Deliver Projects More Profitably for Your Agency Clients
It's important to remember that profitability ultimately depends on how well projects are managed. Change can be difficult, but taking small steps can have a significant impact when things start to go wrong with project delivery. One common issue many agency teams face is 'scope creep,' which can negatively impact profitability.
Fortunately, Freia Muehlenbein has developed effective strategies for addressing this problem and improving profitability. We had a blast hosting Freia at our Agency Growth Summit in December 2023. Don’t forget to download your free copy of The Agency Growth Book to access the extended version of Freia’s insightful article.
‘Scope Creep' is very real. Are you experiencing these issues in your agency?
Many agencies put themselves in a tight spot before any work starts. Common reasons for unprofitable project work are:
Scoping isn’t a team effort
Your sales team scopes and prices new work without input from the teams doing the work, which can lead to inaccurate quotes and incorrect campaign scopes. This opens you up to overservicing and complex client relationships from day one.
You’re not pricing in all work
Many agencies don’t price in crucial activities required to deliver great work, such as onboarding, client management, project management, or reporting. Failure to do so can significantly impact margins and leave teams without dedicated time or budget for these essential tasks.
Your rates are too low
Reviewing and increasing rates should be at least an annual activity. Your rates must reflect the cost of running your business and lead to the margins you need to reinvest in the business and grow.
You’re not formalising the project scope with your clients
Not having mutually agreed ways of working and formalising what is and isn’t included in the scope leaves you in a vulnerable position when clients ask for additional work or ask to change the scope.
“A helpful first step is to work with your teams to map out your key processes and repeatable activities for clients and understand the tasks and timings involved in delivering these.
Many agencies experience a moment of shock when they take a deep dive into how much project delivery actually costs them.”
Here are some changes you can make to your processes:
Involve your teams in project scoping
Creating accurate scopes and profitable quotes requires a deep understanding of how work is delivered in your agency. The people who know this best are the people who deliver the work on a day-to-day basis, and we need to include them in shaping proposals. Your client teams are ultimately responsible for providing work in a way that makes money for the agency, but they can only do this if the scope for new work takes into account all elements of running campaigns. If it doesn’t, teams will be left frustrated, stressed, and unable to hit the margins you expect.
Price in all work and ensure your rates are optimised
Accurate pricing all starts with a precise scope. To create a precise scope, we must fully understand the client’s requirements, expectations, and what we will deliver. Involving the broader teams in this activity is the first step.
Agree and formalise the scope with your client
Once you have accurately and collaboratively scoped and priced your work, and the client has given you the go-ahead, you will want to agree and formalise a Scope of Work (SOW) to establish a mutual understanding and clear definition of project objectives, deliverables, timelines, and resources.
Remember that the main benefit of a SOW is its ability to manage scope creep.
It acts as a barrier, preventing uncontrolled changes in tasks or schedules, which can save resources and time that might have been wasted on unanticipated additions. It also facilitates transparent communication with clients, as they have a clear understanding of what to expect, minimising the likelihood of disagreements and ensuring client satisfaction.
Your Scope of Work (SoW) should include:
Agreed ways of working: How will additional work requests be handled and charged for? How many rounds of amends and changes do you provide as standard? What happens if the client changes timelines and deadlines?
Agreed scope for each project: Agreed budgets, deliverables, milestones, exclusions, and deadlines for the project or retainer.
Final thoughts
We can’t avoid scope creep altogether but can manage it better. The steps outlined here are your starting point for greater profitability and scope control, but don’t stop there. Investigate what other areas of your project delivery operations could be optimised, such as the systems you are using to speed up and automate processes, the quality of the data you’re collecting (e.g. profit per client and project, profit per department), who owns and reports on profitability, or how clearly your client roles and responsibilities are defined.
