I regularly hear agency principals boast of two things. It seems cruel to burst their bubble, so I don’t say anything in the moment, typically. But I’ve now heard these two things said so many times that it’s probably worth a quick discussion. The first one goes like this:
“We’ve built our agency entirely on referrals. We’ve concentrated on doing good work and our reputation has just spread over the years and we can hardly keep up with the opportunities that come our way organically.”
I do understand the sentiment, which seems to be a combination of these things:
There’s more going on behind the scenes, though, and I’ll offer an alternative interpretation of a firm that relies largely on referrals:
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....
Most entrepreneurial creative firms are busy these days, despite their (lack of) new business efforts. But most wish that they could upgrade their client base. They’ve come to believe, albeit sub-consciously, that it’s the work of new business to convert prospects to clients and the work of account service to turn those clients into great clients.
There is no such distinction. No amount of great account management will convert an average client into a good one, and that’s why new business goals have not been met unless the revenue stems from a price premium based your predictable effectiveness for those new clients.
New business is not about getting more clients–it’s about getting a certain kind of client who will pay a pricing premium and do it gladly. That’s why the new business problem is most applicable to firms who are already busy with average work rather than starving for any work at all.
Your positioning, your lead generation, and your sales expertise deliver on that promise of a pricing premium, and here’s a component checklist that you can run through as a firm at that dreaded next meeting of the new business team.
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....
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.
Content marketing died a long time ago–not too long after it made a big splash. The promise that we would move from an outbound world to an inbound one, where prospective clients would find your content and be drawn to working with you, was a wonderful premise. But as with many things marketing, it didn’t turn out to be quite that simple. And of course everyone got on the same bus.
The world is overrun with content. We need less content and more insight, and here’s the difference:
Inevitably a new client will ask, “So how do we compare with the other firms you’ve worked with?” Some of my clients make astounding amounts of money and I’d never want to work there. Others are brilliant but struggle with the killer instinct that puts space between their performance and a peer. Others do remarkable work with good people but nobody has heard of them.
But the most interesting aspect of that question is around their positioning. I’ll tell you how I answer that, and then I’m going to tell you how my two primary competitors....
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.
Marketing firms do this all the time. Most of them don’t put it front and center, instead describing what they’ll do for a client and then giving them a price (e.g., $140,000). But then the hourly rate will sneak into the small print when they talk about what will happen during scope creep: “After seeking your prior approval, we will bill additional work beyond the scope of this estimate at $xxx per hour.”
Here’s why you don’t want to talk about your hourly rate: