Gini Dietrich’s recent article about how to break the over-servicing clients habit got me thinking about additional specific steps agency owners, and leaders can take to combat this dragon!
And make no mistake about it: it is a dragon, scorching your profits, eating your ability to invest in your firm, and standing firmly between you and the prospects who will pay you what you deserve.
According to my friend and fellow agency consultant Darryl Salerno, over-servicing clients is the greatest impediment to agency profitability.
Why This Intense Focus on Profitability?
I’m guessing you didn’t open your agency just to “do” PR.
If that’s all you wanted to do, you would have kept working for someone else, or in a corporation, government, non-profit, or another place.
No, you opened your agency because you want to make a profit.
Doing so allows you to pay generous bonuses to those who deliver, to invest in technology, or to purchase another firm (if that’s in your future).
And you will be able to generously reward yourself for the hard work you put in and the results you drive.
Besides, if you ever want to sell your firm, a buyer will ask to see solid profitability for the past three years.
Here’s some math from Darryl that may stop you in your tracks:
If over-servicing clients is something you do to the tune of 10 percent, it’s like working for that client for free from Thanksgiving through year-end.
If you overservice that account by 20 percent, it’s like working for free from Halloween through year-end.
Overservice by 30 percent? You just worked the entire fourth quarter for free.
And if you overservice by 40 percent, it’s like working free for them for the entire U.S. football season (six months)!
I know I’m going out on a limb here, but I’m guessing none of you opened your agency to do client work for free.
Now back to Gini’s article.
In that article, she mentioned a presentation I gave at the PRSA Counselors Academy Spring Conference on this topic, where she sat in the front row and heckled me.
(Well, she didn’t only heckle me; she asked some great questions.)
As an executive coach, I’m a firm believer in the power of questions.
Here are five questions I encourage agency leaders to ask themselves to help slay the over-servicing clients dragon:
Do You Have a Firm Scope-of-Work and Budget?
Does it cover what you will and will not do? Vague scopes and budgets protect the client, but never your agency.
Quite often during preliminary discussions, a variety of possible tactics are discussed and dropped during the budgeting process.
Make sure you include language that says something to the effect of “Tactics such as A, B, or C will require additional funding.”
All of this will prove helpful when the client calls and innocently asks:
Because you’re our agency of record, we need you to do A, B, and C. That’s covered, isn’t it?
Only an ironclad SOW and budget allows you to say,
Oh, we can see the benefit of that initiative. As you can see from our SOW and budget, doing so would require additional funding. (Note how you never said the word “no,” but simply protected your agency.)
Remember to train your account team to respond using this tactic, because when a client wants something-for-nothing, they’re going to ask them, not you!
Do You Regularly Discuss Over-servicing with Your Clients?
Clients may be aware that you regularly spend more than you’re billing them.
The bad news is they’re not going to raise this topic. That’s your job.
The good news is most clients are happy for us to make a fair profit.
And the more we exhibit comfort in discussing all things financial, the more they will be, too.
So you need to find a way to discuss finances, especially account profitability, as comfortably as you discuss PR initiatives, a PESO plan, KPIs, and results.
And the best way to get comfortable with something? Just do it and do it regularly.
So on a regular basis, discuss the gap between time billed and time spent and what this means to the agency’s ability to earn a fair profit.
And if they can’t increase their budget, discuss any current actions you’d jettison to close the gap.
That means you must always know which initiatives are delivering the highest-priority results, and which you can drop.
(If not, you risk the client suggesting keeping the least strategic and dropping the most effective activities.)
Do You Have Clients Who’ll Never Pay What You Spend?
In other words, do you have clients you choose to over-service?
That’s right; it’s okay to over-service.
But there are two big “if’s” here:
- If you have a strategic reason to over-service. For example, you have the opportunity to get into a growing industry category which you know you can serve and serve well. Or you want to get into a specific practice area. You just need some case studies.
- If you have an opportunity to take on a project for a large organization. And you believe you can turn it into a larger assignment and make a fair profit.
Do You Set and Stay Within Strict Fiscal Guidelines?
For example, have you decided how much you’ll over-service each of these clients? Five percent? Seven percent?
Or as Gini cited in her related post, up to 10 percent?
Strategically over-servicing clients, by its very definition, means you’re putting a cap on what you’ll spend.
If not, it can cut into your ability to make any profit on an account, can affect your firm’s overall profitability, or worse, can be a license to not manage an account’s fiscals.
And that, my friend, is walking away from a critical fiduciary responsibility.
Do you monitor carefully to assure you’re staying within those parameters?
And if you go over during one month, do you take action to get back on track?
For example, changing what work your agency will do on that account or who’ll do it, for the next few months?
And now for perhaps the most important question of them all:
Did You Lose a Load of Money Last Year with Any Clients?
If your answer is “yes,” then my question to you is:
Why are you in business with them?
After all, they may be your client, but they’re not your partner.
What will you do today to slay the dragon of overservice?