Time to talk about clients. Not specific ones, though, but rather what an ideal client base looks like for a smallish, privately-held firm in the marketing field. I doubt that this would apply outside this field, so use with caution if you are a different type of firm.
Start by listing all your clients in a spreadsheet, from largest to smallest in descending order, like the illustration above. One very important note: if you have the data, list just the fee income from these clients. That’s what’s left after pulling out all the external cost of goods sold like media, printing, and contractors. Don’t pull out internal salaries as those are never properly categorized that way.
I’ve numbered the graphic to direct your eyes to what you might look for.
First, note the relative size of your largest client. If you are working for multiple departments or divisions of the same larger entity, they should be listed as a single source of work. For more on dealing with a client concentration issue, see the position paper here on "Qualifying Clients" (it's free).
You want that largest client to represent 15–25% of your total fee billings. Larger than that and most of the clients that follow will be too small to generate profit and to let you get deeply enough into their situation to move the needle on their behalf. Larger than that and your firm could also suffer harm when that much business is lost as the client moves on. But the larger the better as you nudge up against 25%.
Second, see how many clients....
Our recent analysis of ca. 300 firms found that around 98% of them weren’t getting paid fairly for their work. It comes from some degree of underpricing, defined as intentionally pricing a project at less than what an objective pricing would suggest, or over-servicing, which is intentionally over-delivering what you and the client agreed to.
Underpricing occurs before the project starts and it’s usually motivated by a fear of not getting the work, either because you don’t want people sitting around without enough to do or because you honestly believe that landing this project will open some opportunity for you (that’s a lie that’s easier to tell yourself).
Over-servicing occurs during the project itself and its motivations are more complex. A creative might land on something interesting to explore, and they might be excited enough to pursue it on their own time. Or the client might express some disappointment with your work as it unfolds and so you try to repair the relationship. Or the client begins flirting with a competitive alternative and you stretch to impress them. Or your positioning simply hasn’t created enough power in the relationship and you feel vulnerable. You might even care more about effectiveness than the client does!
Now here’s why underpricing is so dangerous. You follow a certain research method and creative process that cannot easily be compressed. You know this, too, because....
Risk-taking is a crazy thing, right? I think you should make a lot of money, but I hate debt. I advocate ruthless positioning, but I don’t think you should grow too fast. I think you should never compromise on culture, but I think you should make some risky hires.
We all have a different tolerance for risk, too. Some of you move from one gorilla client to the next, and others can’t stomach any single client that represents more than ten percent of your business. On the other hand....
I'm struck sometimes by how separate agencies describe the same client so differently. In other words, I'll talk with one agency about their client and they describe them as respectful, appreciative of good work, and fair in their compensation structure. I'll work with another agency who also works for that same client and their experience is very different. From their perspective, the shared client beats them up on pricing, insists on a special process for nearly everything, and is generally difficult to work with.
Let's look at why that might be.
First, the same client sees these two agencies very differently even though they do similar work. Clients believe....
On the face of it, that headline is not a very controversial statement, but if you think about your client base for a minute, chances are good that most of them are using a smaller subset of the services that you provide. Like most of business, things start simple enough and then grow more complex as you position your firm to take advantage of any opportunity that could possibly surface.
I picture some of you with the biggest boat you can afford, patrolling the harbor with the biggest net that’ll fit in the boat, trawling it for anything that wiggles! With that mindset you’re naturally going to allow a client to nibble a little in hopes that you can set the hook later. Agencies that live off that promise, though, keep adding things until eventually it looks like the menu from the Cheescake Factory! It was a one-pager in 1978 and now it has 250+ items on 21 pages. So we might want to avoid....
Yeah, this is a campfire discussion for sure! Sitting under the stars dreaming about how a chunk of money would change our lives (though it hardly ever does). But unless you know Warren Buffet’s 84-year old sister and can talk her team into giving you more than the average $4,800, this is just hypothetical.
Answering that question, though, clarifies what’s important to you, how you want the future to be different, and how you identify the performance gaps at your shop.
Try asking your staff to answer this question for the next staff meeting, giving them just these two guidelines to follow, and then compare your answers:
As you try this hypothetical exercise, here’s how you might frame your thinking. What investment, over time, will give our firm the greatest separation from the rest of the crowded competitive field? So what are the investments that will achieve that goal?
Buying new computers for the creative department will pause the whining for a few months, but....
Tight positioning is always good: you make more money, you know what you're talking about, you know where to find your clients and what to say to them, and you know who to hire to fulfill the promises that you make. That's the premise, and it usually works.
The problem is that there are many outliers who undermine that claim. Many firms who aren't positioned well are making a lot of money. I love that, though, because usually it means that they are either lucky, confident, or disciplined, or a combination of those qualities. I'll go further and say that there are no successful generalists firms who aren't one or more of those things. But as I said, that doesn't bother me at all. More power to them.
What bothers me is the inverse of that: well-positioned firms who aren't making money. They just aren't killing it, and their performance mimics their poorly-positioned peer firms. That bothers me deeply, in part because it undermines what I've been saying to anyone who will listen. That's what I want to talk about here: why well-positioned firms are yielding poor financial results.
I’ve been thinking about this concept recently, phrasing it like this: things can get a lot better for you, but they need to get a little bit worse, first. And that’s a problem for many of us because we don’t stop and reexamine what we’re doing until our backs are against the wall, and at that point we can’t really imagine holding on a little longer while it gets even just a little bit worse. These difficult moments usually represent less than 20% of your agency experience, but they change your perspective and forge who you are.
But the most critical reason we don’t make as much progress as we could is our own success. It traps us. We scratch and claw our way to a certain lifestyle inside a fairly predictable, arranged world. We know that it’s not what it could be but we’d rather tweak it than blow it up. If we tweak in the wrong direction, we can untweak it. But if we blow it up and nothing else rises in its place, we’re sitting there cross-legged on the ground with dust in our hair wondering what’s next.
I think you should use this same framework when you evaluate prospective clients who want to work your own agency. How badly do they want change? What’s pushing them to consider it? What will an “unchanged” environment look like? Who believes in it and what obstacles will they have to overcome within their own culture? How does the current mess “work” for them, and what are they afraid of when working with you? If they aren’t afraid of something, your work is not that substantial.
The Googleization of the world has created this notion of hyper relevance: I can find the exact thing I want quickly and anywhere in the world and maybe for free. Google algorithms are built on the notion of self-learning. I search for a phrase, Google gives me options, and eventually most of us choose the most relevant link, and then Google serves you that constantly self-healing data. Essentially we’re all unpaid Google volunteers.
In that context, Google is only going to serve queries to you and your firm if you are hyper relevant to the query. All this has fed the specialization craze. Need a marketing firm that understands how best to do social media for credit unions? How to find transactional leads for life insurance products? How to reach young girls as they become women? If so, we have your answer and we know that niche better than anyone in the world. By the way, this deep specialization is also why the average F1000 company has dozens of agencies.
So we end up with all these very specialized firms, which is a good thing, but how do they see the world in a larger context? How do they keep learning from the questions and not just the answers? Enter this notion of a “T-shaped” firm with deep expertise and broad context. You’ll never get discovered and followed unless you’re an expert, but you’ll never be a good expert unless you’re grounded....
I am sitting on the deck this morning, watching the millions of green leaves drink the water as the rain tries to get past them to rest on the earth. There's a 700' drop off a rock cliff to the two waterfalls below. I woke up thinking about courage, but I decided to describe a world where it's absent.
You're a principal running a digital, marketing, advertising, public relations, or design firm. You're creating jobs and doing good work, all the while trying to remember some days why you do this in the first place. It's the weekend and you can't wait to get back to work or you can't stand the idea of feedng the machine again on Monday. From time to time it's good to step back and get a helicopter-down view of what your life looks like. So here goes.
If You Had Less Courage...
But you don't have less courage, which is why I love you.
Say that you’re a tightly positioned marketing firm but that your service offerings for that vertical or that demographic or that type of business are broad. Should an account person be capable of speaking intelligently about each of your offerings? Do you need different SMEs for each service line? Would your clients even pay for that? How do you make sure that your front-line client interactions aren’t getting lost in translation?
While there is no simple answer to these questions, there are some clear guidelines around the fringes. As you solve this for your particular firm, keep these six principles in mind:
First off, let me say that I’m not a huge fan of growth for growth’s sake. You can have a great firm and be that same great firm at the same size for as long as you want. But there are some advantages to being a bigger firm, and growth might be on your radar. So if it is, but it’s not happening, why is that? I’m going to give you the five most common reasons I see.
There are some great tools for growing existing accounts (like this webinar, $160). Decide how big you want to be and make it happen. You might be the only significant obstacle.
