Life is uncertain. Here’s a spreadsheet for that.

Uncertainty is everywhere in life. You can view it as an exciting challenge or a scary threat but it won’t go away. As I’m typing this on the runway at Heathrow it’s not a comforting of thoughts.

The same is especially true of Agency’s finances. Clients can change their mind, pitches can be won or lost. Projects can be delayed until they are needed yesterday.

Trying to get a handle of what net effect of these movements will have on your Agency is a daunting challenge. Added to the uncertainty there is the practical problem of having different bits of information in different places.

Hopefully you’ll have a forecast. Probably you’ll have some form of CRM system to track new business and each account manager will be aware of what their clients might do next month/quarter.

If you want to have any sense of control this is an impossible situation. For many, many years I struggled with this. Wrestling data out of various sources to forecast what will probably happen can be a thankless task. Especially when it turns out to be wrong.

Occasionally, and I do mean occasionally, I get a moment of clarity. A coming together of ideas, a conversation which clears some previously obscured problem up.

I’m both happy to have had such a moment and a little embarrassed that it’s taken me over, ahem, 20 years to have such a moment about the best way to manage the uncertainty about Agency revenue forecasts.

I’ve written before about revenue forecasts. My advice was to take uncertainty out of the equation by only forecasting what was definitely going to happen.

That idea still has some merit but it’s not the full answer. It avoids the issue by shutting it’s eyes and covering it’s ears and hoping the nasty uncertainty will go away and leave you alone.

We all know this is not going to happen. To forecast accurately we have to embrace uncertainty but we have to do it systematically and we have to do it in a well constructed spreadsheet with each uncertainty broken down and a judged.

Now I’m aware that writing about spreadsheets has a limited appeal. But to make the point I will have to explain how this new, and to me vastly improved, forecast tool works.

I start by breaking by separating confirmed projects from potential activity with current clients with a further analysis for new business into 3 different worksheets. Never cross the streams.

The confirmed activity should represent the worst case scenario. Only projects which have signed off authorisation go into this list. Anything from your clients which hasn’t been signed off goes behind door number 2.

By adding some clever formula to the client development and new business sections we can decide whether each potential opportunity is probable/possible or hot/warm/cold (take your pick about how you classify them – the only rule is to be consistent). Only the probable or hot prospects will add through to the forecast.

The summarised forecast has a column for definite projects and one for projects you think will most likely happen even if you don’t have full sign off. This moves the forecast from being a pessimistic view of the minimum that will happen to a dynamic view of what will probably happen.

I call this view the Most Likely Outcome (“MLO”). It gives you the ability to breakdown uncertainty line by line. It moves our focus from what is happening to what should happen.

More importantly it gives us the ability to think what could happen if the possibles/warms were signed off. This means the forecast can move in from the wings as a necessary but rather dull spreadsheet to centre stage where it can become a planning tool, a “what if?” Dashboard. Exciting isn’t it?

Whether there is a gap to fill to hit your target or whether there is a resource shortage if a project is signed off it is vital to know the effect of the revenue increase and (any) costs you need to service the extra work.

This is a recent step forward. I’ve shared it with my clients who have, to a person, reacted positively. “Thanks for the new spreadsheets – I love them!” was the unprompted reaction.

So positive has the reaction been I’m going to spend some time and money to move it from a spreadsheet to a simple web based solution. Watch this space as I report back from time to time about the trials and successes of turning a simple forecast spreadsheet into a sophisticated planning tool for any size of agency.

Wish me luck.

List of Blog Titles; An easy return to writing

It’s been a while since I’ve written anything – blame it on work commitments. Blame it on Brexit. I’ve continued jotting down a blog title as it occurs. Some make sense to me, some I’m genuinely confused by. I’m sure the meanings will come back to me.

So, in a first step back on the blogging treadmill, here are my favourite titles. I’ll get round to fleshing them out very, very soon.

5 Reasons Not to Start An Agency

Things I have learnt this week

A banquet of consequences

Do Bigger Clients Mean Bigger Profits?

Common Mistakes By Agency Founders

The Cashflow blog

Learning To Love Your Numbers

Small Agency Financial Model

Perfect Board Meeting Agenda

Pipeline; People; Profits; Plans

Low overheads and underpaid owners – the curse of a growing start up.

Always believe good stuff

Are time sheets a good thing?

Information is a measure of how difficult a thing is to describe

Selling, Doing and Counting

What is your cognitive bias of choice?

The 3 minute P&L

A 3 month rescue plan

Winter is Coming

1 hour a week finance

And my personal favourite;

Dance Monkey, Dance

 

Clarity of Purpose. Flexibility of Process

Or beware consultants with a fixed view. 

There is a world of difference between the purpose of your Agency and how you go about it. The purpose should be to solve business problems for your clients. Whether it’s to help them sell more, influence more or promote their brand more effectively that should be your purpose. 

How you do that will vary. Anyone with a fixed process will find themselves going backwards quickly; overtaken by nimbler competitors. 

What is true of how you work is also true of how you charge for your services. This is not about value pricing versus timesheets; plenty of that another time. No, this is about the need to remain flexible when it comes to pricing. 

I came across just such a case recently. A small agency, recently set up and initially profitable had hit a major problem with one client that nearly broke them. They were in recovery but they were living hand to mouth from project to project with a constant cash flow struggle. 

I wasn’t charging them for my time; I was doing it as a favour. Occasionally I feel generous. I’d looked at their numbers and was explaining what they meant and how they could use them. I was on my hobby horse about the need for an accurate forecast and a new business pipeline. About how the hot prospects on the pipeline could change the next few months if the deals were closed. 

I asked if any of the pipeline deals were price sensitive. The answer was, yes, this one definitely was and this one probably is. Do you have any capacity in the month after next when your forecast dips rather alarmingly? Again the answer was positive. 

“Could you close the jobs if you did a deal on the price?” In the current situation with debts to pay and payroll to meet it seemed to be obvious plan. 

The reply prompted this blog. They had spoken to a consultant who advised them never to discount their rate; it sent out the wrong message and undervalued their worth. A fixed approach to pricing. 

Probably sound advice if you were successful, had money in the bank and had more opportunities than you could handle. To a start-up who had little or no money though it was potentially disastrous. 

Some things are absolute; advice about how to price Agency services are absolutely not. 

In the early years you have to be flexible. In terms of tasks you take on; in terms of work that you do and certainly in terms of how you price your services. 

Be prepared to negotiate. Always think in terms of the extra revenue a job will bring in and what extra costs you will incur. Using up the available capacity you have already paid for is a far more successful tactic to survive and prosper than a refusal to negotiate on price which leaves your team twiddling their thumbs. 

One of the (many) challenges of starting and running your agency is sifting through well-meaning advice of consultants. What could be wrong with seeking help from experts in their field? Nothing really just beware if you get a fixed, absolute point of view about something as subjective as what you should charge. Context counts.

How To Spot A Profit Vampire

Profitable Agencies have profitable clients. That much is obvious.

Growing an Agency will be so much easier and rewarding if you can identify and avoid those profit vampires before they steal your time and destroy your margins.

It isn’t always easy to tell if a new client is going to be profitable or not. There are some warning signs that should start alarm bells ringing. Here are a few;

– Lack of written briefs. This will always increase the chances of an unhappy client and an unprofitable agency. If the client won’t commit to a written brief with clear objectives then the risk of wasting more (unpaid) time later down the line will increase.

– An over powerful procurement department at the pitch. This can be a good thing but only if you have an experienced procurement contact. Otherwise it can be a box filling exercise and an over reliance on the cost plus spreadsheet.

– You never get to know what the budget is. I’m not sure how many industries rely on a guessing game when it comes to this vital bit of knowledge but it always strikes me as odd. It’s certainly not conducive to a profitable relationship.

– 120 Credit terms/Payment to be on a “roster”. Both are, unfortunately, gaining ground in the client/agency relationship. Headlines in the trade press appear regularly and there is a hue and cry but still no shortage of agencies wishing to pitch for a piece of work which has got profit vampire written all over it.

– Scope changes. Everyone is allowed to change their mind but constant changing and creeping scopes should set alarm bells ringing.

– Constant references to “cheaper” quotes elsewhere to beat your price down. Unknown agencies that could undercut you is a classic warning sign. If your client is buying on price rather than value you a supplier and not a trusted partner.

– You are over reliant on one major client. You will do anything to keep them happy because they are such a large part of your business. That will, inevitably, lead to doing stuff for free. Clients like to feel they are important but you need to strike a balance if they ask – they are important but you could survive if they left. Try to make sure no one client is more than 15%-20% of your total revenue.

– A demotivated team who are having to constantly firefight a difficult client. Relationships are key and if you have a difficult one the odds are it will be on an unprofitable piece of business.

– You have many budget holders with a bigger client as well as weak central control. You could well find yourself juggling multiple demands with little overall strategy.

This isn’t an exhaustive list but if any of your clients exhibit these behaviours the odds are that they will be hitting your margins.

 

 

 

Negotiating Tips from The Bazaar

By nature I’m not a great haggler. I like to know what the price is and then I can make a decision whether I want to buy. Not everywhere works like that though so, like a good tourist, when I went to Istanbul I visited The Grand Bazaar.

What I found reminded me of some old, tried and trusted negotiation techniques. Very different setting and instead of marketing services it was carpets and spices but the same rules applied.

  1. Always try to get the other side to open. If I wanted to buy a particular rug I had to ask what the general price for his rugs were (it was always a he). To show too much interest too soon in a specific rug would give away your advantage. In negotiations it’s unlikely a client will show that they’re keen to work with you – to do so would give you the negotiating power. By all means share rate cards but try not to get specific – you need to know what they want and, ideally, their budget before you give them a price.
  2. Once you know the general price you’re supposed to look around at other stores (if you want evidence of cluster theory visit a bazaar) to see what else is around and, at the same time, show that you’re shopping around. Clients will always say they’re talking to multiple agencies. If they are negotiating with you the odds are though that they are interested. Hold your nerve.
  3. At this point if you have found the rug you are supposed to offer roughly half of the initial price and be prepared to walk away if this is met with derision. If they come after you there is a deal to be done; if not you have to swallow your pride and offer more or walk away. In agency terms you’ll be told you are far, far more expensive than the other competing agencies. This is where you ask my favourite question “On what basis are you making that comparison?”
  4. In the bazaar most of the stores are the same. Same produce, similar prices and same sales patter. For my souvenir I ended up in a shop away from the bazaar that had a higher quality of stock with a fixed price – this was their specialism – they had 25 local artisans working only for them and it showed. They weren’t going to haggle because they were confident in what they were selling. Whilst your agency might have to bend a little more than than differentiating your service, making it a premium, quality service rather than a commodity will enable you to hold your prices. It’ll also make our clients feel like they are paying for quality.

Negotiating has been around as long as people have bought and sold. The lessons are the same whether it is rugs or brand consultancy. Stand out with a premium service, try to find the brief and budget from the client and hold your nerve in negotiations – it’s the quickest money you’ll ever make or lose.