What has the greatest impact on your profitability? It’s not your lack of new clients. It’s how much money you leave on the table when serving your existing clients. It’s money that should be yours but you give it away.
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Hey everybody! Drew McLellan here from Agency Management Institute. This week, I am coming to you from Seattle, Washington. Quick thank you to Kelsey from Salt Lake City for sending me the Salt Lake City Bees T-shirt. Appreciate it very much. Thank you all for noticing that I am celebrating all things baseball in these videos while we’re talking about agency life. And this week, what I want to talk to you about is the whole idea of write-offs. If there is a bane, a pain in any agency’s existence it is the fact that we do all of this great work and it’s billable work, it’s viable work, but for one reason or another we cannot ever put it on a client invoice, we’re never going to get paid for that work. And so we end up writing all of that time off. And for many agencies, that’s the difference between profitability and not profitable or single-digit profitability versus double-digit profitability. There are a couple of culprits that contribute to write-offs. The first one is, and we’ve talked about this before, we are terrible at estimating. And so I’ve given you some hacks in the past on how to improve your estimates, but in general not only are our estimates inaccurate in terms of how much time it’s going to take, but they’re also not detailed enough. And so when we give a client a scope of work we leave lots of rabbit holes inside that scope of work that they can interpret however they want, and usually what that means is they’re interpreting it for more revisions, more changes, no change orders, whatever it is and we end up holding the bag. So not only are our estimates bad, but honestly, a lot of times we don’t have the controls in our agency so that the team understands how much time they have to spend on a project. And when you don’t tell someone whether they’re writing code or copy or they’re an art director or even account person, if you’re not saying, “You have this many hours to get this task done,” then inevitably, because we want to make everything the best it can be, we’re going to over-service that client. We’re going to spend too much time and energy on that particular part of the project. So a lot of times our clients’ desires and their budgets don’t match up. Oftentimes, equally problematic, our own agency desires in terms of always giving the client the Mona Lisa of projects when really they paid for the finger painting level of project, that’s where we get into trouble. I am a firm believer in, “When we measure something, it starts to matter to us.” And so we’ve created a tool for you to actually be able to measure how much money you are leaving on the table. How much money you should be billing a client and you’re not getting paid for that work. So if you go to AgencyManagementInstitute.com/OnTheTable you will find an Excel document that you can download that will allow you to plug in some very simple data to show you how much time you are wasting. How much of your agency’s time, the greatest resource you have, you’re not getting paid for. And for many of you, starting to measure that number, starting to pay attention to that number and then starting to solve the problems that are underlying that issue can absolutely change the profitability of your agency in a very quick, short period of time. You can literally change it in a few months. So you have plenty of time before the end of this year to get your financial house in order to stop writing-off so much time. You’re always going to write-off some time, don’t get me wrong, I’m not suggesting you have no write-offs. We’re always going to over-service clients and sometimes it’s worth it. Sometimes it’s a business decision on our part to over-service a client, but that’s a decision you make. That’s a business investment you make versus having it done to you either by your employees, your estimates, your clients, or a combination thereof. So start measuring it and then start solving the problems that create that gap between how much time you’re actually spending on projects and how much time you’re
actually able to bill for them. All right? let’s put some more money on your bottom line. I’ll talk to you next week.