How Do You Know Which Clients Are Profitable?

Sometimes, agency owners or managers feel like the proverbial dog chasing its own tail. You keep going in circles and never seem to get ahead. Considering that problem from the perspective of turning a profit, there are ways to stop spinning out of control and get a firm grasp on the factors that interfere with your agency’s profitability.

We have all had clients who paid us less than the effort expended seemed to merit. You know who we're talking about—clients who demand your undivided attention no matter how small or relatively trivial a project might be. These are the guys who think no one else’s business is as important as their business, who demand you break away from a meeting to come to the phone so they can ask a question easily handled by the account coordinator. They drop rush jobs on you at a moment's notice, show up unannounced expecting you to drop everything to “take a meeting,” and generally treat you like slave labor, with complete and total disrespect and no professional courtesy whatsoever. Then, they argue about the bills!

Very few clients who behave this way are worth the stress, schedule disruptions and hours of personal attention they demand as if by right. If you have one that is a bona fide “gorilla,” whose checks pay a substantial amount of your overhead, we can only commiserate—and recommend strongly that you ratchet up that new business program NOW. The sooner you can move on to better clients, the better for your agency, and your own peace of mind.

Yes, we know—no client should be blithely tossed aside. That’s why we suggest you hang in there until you bring new clients aboard to replace income lost through parting company with the gorilla. This is old advice (but still as good as when it was first offered). The key is to run your business with two goals in mind:

1.   Take on only those clients who treat what you do with respect, and want to work with you, not over you.

2.   Watch every client you take on with an eye to balancing profit against effort expended. The old adage, “You get 80 percent of your work from 20 percent of your clients,” holds true long after it was first acknowledged as a business rule of thumb. That means you need to reassess the way you work with 80 percent of your clients so you can improve profitability, and ensure that you have a better client balance to protect you in the event of an account loss.

Sure, you can look at profit and loss numbers, at overhead and hourly rates and so forth, and see the bare numbers that tell you, “this client paid us X amount of dollars last year, while that client only paid us Y.” But where you really lose profits is in workflow. Somewhere between opening a job and billing it, there is way more time going into the job than the budget allowed for. To find out where and why, you must carefully analyze the job to see not only where too much time was billed, but also how much unbillable time was logged against the job.

Sit with your managers and designate what is billable and unbillable time. Then explain the designations to your billable workers—i.e., EVERYONE IN THE AGENCY, from the delivery person to YOU, the owner. You must track your time to the minute, and record it so you can parse it to see where the problems occur and how you can avoid them in future.

Invest in project management software, and USE IT. There are many time tracking and management systems available— our advice is to pick one and learn how to use it fully. Every employee must embrace the system and follow procesess for time entry and workflow. If it takes time to get things rolling seamlessly, at least use a time sheet template so time can be recorded as work is done and entered at the end of each day. However you collect and record the time, analyze each project to see who is overbilling, who is available to spend time on another project, how long it takes on average to produce a specific type of job, etc.

Once you see where you can tighten up the system, start making adjustments. Involve your workflow manager, production manager and key supervisors to help with this. Everyone will benefit from more closely controlling the time spent on each project; just be sure you explain the benefits to employees, who may find they have less time to surf the ‘Net, make phone calls, chat at the water cooler, etc. Remember, this isn’t about becoming a slave driver; you are trying to improve internal efficiencies, and, by extension, profits. Emphasize better profit-sharing numbers, bonuses, etc. That should spur everyone to give it the old college try!

Lead by example. Owners and managers, track your own billable hours (keeping in mind that your experience and expertise may be worth more than the hours you actually spent). Even the receptionist can bill at least some time, whether for proofreading, administrative time (helping to stuff a mailing), etc. But EVERYONE TRACKS ALL THEIR HOURS EVERY DAY. You can’t expect employees to do this if they see agency leaders and managers blowing off their daily time sheets. Burdensome as it may seem at first, time tracking will become routine, and eventually, like any learned behavior, automatic.

Where inefficiencies prove to be the result of a troublesome client, agency leaders, in tandem with the assigned account manager or AE, must have a little meeting with the client. Don’t point the finger and say ,“This is all your fault!”—because the agency lets the client get away with this behavior. It’s your job to lay out a system that will benefit everyone, and invite the client to partake of the benefits. Bite your tongue if s/he says, “It’s about time you guys got your act in order.” Some of them will. But even a little more cooperation, combined with your improved workflow and more stringent time management, should greatly boost your profit numbers.

Repeat this daily—“The customer is always right…” at least until you can hook up with clients more interested in equal partnerships than in having an agency to kick around. Time management is the answer. Synchronize your watches and ready, set… GO!