September 13, 2019

by Mark Duval / The Duval Partnership

Client management is an important counterpart to an agency’s new business program. Even the best new business program can be undone by an unsustainable client load and mismanaged agency-client relationships. On the flip side, client management may be challenged by poor qualification and inconsistency in your agency’s new business processes. For the best results, agencies should have both pieces in place.

What does agency client management (not to be confused with account management) look like?

We recently spoke with agency consultant Karl Sakas to get answers to questions such as: How many clients should your agency have? How do you determine which clients are profitable and which clients have the potential to be more profitable in the future? And how do you know when to grow an existing client or drop them and acquire a new client? Read on for his responses.

Are you seeing agencies make an effort to create or improve their new business practices?

Karl: Some are doing it; most should be doing it. Agencies aren’t like restaurants; you can’t just close for remodeling. So when people choose to undertake a process revamp, the problems have become very painful. In that situation, you may need to do a strategic “new business pause” before it becomes desperate. For instance, I advised a client that had a good flow of business coming in, but the agency owner wanted to re-optimize things. He set up a waitlist, saying, “We're not taking new clients in July and August.” During that time, he let potential clients know that they could start in September, and they built a good waiting list to minimize the negative impact of the pause.

Importantly, all of his marketing continued. He and his team did internal regrouping; they also used the relative downtime to re-launch their website, and of course, they were still executing for existing clients. Although there was a revenue drop in August, they were going strong by September as new people started off the waitlist.

The key is that they were very intentional about it. The owner was still having sales conversations, but it was in the context of, “We'd love to work with you… as early as September.” Some prospects weren’t willing to wait, but enough were.

More often, I see agency owners get overwhelmed, and they just stop doing business development. Then, sure enough, six months later, their sales pipeline is dry. A reboot can work if you're intentional about it, but relying on “happy accidents” could put you out of business.

Mark: Yeah, we see more of the latter; people tend to come to us in a bit of desperation. The number one killer of any new business program is the lack of consistency. If there's no consistency, there's no process, there's no questioning strategy. It’s like opening day of hunting season and everybody's rushing into the woods with a shotgun.

I tip my hat to those agencies who have the insight to stop and say we need to strengthen this process because it really is about what’s going to make you stronger, make you more profitable. There is that immediate discomfort but it's about long-term growth.

What about figuring out whether getting more clients will translate to more profitability?

Mark: Do you find that more agencies should grow what they have, or is it always about needing to bring in more new business? And how does an agency go about determining the right approach?

Karl: When an agency owner is concerned about client quality, I’ll ask them to rank their existing clients with my client ranking tool. (Want to try it yourself? Get the spreadsheet here.) The idea is that not every client is a profitable client or a client that you want to work with; some are amazing, some aren’t.

By doing the ranking spreadsheet, you're looking at each client’s current value and their future potential, and each of those might be high, medium, or low.  This helps you decide how to handle each client going forward.

Maybe you've got a client who's medium value today, but they just got a round of funding and they like working with you; they likely have high future potential. That's probably a client you should focus your efforts on and work on upselling them. On the other hand, maybe you've got a client who is medium value today and they just laid off half the marketing team; they probably have low future potential.

Maybe you've got a client who's just never happy with anything you do; that's really hard to turn around. If you've got a client who is low value now and they're just a pain to work with, why are you putting yourself through that?

Several years ago, I did the ranking exercise with an agency owner in Virginia. I asked her which clients were her least favorite to work with, and she tagged five clients. Some were her smallest clients, and getting rid of one of the most annoying clients was less than 2% of the agency’s revenue. And you know, I bet that client demanded way more than 2% of her team's time, effort, and energy.

Mark: It's always the smaller clients that are the most demanding. Ultimately, it’s about having the discipline to get rid of those smaller ones who are questionable around profitability and are taking more of the agency’s resources than they are bringing in revenue. But in order to do that, you must have a robust business program going because if you have other opportunities in the pipeline then it's easier to look at these clients who are taking up too much of your time and cut them loose.

Karl: For sure! The stronger your pipeline, the more confident you feel in saying no to people who aren’t a good fit.

Mark: Absolutely. And far too few agencies are able to do that. We've written about “no” being the second-best word in sales. To be able to look at someone and say, “You know what, I just don’t think we're the right fit for you.” And to walk away knowing that they're the not right fit for you, and knowing that there are other opportunities out there, with the confidence that something's going to happen based on your previous efforts and your pipeline.

Early on, when I started this business, I remember taking a client and telling my brother, who had a small agency at the time, and just kind of chuckling and saying to him, “This is going to be the worst agency. This is going to be the worst client I've ever dealt with.” And we were laughing about it, but not one day went by where they proved me wrong. I knew that was going to happen, but my business was just starting, and my pipeline wasn’t where I needed it to be, so I took the business. And that happens, we are not immune to it, but you make those decisions based on desperation.

Karl: There’s no shame in a business taking a poor-fit client when they really need the revenue. The key is that if you take that “red flag” client because you need the money, you need to go in with an exit plan. Once you close the deal, don’t stop selling; you need to be able to replace them in three or six or 12 months.
How would you rate most agencies on their ability to effectively manage the appropriate number of clients?

Mark: Because it's kind of like someone thinking it's their last meal, they're going to keep eating, eating, and eating, right? They're full, but they have to keep eating because they don’t know when their next meal is coming. And it’s back to whether they have opportunities in the pipeline and if they have the discipline.

Karl: If an agency leader is what I call a “Maximizer,” they’ll never be satisfied. Any client count is never enough, they're going to keep selling. In contrast, an “Optimizer” agency leader is more likely to sleep at night.

My recommended target for most independent agencies is 10-20 active clients. If you have fewer than ten, you're going to have a Client Concentration problem. Or if you find you’re having more than 20% of your business from any one client, that’s not ideal.

When you start getting into 25-30 clients or more, you risk what I call Client Dilution problems. That means you've got clients who represent a tiny chunk of your revenue but they take up a lot of time, like the example I shared earlier about the agency in Virginia.

If you've got annoying clients who are half of 1% of your revenue, do you really want to risk your team’s morale?

If you’re running an independent agency with 50 or 100 clients, how much attention is anyone getting? You can do pod-based team structures, you can have an account management layer to provide extra client coverage, but eventually things fall apart. Here’s an example. I worked with a 15-employee agency several years ago; at the time they had 80 active clients. They’d been losing employees, so the client service was getting worse, and the owner said, “We used to have over 100 clients, I want to get back to over 100.” And I said, “Why?” He said, “Well, we'll make more money.” And I said, “You can make more money by reducing to 50 clients, or 40, or fewer.” And he replies, “No. No, I know that if I get more, I'll get more revenue.”

Of course, he wasn’t thinking about all of the fulfillment complications and expenses involved. During my analysis, I found one of his clients had cut their retainer dramatically... but no one told the delivery team. Based on my calculations, the agency had worked two months at an average of $5/hour on that client — less than minimum wage. That's an extreme example; things fall apart when you’ve got too many clients.

If you’re still on the fence about reducing client count at your agency, here’s a simple yet powerful exercise: sort your clients by revenue. Run a report for year-to-date or the past 12 months, or since inception. Then sort it from largest to smallest. Add up the revenue from the top 10 and compare to the revenue from your smallest 10.

Unless you’re confident they’re profitable, why are you still wasting time on the smaller clients?

If you've got an agency, and it has a lot of accounts with lower revenue, what should you work on addressing? Is it about trying to introduce other services, upselling, or is it about just culling the herd?

Karl: Upsells can help, but not every account has the potential to grow; for instance, some don’t need significant additional help, and they shift into “maintenance” mode. It starts by understanding each client’s personal and professional goals, to assess if you're a fit to help them. If you don’t understand their goals, it’s hard to find ways to serve them better.

I have several proxies for an agency’s client relationship health. For instance, have you met your day-to-day contact's boss? If you haven’t, that's not a strong relationship. For your day-to-day contacts, do you know the name of their spouse or partner? Do you know about their kids, their pets? You want to work on strengthening relationships in the first place, before you try to upsell them. If people feel like you don’t know them and don’t care, why would they want to spend more money with your agency?

So when an agency is determining whether they should put more resources into acquiring new clients or growing existing accounts, what are other factors that they would look at–is it about the relationship, is it about the profitability?

Karl: I would say start with the client revenue-ranking exercise I mentioned in our previous conversation, around current value vs. future potential. If you’ve exhausted your current client base’s potential, then you definitely need new clients.

Agency owners and sales leaders are busy; ideally your finance or other operations person is looking at this on a regular basis. If you’ve got a bookkeeper helping you for five to ten hours a week, they won’t have the bandwidth (or perhaps the expertise) to do that analysis.

Going beyond revenue, consider profitability by client. If you over-service a high revenue client, that hurts profitability. The same is true for the legacy client getting your old pricing.

Ultimately, consider where you want your agency to be in the future. Is each client one that will help you reach that ideal future? Or are they only a match on a short- or medium-term basis? If you don’t stop to think about “working ON the business” topics, no one else will.

Parting Thoughts

To succeed at client management, agencies need a new business program to improve client qualification and choose better-fit clients. With better client selection and a full pipeline from ongoing sales efforts, you can afford to reject opportunities that demand more of your resources while returning less revenue. It gives you the freedom to say “no” to your least desirable opportunities and to drop your worst clients. And when you are able to strategically focus on your more profitable clients, your efforts extract greater value.

One of the key benchmarks for agency health is client turnover. Ideally, an agency’s client turnover should be between ten and twenty percent. Karl gave us an example of an agency that had closer to a hundred percent turnover rate, and it was an indication of poor sales qualification. Instead of focusing on retention and growth of their existing client accounts, this agency was overly focused on new business, taking on clients that were not a good fit in the first place. And once the contracts were up, the clients never renewed.

Even when an agency can replace a lost client, the effort to locate and onboard them requires resources. When there is not a balanced effort given to both client management and new business, when both of those processes are unhealthy, ultimately the agency ends up operating in an inefficient, unhealthy way. We addressed some of the metrics and KPIs that indicate agency health in a previous post from our interview with Karl Sakas, which you can read here.  

Did you use Karl’s client ranking tool? Were you surprised by any of the results?

 

 

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