It's the question on the mind of every agency. "How can I run a more profitable agency?
Bringing in more revenue doesn't always guarantee a more profitable agency at the end of day. Your agency's margins ultimately come down to two essentials:
- How you decide to operate
- How disciplined your are
Here are five operational steps and disciplines you can embrace for a more profitable agency.
Step 1: Seal Up Your Leaky Buckets
Leaky buckets are the enemy of profitability. The most common leaky buckets for agencies are the sales process and your contracts.
Don't Promise the Moon If You Can't Deliver the Moon
The unfortunate truth about some sales teams is that they will literally say anything to win a new client. In this kind of environment, sales may win the account, but the project fulfillment team is who will lose at the end of the day.
Making promises that can't be fulfilled puts a major strain on the entire agency. Those who deal with the client after the sales process are walking into a slaughter house. Although some client relationships built on unrealistic expectations can be saved, they often fall flat at the great expense of the team.
We ran a relationship built on realistic expectations several years ago. I swear, we spent more time trying to put out fires and make them happy than we did servicing every other client. The result? Lost time, lost resources, and an ultimately failed relationship.
As an agency, you can't afford to have a single relationship like this. The reality, however, is that most agencies have not only one of these, but several.
It's important to make it clear in the sales process how your agency works and what you do. If there's something that is either just plain unreasonable or not within your skill set, it's best to communicate that and move on to the next prospect.
Solidify Relationships with Air-Tight Contracts
Beyond the way sales sets expectations, contracts are an agency's leakiest bucket.
The goal of a contract is to set out the boundaries and journey of the relationship in the clearest terms possible. If you slim on any detail, you're setting your agency up to get taken advantage of.
Here are some quick tips on writing air-tight contracts:
- Break down the service your providing in granular detail. How many revisions are included? What specific deliverables will be delivered?
- Address additional work. What happens if clients want something outside the scope of work? I recommend putting a clause stating that additional work will be quoted separately.
- Refunds. Are deposits refundable? Are final payments refundable? I recommend saying no refunds for either case.
- Signify what constitutes the end. What concludes the contract? Most likely, it'll be the completion of the deliverables and final payment received.
- Specify payment terms. How is the client going to pay for your services? Is it 50% up front, 50% upon conclusion? Is it on a retainer basis? And also, what happens if invoices are paid late?
- Confidentiality. It's vital to include a confidentiality clause in your contracts. This clause should protect both parties from themselves. Detail what information is confidential and state that it shouldn't be released without written permission.
- Breach of contract. What constitutes a breach of contract and what are the consequences?
Step 2: Stop Scope Creep Early and Consistently
Scope creep is the not-so silent killer of an agency's margins.
Scope creep doesn't happen over night. It is the result of your day-to-day decisions. Granting small requests eventually builds into larger and larger requests. One day, you might be greeted with a request far outside the bounds of the agreement. If you've allowed the little requests, this build-up isn't surprising.
From the first request outside the project scope to the last, choose to say "no."
You Don't Have to be Rude About It
The way you approach this makes all the difference. You don't have to be rude and say a blunt "no." If a client asks for something outside the scope say, "Of course! Let me get you a quote for that."
See the change there? We're saying yes, but not saying yes for free.
If a Client Insists and Persists
In some cases, a client might insist that you do something for free. When saying, "Of course! Let me get you a quote for that" doesn't work—it's OK to be a little bit firmer.
It's important to go into detail about the "why" behind what you're saying. If you're declining to grant a scope request beyond what you've agreed upon, your why is simple. Explain that what they're asking for isn't in the contract.
No matter how large or how small, additional work takes time. In most cases, what a client is asking for also takes more time than they anticipate. Since you have your air-tight contract, lean into it and what you both agreed upon in that document.
Most times, if you can explain that element of the why, the client will understand without issues. In extreme cases, a scope creep request will persist. At this point, I try to put things in perspective. We're running a business here. It's just not good business to give away anything, especially services.
Again, lean into your initial agreement. That's why it's vital to set expectations up front and solidify those into a detailed contract.
Step 3: Don't Settle for Small, Pesky Clients
"A $4,000 retainer client will take more time and resources than a $10,000 retainer client. Go for the big deals." -Mike Lieberman, Square 2 Marketing
A lot of agencies sell themselves short. By doing so, they think they have to settle for small, pesky clients. In almost every case, those kinds of clients cause 90-percent of the headaches and only provide 10-percent of the income.
I promise you—you're good enough. You have what it takes. Shoot for the stars and go after the biggest clients you possibly can.
Step 4: Hire Slow, Fire Fast
Hiring too fast is a big mistake. Hiring a bad team member will set you back for months and months and months.
Have a Clear Idea Who You're Looking For
Take your time during the hiring process, and have a clear idea of who you're looking for. Before even considering adding to your team, clearly outline what that person is doing. Vague items aren't good enough and can put a sour taste in the mouth of the best team members.
Get a Variety of Perspectives
When you're hiring, bring in your entire team and a variety of perspectives. You might have one impression, but someone else might have another.
Build a Talent Bench
The most talented people out there most likely already have a job. Start networking and building your bench of dream team members.
When the day comes when you have an opening, go back to your talent bench and see if the potential exists for you to work together.
Get to Know Them Beyond the Professional Setting
Something that Michael Hyatt does with people he's ready to hire is takes them out to dinner. Why? He wants to see how they interact with their significant other, the wait-staff, and the general public in a non-professional setting.
Step 5: Establish Repeatable, Scalable, Predictable Processes for Everything You Offer
We're all about establishing repeatable, scalable, predictable processes for everything you do.
It takes time on the front end, but in the long run it will do so much good for your agency. You will get better, you will get faster, and your clients will love knowing what to expect at every turn.
Become More Profitable
Apply these methods and disciplines to your agency and I promise you'll begin to start seeing larger margins.
But you won't just see that—you'll begin to create a more enjoyable agency.