Episode 133

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A frustration for many agencies today is that it’s tough to get clients to commit to ongoing retainers. Post recession, clients are drawn to project work as opposed to the longer-term, on-going work that agencies prefer. There are many factors that play into this and some agencies have cracked the code of earning a client’s confidence and being positioned as an on-going partner.

Barry O’Kane has cracked the code. He has over 18 years of experience as a digital agency owner and a web developer. He and his team work in partnership with social impact organizations and creative agencies to solve their toughest challenges. Barry runs a virtual dev shop called endzone.io, and he also teaches web agencies how create recurring revenue for their shop and recurring value for their clients. He really believes that there are internal processes and systems and that agencies need to consider so they get compensated differently and create a whole new value proposition for themselves and their clients.

 

 

What you’ll learn about in this episode:

  • Retainers/long-term relationships: why they are great for your agency as well as your clients
  • Retainers that allow your agency to provide services in an ongoing basis while keeping control
  • Some of the mistakes agencies make by not clearly defining what the service is and tying the value directly to the offering
  • Going through the process and making sure the decision to work on a retainer basis is thought out and not just tacked on at the end
  • Why the paid discovery process is the ideal way to enter into a retainer agreement (and why it’s not always possible)
  • The three categories a retainer should have to provide value to the client: optimization, insurance, and strategy
  • How to talk to prospects so they understand the value of an ongoing relationship
  • Three great ways to clearly define and price your services
  • Why your clients will test the boundaries of your agreement if you don’t clearly define them
  • The importance of saying “no” and the right and wrong ways to do it
  • Why consistent, clear communication with ongoing clients is a great way to upsell services
  • Building the systems and processes for great internal and external communication
  • Why you have to work on your processes in small increments or they will never get done

The Golden Nuggets:

“Recurring income is a really strong foundation on which to build a business, either exclusively or partially.” - Barry O'Kane Click To Tweet “Know what you’re trying to achieve with retainer services, clearly define what they are, and then clearly articulate that to the clients and everybody on your team.” - Barry O'Kane Click To Tweet “‘No’ is one of the most important words for agencies to learn to say, but never actually start that conversation with “no.” Start it with questions.” - Barry O'Kane Click To Tweet “Marketing is not a one and done thing. The only way that we can help our clients be successful is to think about it as a long-term journey together. ” - Barry O'Kane Click To Tweet

 

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Speaker 1:

If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Agency Management Institute’s Build A Better Agency Podcast presented by HubSpot. We’ll show you how to build an agency that can scale and grow with better clients, invested employees and best of all, more money to the bottom line. Bringing his 25 plus years of experience as both an agency, owner and agency consultants, please welcome your host, Drew McLellan.

Drew McLellan:

Hey there everybody. Drew McLellan here with another episode of Build A Better Agency. If you happen to be watching this on video. I am in beautiful San Antonio at the St. Anthony Hotel. People are always asking me about the background. So that’s where I am at today. And today I have the privilege of talking to a guest who is going to really tackle some issues that I think cause agency owners, not only a lot of stress and worry, but quite honestly cost you a lot of money. And so my guest is going to really attack some of those things and give us a fresh way of thinking about them. Let me tell you a little bit about him. So Barry O’Kane has over 18 years of experience in digital as an agency owner and a web developer. He works in partner with social impact organizations and creative agencies to solve tough problems. He runs a remote based development agency and he helps teach web agencies how to beat the sort of the firefighting, or as you’ve heard me say many times, the feast and famine mode that so many agencies are in. And so he really believes that there are internal processes and systems and that we need to look at how we get compensated a little differently. To really A, add more value both to the client, but also to our own business. So Barry O’Kane, welcome to the show.

Barry:

Brilliant. Thanks Drew for having me on.

Drew McLellan:

So tell us a little bit more about you,. Tell us about the work that you do and what what’s happening at Endzone.Io and how you interact with agencies.

Barry:

Sure. Yeah. Well, as you said, I started in web development in ’99 in London and then I set up my first agency late 2001, early 2002 with a colleague here in Edinburgh, in Scotland, where I’m based for most of the time. And we ran the agency for 12 years, which was brilliant. And to the point of the topic that we’re talking about now, we almost exclusively, that agency was run on retained services so long-term monthly subscriptions kind of services. And then about three years ago, just coming up to three years, I set out on my own and created Endzone.Io which is a new agency. So we’re, as you’ve mentioned, completely remote distributed team across Europe. And we focus primarily on working with creative agencies and organizations who are impactive and or social value organizations.

Yeah. And so, as I mentioned that my previous agency, we focused exclusively. And in 2001, that was a very tough and interesting challenge to talk about not hey, pay me a lump sum and I’ll do a project, but let’s talk about some sort of ongoing long-term engagement. That conversation has changed and grown and is in a very different place now, 15 years later, but the… 16 years later, but the underlying point I think is still or something that I feel really strongly about. So much so that when I started my own little podcast last year, I did the first season on retainers and I spoke to some, or it’s called long-term engagement, and I spoke to some really interesting, fascinating people, agency owners and other people talking about as you can hear one of my favorite topics. And yeah.

Drew McLellan:

So what makes this a favorite topic for you? After all those interviews, after doing it for as long as you have, what is your philosophy around retainers?

Barry:

There’s two sides to this, the answer to that question. The first part is the fairly obvious that recurring income or sustainable recurring income is a really strong business foundation on which to build a business, build an agency, either completely or either exclusively or partially. But I think there’s actually something even more fundamental to that. I have a belief that as professionals and as sort of experts in the trade and the digital arena, whatever that means. In my case, it’s focused on development, but I think it comes even more for people who are doing creative or marketing skillsets, to that providing value isn’t just a one shot and done types [inaudible 00:04:45]

Drew McLellan:

Right.

Barry:

And so, and I always use the term retainers, but then I immediately question myself because how everybody interprets the word retainers is slightly different. So I’m trying to sort of teach myself to say long-term relationships and providing long-term value is really the underlying or passion or reason or purpose for what I’m talking about here.

Drew McLellan:

Well, I think for a lot of people, especially a lot of agencies struggle because retainer has either one of two meetings. Retainer either means you’re going to charge me a flat fee every month and I’m going to never know what I’m getting for my money, right? Or it’s an all you can eat buffet. I give you X number of dollars a month and I can ask for as much as I want. I can go back to the buffet line as many times as I want. By the way, I can also expect to move to the front of the buffet line whenever I want, because I’m giving you money every month. And both sides of that sort of expectation are really problematic for agencies. And I think your sort of view of retainer is a little different, right?

Barry:

Yeah, absolutely. I couldn’t give some doubt that the problems are the negative parts of that viewpoint that are associated with the word retainer really clearly there. And a lot of that problems are things like capacity planning and scheduling. That’s when it sort of feeds in and hitting your projects. Yeah, I think that the same problem can be approached in a much more value-driven and a much more positive and a much more systemized process-driven way that allows you as an agency or as team to provide these kinds of services on an ongoing basis that’s still controlled. So you’re in control of the scheduling and the time and still provides outstanding value to your clients. And one of the things to do there is to not see retainers as that. Well, there’s a couple of different ways. I think retainers, my opinion are just, it’s badly implemented. One is that fixed fee often discounted for an X amount of hours and that’s as generic and as vague sort of service. And we will do things for X number of hours for you [inaudible 00:06:57]

Drew McLellan:

Yeah. A normal billable rate is 150 but if you sign a retainer for X, we’ll make it 125 or whatever, right?

Barry:

Yeah.

Drew McLellan:

Yeah.

Barry:

No, I mean, and so there’s several problems with that. One is discounting like that I think is just, it’s an invalid thought process. What you’re saying is I’m discounting because you’re paying me, I’ve got some sort of guaranteed income, but actually all you’re doing is devaluing the service. The value whether you provide that service now or later, it’s got the same value or potentially more value to the clients.

Drew McLellan:

Right. Right.

Barry:

The discounting part is a kind of let’s set that aside, I have a problem with that. But also, even more sort of in an operational sense, if you’re providing hours on, let’s say 10, 20 hours, then they immediately… The questions come back with things like well, what about rule of what happens if I don’t use my time? Or from a scheduling sense, what if the client phones up at the two days from the end of the month and say, okay, I now need to use my 20 hours and you’ve… I don’t know, okay, how do we fit?

Drew McLellan:

Right. Right.

Barry:

And so that to me is not a retainer. That’s just like that’s too vague and not clearly defined as to what the service is and what the… And the value is disconnected from the value. Just as a little sidebar, I have a, and I know other people who disagree with me on this so let’s say I have a problem with the hourly pricing in particularly in this context. And the analogy I use is that it’s like if you run a marathon, it’s like asking the runner how many steps did you take?

Drew McLellan:

Right.

Barry:

There seems like there’s a correlation there, but actually it’s how many steps you take is completely irrelevant. We should, when you’re talking about those and looking at the outcome, let’s look at split times or the overall time or whatever in that analogy. And so going back to the headline there, X number of hours at a discounted rate on a monthly basis to me is and everything about that just doesn’t work.

Drew McLellan:

Right.

Barry:

And so what does work instead? Well, there’s a number of different things and I have this sort of a process that I like to do. And the tough part is at the start where we actually want to step back and instead of jumping into hey, let’s talk about the specifics or the tactics of what to do, instead but actually step back and talk a little bit about why. I have to steal Simon Sinek start with the why, but we got why are we doing retainers both from us and from the client’s point of view? I think quite often, not always, but quite often, agencies are doing retainers just because. We have a very conscious process around how we win projects and the clients and the work that we do, but quite often the retainer is just sort of tacked on the end, oh, we need to support tomorrow or whatever.

Whereas if by bringing that thought process into, as a first-class citizen, even if retainers aren’t a big part of the revenue for some agencies, by treating as a first class citizen, then we kind of approach it slightly different. So looking at the value that we’re actually providing and how we have those conversations with the client more than just, oh, by the way, we do support. Or by the way, we provide some design on an ongoing basis or PPC or whatever. Does that make sense?

Drew McLellan:

Yeah. So I think one of the challenges… So A, I think a lot of agencies see a retainer as they know that in some way the sort of time and materials sort of methodology of selling is problematic, right? So then they… So that, but they’re trying to figure out how to attach a price tag to stuff they do. And so for them, I think in many ways, the retainer is a more sophisticated version of billing by the hour because at the end of the day, it still equates to a number of hours in a bucket that I get to use every month. So it sounds like you’re saying, and by the way, they have to often establish the retainer before they really know what it is they’re going to be doing for the client. So in your mind and your methodology around this, how does one establish a retainer dollar amount in that fog of the early part of the relationship? Or do you think that they don’t?

Barry:

I think it’s the same problem as pitching for any type of project. You always start with, and that fog, that’s an excellent way to describe it. You always start in that fog of, well, I need to give the client, show the client something costs and some clarity, but I haven’t yet got enough detail in scoping exercise. Theoretically the wonderful, the most, the perfect way to do that is to actually do paid discovery process which is not always possible. But if it is possible, that’s an ideal way to do it is to say we’re pitching for a service or you were looking to work together with the client and with my agency, but we’re not yet sure exactly what that is. Let’s talk and we can move the conversation to value and do a paid discovery process out of which you then have a scope and including maybe some project work, but also the retainer.

However, that’s not always possible. So instead, I think there’s a way to… There’s a middle ground, a way to make that work. And as an excellent article a couple of years ago, which articulated this quite well for me. When we look at the value from the client’s point of view of an ongoing return service and we can put that into three different categories like a little Venn diagram where one of the circles is optimization. So that might be things like conversion rate optimization or basically improving on what you already have, finding ways to SEO and so on. But also in terms of development, I can do things to sort of improve copywriting work with you on your website to improve it. And then one of the other circles is insurance. So that’s risk reduction. The problems of sites going down and I need support or help or there’s an issue or maintenance or whatever.

And then the third circle is strategy or training. So providing advice on a more strategy, strategic level and looking to the future. And so quite often we view retainers as purely fitting into either the insurance area of that or perhaps into the optimize. And that’s when, again, when we’re saying hey, it’s a box of hours and just do it, use it, whatever. But if instead we package up the retainer around a more defined sort of menu of services. So for example, in the insurer category there, we’re looking at monitoring a website, providing. If something goes wrong, we’ll be there to help you.

Drew McLellan:

Right.

Barry:

With the optimization part. it’s things like the easiest example is conversion rate optimization. We will do things on your site in a regular basis to, working in parallel with you and your marketing to improve the goals or the results you get from your site. But then also including the strategic level of input. So perhaps once a month, once a quarter, we’ll sit down again with you and with your clients, sit down with them and talk about the more strategic level and stuff. And include that as a package or as a couple of options in packages. And that, to your point about the being in the fog, then we’ve kind of got this service, which we can with a little bit of effort clearly defined, but which is still getting build flexibility to grow as your clarity on the client’s requirements deepens through the life of the relationship.

Drew McLellan:

Yeah. You talk about sort of the paid discovery process. And it’s interesting to me that how many agencies are reticent to do that. And the agencies that do it, they all use the exact same analogy. It’s, look, you asked me to build you a house, but I have no idea if it’s three bedroom or four bedroom or whatever. So first we have to draw the blueprint. So you’re going to pay us to draw the blueprint and then you can take the blueprint anywhere and have the house built. You’re not obligated to have us execute it, but then if we are the ones that are executing it, we can now tell you, oh, it’s a four bedroom, three bathroom house with a pool. I can now spec out exactly what that’s going to cost and give you a much better idea of how long it’s going to take, what kind of land we have to have, what’s the foundation that we need to build before we put up the house.

And I think agencies that are using that analogy, clients get it immediately. They push back. I have a lot of agencies say clients will not pay for strategy. But you know what? Nobody wants you to build them a two bedroom house when they need a four bedroom house or worse, build a four bedroom house when they need a two bedroom house. So they understand that and they’re actually grateful to pay for it to get the right answers. I believe, and I’m curious about your take on this, I believe that it is our own fear and reticence that keeps us from doing that, that we’re so afraid that I think that client has $200,000. And if I ask for 5,000 or $10,000 or $20,000 to do the planning, I might not get the 200,000. But what we don’t think about is if I just tell them it’s $200,000 and then what I promise them really costs $300,000, I’m screwed.

Barry:

100%. 100%. And that’s true regardless of whether it’s, and we’re talking about this retainer conversation or any other type of business model. And even deeper than that, there’s the relationship, the strength of the relationship changes or the value or the way you’re viewed changes. If you view yourself as an agency, purely as an implementer, as in you follow instructions, then that’s obviously lower down the value chain. Whereas if, and I think that’s to your point about the psychological, people won’t pay for it or I’m losing potentially leaving something on the table. But really the real value actually to the client is that strategic level of input.

Drew McLellan:

Right.

Barry:

As an addition to that concern, the other area where people say oh, I can’t do, I can’t have this conversation is because you’re maybe doing a request for proposal. You’re at the point where you feel you’re in a competitive tender process or something. And it’s quite hard to sort of say, actually this process you have got set up, it’s not ours. Let’s have a conversation about something different. And that can be difficult. And that’s what I meant by it’s not depending on your agency and so on. That might not be something you can do. But if you can go and say let’s talk about that staff here and talk about, as you said, let’s do the blueprint, let’s do the architecture. Bringing you back to retainers, my analogy that I like, the equivalent analogy that I like to use is a garden, because we can make exactly the same point. I can build a… You’re asking me to design, build you a garden, but I don’t know if you want a little plant pot on your garden, on your window seal or botanic gardens that’s got 200,000 visitors a week.

Drew McLellan:

Right.

Barry:

But then the follow-up to that that I like is and then a garden isn’t something that you build and walk away from. It’s something that needs constantly tended and looked after in order to be successful, not as well as being su… But in order to be successful.

Drew McLellan:

Yeah. In order to survive and grow. Right? Yeah.

Barry:

Yeah, totally. And that leads naturally into and it’s a good analogy. I think it leads naturally into that conversation around well, the best value that I as an agency, the most useful I can be to you is on an ongoing basis. And so it’s another hook into that conversation.

Drew McLellan:

Yeah. And that’s exactly right because someone has to tend to the garden, so. And that gets into the conversation with the client of, okay, what resources do you have to take care of the garden and what resources can we bring to the table? But again, that’s a great analogy. It’s really they get it. And it also takes it out of my money and my stuff and it sort of makes it almost universal. It’s pretty hard to argue against that when we sell that way. Right?

Barry:

Yeah, absolutely. And I mean, I sometimes go too far down the line of using analogies, but it exactly that. It sort of, instead of talking about technical and using jargon, we’re talking in a language that everybody understands and we can talk about things like seasonalities and campaigns and ways to optimize and again, with the garden analogy, there’s obvious similarities there.

Drew McLellan:

Yeah. No, it’s awesome. So you have some other ideas around compensation. Can you talk a little bit about those?

Barry:

Yeah. So and having ruled out this discounted fixed rate for hours per month, there’s three three models that I prefer or advocate instead. The first one is a specific output per month or per quarter. And the best example of this is productized services. So in this example, quite often SEO or PPC agencies just naturally default to this. They’re saying we will provide X amount of output whether that’s… Or copywriting is maybe a simpler breakdown example. We will write this number of articles on this timescale for you. Right? And then so that immediately moves the conversation from oh, it’s 10 hours and last time it took you four hours to do this thing and this thing it takes you two, now what’s the difference? But to talking about what does the client get and what’s the value to them.

Drew McLellan:

Yeah.

Barry:

And there’s a way… So that’s the first of these. And I’d like to explore that one a little bit mo