At what point does an agency simply have to say no to a client, or a prospective client?
A lot sooner than they (the agency) usually thinks.
I have heard it in many different ways… sales people touting how much they sold, client service teams saying how happy a client is, media folks telling me how great the program is that they put together, developers espousing the coolness of cutting edge sites they created. All of these things sound great, but you need to also see what the margins (or lack of margins) are.
When this is reviewed, and the numbers are not so good, the reply from the people doing this is something like “but, if we do this now, they will spend more later,” or “if we don’t do it, they will leave for another agency.”
What is really happening here is that the agency is creating a bad and unsustainable habit. In every negotiation, the buyer will say they can find it cheaper someplace else, and the seller will say they’ve sold it for more. Both statement are irrelevant.
The question for the seller, the agency in this case, is can you make an acceptable margin for the contract you are currently negotiation? The notion that you will lose money now to set the stage for a sale later creates a game of revenue catch up that you will never win. If the contract you are negotiating is not profitable, then the bad habits being created will last well beyond the contract itself.
Bad contracts lead to bad situations. Over time, clients will see a deterioration in the level of service. At the beginning, everyone is excite, putting in the resources and saying yes. But, over time, the enthusiasm is replaced by a realization that you are not actually being paid for the level of thinking, strategy or even time that is being provided. Then a new client comes in (with a similarly bad contract – because it’s a habit) and for a short time, they get the extra attention. Meanwhile, the previous client is wondering why the responses are slower, or the reports are less detailed or the key thinkers are no longer on the calls.
The situation deteriorates to a point where the client either leaves (anyway) or complains that they are not getting the service they previously experienced and for which they have a contract. Now, because there is no margin, you cannot hire the needed staff and employees are putting in late nights, weekends and not taking PTO because “the work has to get done”… work you are not actually getting paid to do.
It take some steel, but saying no at the appropriate time is in everyone’s best interest. Including the client’s. If the client truly cannot afford fair market rates for the service, then creating a contract they can afford will lead a client down a path they cannot depend upon. It is unprofitable to the agency and a disservice to the client.
What if they really can find what they want at a lower price?
With every service or product, the provides make numerous choices which will affect the price. If you find that your prices are consistently higher than the market rate (not based on one or two quotes), then a review of what makes up the service is warranted.
Efficiency in the work is key. Is your team really as good as you believe? What is the delta between your best performers and the worst? If it is big, you may need to reevaluate the personnel. If it is close, then you need to compare your capabilities to the industry norms. How long to perform the duties, cost-basis for the resources, overhead for the company. All basic financial questions.
If you are comfortable that the basics are aligned, then it becomes a question of what you do as an agency.
However, the review must be in the context of what you want to be as an agency.
For instance, you may want to be known for the strategy you bring to a client and therefore only work with certain media management and optimization tools because you believe these provide better results, reporting insights or analytics, which lead to better strategies. These incur a fee that must be absorbed as part of the program. These type of tools make managing the day-to-day more efficient, but when they are deployed properly, they must be followed up with higher level reviews, thinking and planning. So, you have tool fees and “thinking” services as part of the price structure.
I have never heard a client say, “we don’t want you thinking about our account?” However, they often want to create a compensation structure which prevents just that. Are you, as an agency willing to just run the tactical operations of a client’s media, doing only and exactly what you are told? And tell the client so? (I have often seen people discount the value of their own time to avoid charging the client for the thinking portion of the role.)
When you develop a site for a client, you can take the easy path and code it to do exactly what the functional specs for the current release call for. However, doing so may create a situation where updates or changes later will take more time. Coding a site in a way that makes changes easier will take more time up front, and will cost a little more. Or, you could get away with bad notation and documentation. Experientially, the client would never know, and you can cut time by avoiding this. But, it is really bad practice and short sighted. shortcuts can be found all over the place. If you want to be a chop shop, this is fine. If you want to be an agency, a real partner, this is bad form.
Once you decide what kind of agency want to be, then you need to be open and honest about that… and confident. Compromising too much on the pricing may prevent you from being the type of agency you want to be.