The fact that most agencies aim to become more profitable comes up quite often on this blog. That’s because it’s true. What agency doesn’t want to increase their profitability? However, when working with agencies of all sizes, I often see them doing things that work against this goal. Becoming more profitable starts from the very beginning of your relationship with each client. Get your costing and proposals right, and you will start to see results.
On this topic, this blog will be about two common mistakes I see agencies make when drafting proposals for clients: they give cheaper quotes but don’t show their own investment, and they fail to be clear on the deliverables which leads to scope creep.
These are two important elements for a profitable agency. Though they may seem insignificant, they can have a surprisingly big impact. So, let’s take a closer look.
Show the investment
Most agencies have dream clients that they’d do almost anything to work with - including lowering their prices. Now, there’s nothing necessarily wrong with this concept, but I think most agencies go about it in the wrong way. When giving cheaper quotes, they fail to show the investment the agency itself is making in the project. So, the client becomes used to these cheaper prices, doesn't want to pay more in the future, and what was once a dream client quickly turns into a nightmare.
For example, you make a proposal to a client for £20k worth of work. However, the client’s budget is £15k. You really want to work with this client, however. This is where most agencies will simply go down to £15k, hoping that if they go cheap, they’ll win the client and then make it up at a later stage.
The reality is they rarely do make that money up. The client is used to a cheaper price from the get go. They never realised the project should have been more expensive. So, they aren’t willing to pay more. As a result, you either lose the client, or keep them on at an unprofitable level, which isn’t good for your agency’s growth.
What’s the solution? As I already mentioned, lowering your prices to build a relationship with a great client isn’t necessarily a bad move. However, if you’re going to do this, you should be upfront with them about it. Your proposal should say that you have lowered the cost of the project by £5k in order to build the relationship. As a result, the agency is investing that £5k in the project at their own expense. Then, when you’re costing future projects for that client, they’ll know that they got a good deal the first time and will be more willing to pay the full price having seen the results they got. This should positively impact your profitability as you’re far more likely to make up the money you initially invested, and aren’t left with a client who’s unwilling to pay what the work is truly worth.
Be clear on your deliverables
The next issue to address is the problem of scope creep. This is probably a familiar problem for most agencies. You agree upon the scope for the project, but in the middle of the project, the client asks for something extra. It won’t take long, so you do it for free. However, they then get used to this treatment. They keep asking for more and more that wasn’t in the original scope of the project. Before you know it, the project isn’t profitable for the agency and the client has come to expect you to deliver above and beyond what you agreed for future projects, too.
However, what you may not be aware of is the fact that scope creep can start from the very beginning of you working with a client, with your proposal document.
Plenty of agencies simply summarise the deliverables on the proposal document. They don’t want to put the client off by going into minute detail; they simply want to get the project started. However, this isn’t a good idea for agencies that are looking to limit scope creep!
Your proposal document should be used to clearly highlight your deliverables. I typically suggest a bullet point format to keep things clear and simple. This level of detail will make it clear to the client what they can expect to get from the project, and that anything additional will come at an extra charge for your time and expertise.
You may even want to go as far as setting the deliverables out in a legally binding document that the client signs, just to give you an added level of protection.
This should help to prevent scope creep by making it clear to clients exactly what they've paid for, and harder for them to get extras thrown in. Your profitability should therefore improve, as your team will be doing less work for nothing - which should have a positive effect on their overall morale, too!
So, if you’re keen to improve your profitability, it pays to take a closer look at what you’re doing when it comes to proposal drafting. By clearly outlining your deliverables and being upfront about any investment you’ve made in a project, you can not only set clear expectations with your clients, but also avoid undervaluing the work that you provide. Building sustainable growth and profitability takes time, but these two strategies can provide a solid foundation to help you with your proposals.
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Most agencies want to become more profitable, but have you considered how your proposals can help make this happen? This post looks at two common mistakes I see and how agencies can solve them.