those issues and started hitting their targets, we model all of that for them. We help them understand how to restructure their financial information in order to get better value from it. We help them understand which metrics to track, which benchmarks to aim for, and give them some strategic advice on how to move forward.
Then from there, a lot of clients also tend to want to start doing these things on an ongoing basis, measuring these things.
So we have two service offerings:
Predict, which is really all about forecasting and helping a client get to a place where they can in real time, see how changes to people and projects impact their capacity and their revenue into the future. There’s a setup process to work through actually structuring that data, developing their processes and their data schemas and then helping them get set up with a reporting system.
They can then go into Optimize, our third service offering, which connects time tracking data to that forecasting system to provide feedback loops. So instead of just projecting what we expect our utilization to be, we can measure what it actually was instead of just projecting what we expect the profitability of a project to be, we can actually measure if our estimates were accurate or not and exactly what the average bill will rate or deliver margin was relative to our expectations.
So there are these three distinct service offerings. The first one is a one-time audit, getting a lot of insight into where the opportunities are. The other two are about building those ongoing reporting muscles in the business.
Connor: Jumping off of that…if there was one problem you’d say that Parakeeto solves best for your clients, what would it be? Why?
Marcel: A lot of our clients know essentially how much money they are making from clients and how much money they have leftover in that profit but they don’t have any idea what’s happening in the middle. And that is the problem that we helped them solve – getting an understanding of why their profitability is what it is.
If it’s higher or lower than they expect and why it’s going up and why it’s going down and what to do about it and help them get the visibility so they never have to guess. They’ll never be surprised by their financial statements ever again. When we work with them, we help them solve this problem of not knowing why their performance is suffering and exactly what to do about it. And when you work with us, you have the visibility to confirm that that’s never a question anymore. You know exactly what’s going on.
Everyone on your team has access to that data and you can pinpoint exactly which departments, team members, clients, projects, service offerings are providing value in which ones aren’t. So you know exactly where to go and address issues that are systemic to improve your profitability over time. And you can forecast it really, really easily.
Connor: As the company continues to grow over the next year, what are your plans for expansion? Any new products, offerings, or enhancements to your current products and services?
Marcel: I think the most important problem that we need to solve is a data management problem. I think that the reporting outputs, the reporting environments have good solutions out there already. And I think, once we establish the best practice for what those metrics are and how to measure them there’s going to be lots of other ways to create the outputs.
I also think that over time, more people will be able to help agencies structure their inputs correctly, but it’s the step in the middle, taking inputs and doing all of the necessary best practice data management, which is, you know, data aggregation, transformation, cleaning, normalization, modeling creating data sets that can then be layered together to provide outputs.
That problem, I think, is dramatically under served from a technology perspective. And that’s really where Parakeeto intends to build a world-class platform that is specific to professional services and agencies to help them take their data from where it exists and get it into a format that could provide value and provide insights and help them make better decisions. And our consulting is really there to help make sure that all of the inputs are able to be created in a way that is consistent and structured and that the outputs are interpreted and understood by our clients.
So we’re currently scaling that as needed, but the core of the business is really the part that happens in between which I don’t think anyone else in the world right now is paying as much attention to and as well suited to solve as we are.
Connor: And how specifically would you say that Parakeeto and your team is different from other similar businesses in the industry?
Marcel: Everybody says this, but it’s actually, I think true for us. I haven’t ran into anyone that’s doing what we do. The biggest differentiator is we tend to get compared to two things. We get compared to accounting and finance companies. And it’s interesting because we don’t do any bookkeeping. We don’t do any accounting. We don’t do any finance. And our fundamental belief is that that’s probably one of the least important sets of data for strategic decision making in the business.
It’s obviously critical for filing taxes and being compliant with the law. And it can be, if it’s well structured, a really, really useful look into what has happened in the past in the business. But if you were trying to measure your SaaS business using financial data, I mean, you’d never, it’d be terrible.
You wouldn’t have access to any of the really important information. Information that you need. And that I think is what sets us apart at Parakeeto . We are the experts in the datasets that are not financial that are most important to strategic decision making, that is information about projects, people, and time. And we use those to provide more timely, more specific, more precise operational visibility that helps you essentially.
They again predict your profitability, take control of your profitability and never be surprised by your profit loss statement ever again. And no one else that I know of is focused on that problem in the way that we are. And similarly technology companies. So, you know, time tracking project management, you know, paralyzed. Those kinds of forecasting resource planning tools, their data creation tools, data input tools.
And again, we don’t compete with any of them. We don’t have time tracking project management resource planning tools. We pull data from those tools and, and help clients get it into a structure that can actually be used to answer questions.
And that is the critical problem with a lot of the technology platforms out there, their credit creating data, but the data is not inherently clean, consistent, well structured, consistent with a broader system and therefore can’t really be used to answer questions because it’s not structured to answer those questions.
So that’s really what differentiates us is that focus on establishing, maintaining and facilitating data management practices that lead to insight.
Connor: What made you decide to get involved in providing metrics towards agency profitability? What’s your starting online business story? From what we’ve found, a lot of business owners in the same space have fun stories of how they first started…
Marcel: Well, I got a phone call from my friend Jared who runs a very successful agency in Boise that does a pretty big enterprise medical data integrations. And he just basically said, “Hey, my team spends like a day or two a week in spreadsheets, wrangling data, trying to answer these questions. There has to be a better way to do this and an easier way to do this. I think we need to build something that’s going to help.” And that’s really how it started.
We started talking to other agencies about whether they were struggling with this. Every single person that we talked to was struggling with this. And so we understood that there was a problem here and then we went down the very long and painful road of trying to find a solution. It took us almost three years to really finally find product market fit because this is actually a really, really complex problem to solve.
Connor: Love it! Talking more about the online business industry, where do you see it going in the next 1-2 years? Any unique predictions that you could share?
Marcel: Yes. Actually, specifically in professional services, what I’m seeing is that over the last decade or so, first and foremost, margin pressure will continue to increase. That’s been the case in professional services and online business since forever. And that’s the law of every market – margins are going to continue to get squeezed.
There are going to be innovations that increase profitability, but the law of economics is that when there’s profit to be made, there’s typically more entrance that competition squeezes margins, and there’s a law that there’s always diminishing returns in a market. So that’s going to continue. That has been the case.
The way we’ve responded to that in the last 10 years or so, and two big things that have happened in the last 10 years that have driven this – the cost of labor has gone up and the amount of labor we get from an individual has gone down. It’s probably a good thing, but that places pressure on the margins of a business that is in services. And competition has also gone from local to global in most professional services.
So geographical distance is not really factor in most client engagements anymore, So I could be competing with an agency anywhere else in the world that has a labor arbitrage advantage over me.
And it really has increased the level of competition at the price level. So the way that we’ve responded to that historically has been niching down, right? And this is what your company is doing, right? It’s providing bookkeeping for a really specific vertical and whether or not that’s actually a legitimate niche in terms of like, there is a methodology or an approach, you know, that, that changes how you execute.
It doesn’t really matter. What that really does is it helps protect margins by creating a higher perception of value and helping maintain price and it can also create a significant amount of operational efficiency on the back end.
I think that’s table stakes now. Everyone’s niching down. Everyone’s niche. Everyone’s hyper specific. It’s really hard to survive if you’re not.
I don’t think that’s really enough anymore. The next step for me and the next thing I think we’re going to see in, not just the next one to two years, but really the next decade is specialization at the business model level. Companies are going to start to look internally and say “operationally, what is our specialization?” “Are we good at sales, marketing, account management strategy or are we good at delivery?”
Most organizations don’t actually have the skill sets internally to be good at both. And the most profitable agencies that we’re auditing, the most profitable professional services businesses that we’re seeing internally, are leaning into their strengths and pushing their weaknesses outside of their four walls They’re focusing on quality of revenue over quantity of revenue. And this mimics what we’ve seen in every other industry that has become highly commoditized – it’s that the supply chain breaks up into smaller increments. And those increments become increasingly specialized at an operational level.
Connor: Giving you an open mic for a minute, what is something you’d want the AccountsBalance audience to hear?
Marcel: If you’re under, let’s call it a million dollars in revenue, the first thing you got to figure out is your bookkeeping and your finances. And once you start to get to that level and cross over it, you need to start looking at operational data to start answering questions because you can’t drive your car at scale, only looking in the rear view mirror.
And unfortunately finance data can only ever be your rear view mirror beyond cash flow forecasting, which is really not not going to be helpful for strategic business making business decision making, although it is really important to make sure that you don’t run out of cash.
Connor: Changing gears a little bit…When it comes to bookkeeping and accounting, what do you think the biggest pain points for business owners are? Feel free to speak from personal experience as well.
Marcel: What I see is that nine out of 10 agencies that we audit, including ones that are doing several million dollars a year in revenue, are not measuring their gross margin properly or what we call delivery margin because I don’t even want to use the same language that accountants use because then we start arguing about what it means and it doesn’t really matter.
But most P&Ls for agencies and service businesses, cost of goods sold is being used to capture pass-through. So the thing that’s called gross profit on their P&L is actually their agency gross income.
Beyond that, all of their payroll and software are typically lumped into one account. They’re not separated. And basically what that means is they don’t know what their gross margin is because all their labor is lumped together, all their software costs are lumped together. The cost of delivery is not actually isolated in any way.
There’s a whole bunch of different ways to solve for that.
You could use classes. You could use the chart of account structure, but without isolating delays. Delivery costs and without really clearly defining agency gross income, an agency or professional services business for that matter of any kind cannot see their gross margin or their delivery margin without clicking into the transaction level and doing a bunch of math.
And that is, to me, extremely problematic because it is the most important thing. To be able to measure from your financial data. It is the key indicator of profitability in the business and is probably the most important thing to be healthy. And it’ll really inform a lot of decision making.
So that’s the biggest pain point that I just don’t think most accountants and traditional finance people understand and why a service business should measure their delivery margin or gross margin in a way that’s different from other industries.
I find that extremely ironic because they run a service business themselves. And as a result, the advice that most founders are getting that run an agency and the structures of their accounting and bookkeeping is incorrect as a result, unfortunately.
Connor: As we close this out, I just have one more question. Where is the best place to find and follow you and the company online? Also, if you have one, is there any special offer that you’ll be offering to the community today?
Marcel: If you want to tune in and listen to us and nerd out about operations. We have tons of free resources on our website, including the agency profit toolkit, which is at parakeeto.com/toolkit.
It’s full of free resources, spreadsheet templates, training videos to help you start measuring the essentials of your business.