Agency Growth Tips 8/21: Stop giving shit away.
One week down – two to go in my FREE #AgencyGrowthTIps. Today is day eight, if you’re jumping on board today – welcome, please read 1/21 to find out more about me and why I am writing these.
I’ve got an interesting schedule of tips this week. And I have changed today’s tip based on a conversation I had with an agency owner first thing this morning.
Ahead this week we’ve got a few important tips including ‘Careful What You Wish For’, Pitching to Win’, ‘Defend Your Margins at All Times’ and ‘Charging Properly’ amongst others.
The latter two of course relate to financials linked to charging. Your margins and charging properly are different disciplines, and absolutely critical for agency health and growth – and deserve two articles.
In an earlier piece 1/21 I talk about the two financial measures you can influence, or manipulate to improve agency health and profitability. Your costs and your sales.
Sounds obvious. It isn’t… agencies are usually focused on one or the other. Brilliantly controlling their costs – but not innovative in the way they charge and manage revenue. Or amazing at winning business, but not at controlling cost and thus their margins suffer and along come all the associated issues.
We’ll get to them. Managing cost and revenue are learnt disciplines. They are absolutely areas to focus on for agency growth. You get these… or you get bitten on the arse. Great agencies do these great – eventually a commercial team will assist with revenue and margins. And a killer finance team will manage your cash. If your small, starting out or growing you have to do the job of both – but I recommend you get a GREAT accountant early on. Read. Learn. Listen.
You cannot stay in business without mastering margins and revenues as individual disciplines. Both need respect, discipline, process, time and strategy.
But before that. Let’s look at one of the most ridiculous commercial behaviours of all industries. It’s in ours and it’s giving stuff away. For no good reason. And usually, very little upside.
Aside: Dyslexia warning applies, spellers are a sign of my enthusiasm. As are swear words.
Agency Growth Tip 8/21: Stop giving shit away.
Giving shit is away is the most insane habit agency owners have. I’ve done it. Sometimes it’s paid off. But very, very rarely.
And actually, it was usually a response to some kind of fear… fear we won’t get the gig. Fear the client will work with someone else. Fear of locking horns in a negotiation.
We kid ourselves often that we give our selves a competitive advantage if we throw something in for free. If it does, I hope you’ve costed in somewhere else… sure that means you’re not losing out – but now, you’e lying to your client. Not the smartest of starts to a relationship.
You ask someone on their deathbed what they want, you’re more likely to the word time than anything else. Because time is the most precious commodity we have. When it’s gone, it’s gone. Never to be repeated. No chance of clawing it back. It’s just gone.
Unless you’ve figured out how to start charging by value or sharing the profits of your labours, you are like every other agency… selling time. Hours and day parts.
Let’s reset our thinking for a moment. Every business exists for two purposes 1. Make profit 2. Create customers.
Next layer up, your agency exist for another reason. 3. To create value for those customers through their products services.
A fact. Most agencies are lucky if they make 25% EBITDA. Most make under 10% annually.
Let’s visualise this, in a super rudimentary manner – but it will illustrate the point… lets’s turn that percentage into your greatest asset. Time.
For every hour an agency making 25% sells, fifteen minutes of that was net profit
An aside: Yes, it’s rudimentary – please follow the principal, not challenge the maths – I know it’s not as simple as this… but in some ways, it is… go with the flow – a long form on this calculation would be useless in this article – I am after behavioural change, not proving how smart I am.
Yes, fifteen minutes. So if you overran by 15 minutes, you lost money on that job.
Imagine you like most agencies, making under 10%. That’s six minutes. If you overran on six minutes, you lost money
Read it back. Let’s soak it up. 6 Minutes. Six. S. I. X.
That’s just 360 seconds, per hour you can afford to overrun before you lost money.
You know that phrase. Time is money. Well, actually, your time is EVERYTHING. Your agency probably orientates everything is does around time. It has to.
Imagine walking into a super market and tins of beans weren’t on a BOGOF… they’re just free. Yeah. Take them. Pop them in your bag and leave. No need to look around nervously for security. It’s cool. Free beans. And pop into the bread aisle. Everything there is free too.
Never going to happen.
We kid ourselves in agencies if a client has already bought something, then it’s cool to give things away – to give a freebie – to show commitment.
In most cases this kind of behaviour doesn’t make your relationships any stronger. In fact, you are weaker.
I’ve NEVER know a client that asked for a freebie on day one that didn’t ask and expect one again. Same people won’t respect a rate rise when you are under cost pressures.
And we’ve all met them… “if you can do a deal with us now, and help us on cost and your prove yourself as we grow, you’ll grow alongside us.”
When you’re offered jam tomorrow, go and find a better opportunity today. Please.
These people will drive you crazy over budgets and costings. If you worked to fixed and pre-agreed pass-through rates (margins added to this party purchases) and budget fairly you have NOTHING to negotiate on. Discount only for serious volume.
But never work for free. Never do anything for free. Not unless is for the community, charity, to help someone that really needs it or it’s just something you believe in. Then it’s not doing something for free, it investing in something you believe in – and that’s entirely different.
To grow, we need good clients. And sure we need to take the odd risk, but not with your time on a pay-to-play basis. Because giving time away free is only free to the client.
What about you? You’re paying… or your agency is paying. Paying to have a client. Errrr… what? How does that make any sense at all.
When faced with the request for freebies, run through the numbers above – don’t be ashamed about talking about your margins, get passed that fear as quick as you can. Tell those clients you can only possibly discount on a guaranteed spend basis, or for volume. Sometimes, you can up-sell own these moments.
You may lose some opportunities. Good. Most of the time they weren’t opportunities. Why should a client company value their business more than yours… if that was a personal relationship, you’d advise anyone to get out of it. Fast.
Sure, not the same… but the principle isn’t far off. To get respect from anyone we first have to value ourselves and our businesses.
There’s another approach with start-ups that may be worth considering… if they are asking for low costs work or freebies… ask for equity. It’s a fair exchange. But only do it with founders with ideas that you believe in. And it must be both, not just one.
Final piece of advice… if you do EVER have to do something for free or at a discount, put the value of the work on your invoice, and then discount it… Never send an invoice that just says 50 hours, FREE. It’s 50 hours @£150 which is a total value of £7,500. With a GOODWILL discount of £7,500.
Most agency owners are nice people and want to help. But this is professional you. And different rules apply. And you have to hold yourself to different behaviours.
But remember goodwill in business is a value exchange – if it’s not coming back somehow, why are you doing it?
Never forget 10% of an hour… 360 seconds. Price yourself into profit. Not out of business.
Who’s paying for this free work? You? Your team? It’s usually salaries that get put under pressure. It’s your biggest cost. You’re internalising those costs – and someone always has to pay. Even if it’s not the client.
Giving things away FREE costs your agency far too much.