Many agencies struggle to pitch profitable work. This happens for many reasons and can impact your relationship with your clients as well as your creatives. We’ll give you some ideas of what you can do to manage pitches in this article.
I was chatting to a friend of mine a while back and we started to talk about his agency. He told me that clients were impossible to manage because:
- They made his agency go through a pitch process against several other agencies (meaning that he felt that he had to quote low)
- They typically insisted on fixed price projects then constantly changed the scope of the work and asked for numerous revisions of the content.
The above typically means two things: His projects are unprofitable and his staff is overworked.
Does this sound familiar?
The question that I ask in this situation is…. if you quote a client a piece of work for US$20,000 and another $40,000, are you clear as to what the difference in service will be?
The reason that I ask this question is that I’ve seen a lot of quotes go out for $40,000 and the client comes back and says I only have a $20,000 budget. The agency will then change the quote to $20,000 without changing the delivery! This may be ok if this is a “loss leader” (ie your agency is expecting to lose money on the 1st project to get the client) but loss leaders only work in the situation when:
- Your agency has done the estimate and recognizes that it will lose money on the project, AND
- You have explained to the client that you are doing the project at a deep discount to demonstrate how good your agency is but future projects will have a higher cost.
Too many agencies that I have worked with either have not done the 1st item. Their agency pitch is not profitable because it is solely based on what the other agencies have done to be competitive, or certainly have not done the 2nd item. The result is that the client will expect the same price for all ongoing work. This means that the client will always be unprofitable.
I appreciate that for agencies, it’s great to do great work for clients and keep your staff busy. But an agency must be profitable to continue to exist. Just look at what happened to the New York Agency Barton F. Graf.
When your agency pitch is profitable, your agency will be profitable. This might seem obvious, but you’d be surprised by the number of agencies that don’t take this into consideration.
The agency landscape is changing, and successful agencies need to start to embrace project management principles without diluting their creativity. Project management is all about balancing the project constraints (Time, Cost, Scope, Resources, Quality, and Risk.) The main issue that agencies need to address is the disconnect between the cost constraint vs the scope and quality. All creatives want to provide their clients with high-quality creative work but only the ones that scope what will (and what will not be) delivered against the brief will be the ones that can deliver this profitably.
If the brief is scoped properly then, it puts you in a good position. You’ll be able to charge for the extra reworks. Let’s face it, your client will inevitably ask you to do them. By doing this, at least the negotiation will be open.
So, the question is how do you manage the client’s changes in scope and maintain the profitability of your projects?
Here are some suggestions to turn your agency pitch strategy
Firstly, you absolutely need to have a tool that allows you to budget and track the project progress against the budget. Excel doesn’t count! By merely having a tool, it forces your staff to think about what resources and costs will be required to deliver the brief. It will (if used properly) also allow you to monitor the progress of the project against the estimate and “course correct whenever possible.” Without this tool, you will have no idea which projects were, in fact, profitable and no basis to improve the business performance.
Secondly, as I stated above, try and make sure that the quote specification is as detailed as possible before the work starts. The more ambiguity there is in the quote, the more room the client has to ask for additional work.
My third suggestion has proved difficult to adopt for many agencies, but I found it highly effective when it was done. At the end of every delivery, invite the client to a “project debrief” during which you talk about the initial brief vs the final delivery. This is a great opportunity to demonstrate how many changes that the client asked for (and which ones that they charged.) This is the point when the agency can also explain how much financial investment was made in the project. Most agencies don’t like to do this (as I said above) because they don’t think the client cares, which may be true, but I think it should be done because:
- It takes the relationship away from client vs supplier to one of the partners
- Clients typically don’t want to have an agency pitch constantly. If they like your work they will want to engage you again, and (assuming the work was good) they can be persuaded to pay the extra
- Even the most difficult client understands that unprofitable agencies are unsustainable
The fact is that you have nothing to lose.
I hope that you find these tips useful but, ultimately there will always be “nightmare” clients who will still want to change everything during the course project without paying any more. It’s just a fact of life but if you see that a client is always loss-making then it demonstrates that you possibly need to diversity and find new clients.
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