Clients vs. Financial Health: Are You Making This Common Agency Owner Mistake?

By | April 13, 2017
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Karl SakasThis is a guest post from agency consultant Karl Sakas (@KarlSakas). Karl is passionate about agency operations, strategy, and leadership. He helps agency leaders overcome human nature by creating repeatable processes, and he’s worked in digital since the days of dialup. Karl is the author of “Made to Lead” and more than 200 articles on agency management. Outside of helping clients on six continents, Karl volunteers as a bartender on a 1930s railroad car.

Argh. You just finished a call with another unhappy client, trying to smooth things over.

You promised them free work to keep them happy, but that’s going to make the overall project unprofitable… and now you need to break the news to your team.

What’s going on here? The truth is, you’ve made a key agency management mistake. You’re putting clients first, at your agency’s expense.

When you make that choice, the outcomes are predictable—unprofitable work, low team morale, and stress levels through the roof. So how do you turn things around? The key is to shift your priorities.

3 Ways to Put Your Agency’s Financial Health First

As an agency owner, your job is not to make every client happy—your job is to make sure your agency is profitable.

And that comes down to three key things: set client expectations, stop over-servicing clients, and commit to continuous improvement.

1) Set Client Expectations from Day 1… and Throughout the Relationship

Let clients know what to expect from you—and what to not expect. Your goal is to start strong.

For this to work, you need to know what they expect; the key is creating a systematic client onboarding process. I recommend doing a pre-kickoff survey to assess client expectations. Circulate it to multiple client stakeholders (your client, their boss, and other relevant contacts). Why? Frequently, you’ll find that different people want different things—so you can now use the kickoff meeting to reconcile those differences.

During the relationship, be sure to call out what’s in scope and what’s not. That doesn’t mean you always need to say “no”—but be sure to clarify with clients when you relax a policy or give them something extra. That way, they don’t assume it’s normal.

2) Stop Over-Servicing Your Clients

Going above and beyond is fine occasionally; this is part of what I call “strategically free” work. But if you constantly over-deliver, you’re hurting your profit margins.

Why is your agency over-servicing? If they’re corrections from mistakes made by your team, fix the root cause of the mistakes. If you over-promised in the sales process, stop doing that. If your client still expects more than they’re paying for, you need to reset their expectations—or fire them if they aren’t willing to change.

Remember, your team’s time is your agency’s “inventory”—billing more to clients means higher profit margins for you. When I hear an agency has low net margins (less than 20% after owner compensation), I check their billables. Sure enough, they usually have a low Billable Ratio: less than 60% across all personnel.

You’re not a charity. You can’t afford to do free work for clients who don’t appreciate it.

3) Commit to Continuous Improvement

Debrief after each client engagement. You can’t improve if you don’t reflect on what worked, what didn’t work, and what to do differently next time.

Track profitability by project/retainer and by client. You can use a Work Breakout (WBO) to track how reality matched up against the plan. Time management counts.

Recognize that “what got you here, won’t get you there.” You’ll need to adapt and evolve your systems as you grow your headcount and client count. If you want to move up-market, larger client organizations mean more politics, more decisionmakers, and slower payments.

Improving Your Agency

As an agency owner, your #1 job is to make sure your agency is profitable. And sometimes that comes at the cost of an individual client. To be clear, I’m not advising you to be rude to clients—but you need to stand up for yourself. No one else will do it for you.

Worried you’ll lose clients if you push back? That’s certainly a risk… but the stronger your sales pipeline, the more confident you’ll feel about saying “no” to bullies and ensuring the clients you keep are profitable.