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Short Term Contracts Ease Recession Jitters & Inspire Client Confidence

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Agencies  /  SEM

aimclearoffice

Like most SEM shops, our business is an amalgamation of flat rate products and hourly work. It’s generally been our focus to procure longer contracts, usually 6 month to 1-year agreements.

We thought it prudent to evolve our model in preemptive reaction to these brutal economic times.  Little did we know the unexpected gems of perspective we discovered.

Q1 2009, in the teeth of a recession, we actually accelerated growth by increasing the mix of short-term retainer & audit-and-plan deals we cut. These short-term “intake” agreements are converting to long-term relationships at a high rate, making it the best of all worlds.

Dependent on time tracking methods and using a software adapted (hacked) from law firms, in November 2008 we re-tooled aimClear to increase the mix of precision planning, traffic, time tracking (1/10th of an hour increments) and decreasing the term of initial client engagements from 1 year to 3 month retainers. The hard work was well worth it.

After achieving buy-in from staff and overcoming traditional obstacles, we noted some intriguing (if not revolutionary) advantages to focusing on a short term retainer agency-intake model which, though counterintuitive on the face, transcends recessionary stopgap measures. That said, there are both pros and cons.

Advantage to Short Retainer Intake

  • Clients perceive agency as highly confident, not trying to lock them up long term. Since most SEM firms seek longer-term deals, it’s a competitive advantage in a space which is getting more crowded. The client gets a chance to evaluate us and vice versa. It’s a very powerful approach to take with a new client and comes off as seriously holistic. You get the long term deal anyway.
  • Small initial budgets force the agency to increase efficiency, needing to do more for less which makes for happy customers and a better agency.
  • Jobs are much easier to close, the higher hourly rate is much better tolerated in light of lower overall cost.
  • Effectually, the agency gets paid to develop the larger job and deepen potential partnerships moving forward.
  • Retainers to plan/begin projects lead to even more profitable flat rate & hourly jobs. Incremental tracking against projected sharpens the agency’s predictive instincts.
  • Collection is less of an issue because we don’t start work until getting paid. Retainers are invoiced with an initial deposit against a maximum budget, absent client authorization for further expenditures. We re-invoice when retainer has 20% left, net 7. We return unexpended funds if a surplus remains at the end of term and/or job complete. It’s a very tidy model.
  • Builds trust with client quickly by completing initial projects as promised.
  • Builds shop confidence and fosters a can-do environment of completed projects and success.
  • It’s an opportunity to showcase the shop’s technical business prowess. It takes a very organized advertising agency to render weekly statements against retainers sorted by job, employee, task, materials and travel–all against a budget. The message is in the method for the client who quickly comprehends how capable a business unit we are.
  • There’s time to handle more clients, more case studies for internal training, more friends, more referrals, leads to more short term retainers, rinse and repeat.
  • Client and agency have opportunity vet each other in short term crucible. Since there are fewer long deals with bad-fit clients, less friends are lost.
  • Provides better opportunity to measure employee productivity.
  • Diversifies client base to better insulate from effects of losing any single client.
  • In this model, the agency essentially gets paid to audit-and-recommend, as opposed to spending unpaid time responding to RFPs. Back in the day, the agency needed to mock up creative, outline proposed campaigns and give away lots of work to get the gig. This is no longer the case. It’s hard to come by a search focused agency to trust. The ones that are good don’t plan projects for free.
  • Agency experiences same or better revenue predictability, as with the “fewer clients / longer deals” model. Really can feel just as safe or safer.

Inherent Challenges

  • Timecards can suck. aimClear needed to create a Twitter style front end for QuickBooks and find a way to have fun with it. It can be done with the right attitude.
  • Achieving buy-in from staff is crucial. Attaining company-wide buy-in takes quite a bit of work.
  • The “confidence” of a short term intake model can be intense. An agency has to have the chops to back up the confidence. A strategy based on more clients does not work if you can’t get more clients because all the short term intake deals fail. “Confidence” must be based on actually having the goods to deliver.
  • In my experience, waiting until the end of the week to compile timecards just doesn’t work. It must be done real-time with an always-open control panel. Finding or building the right software takes work. Expect growing pains.
  • Growth is required in how an agency segments SEM (SEO, PPC SMO & ORM) services. If anyone is interested in seeing how aimClear segments service skews for time tracking/invoicing, ping me.
  • Live and die by time tracking. Take a week and send 5 team members to a conference in New York, forget each employee’s need to clock billables, and the month could be gutted. Besides, it’s not just about getting hours in. Client’s jobs need attention to be successful, so the traffic manager-function needs to be a comprehensive process.
  • Bookkeeping needs to take place closer to the surface, which sucks up bandwidth. The agency needs to have apparatus to pull daily time against budget, which requires employees to stay tuned in to the budget. Lack of attention leads to mistakes. Mistakes lead to unbudgeted time expenditures. Soon the short job is long, etc…The agency must be highly adept at nipping scope creep in the bud before it gets creepy.
  • Hourly consulting is less scalable for building a business model you can sell. If cashing out your SEM agency is the end-game, hourly consulting businesses often don’t command the same valuation as those that proffer “products” or residual cash flow.
  • Easy to take your eye off the ball. Mixing short-term, hourly, flat rat and residual based “products,” needs to be intentional and always scrutinized.
  • Creates additional layer of administrative duties, all parties must be incredibly precise.
  • Some clients want longer term relationships. It’s important to have the “wisdom to know the difference,” early in the sales cycle and be willing to commit to the right client.
  • Did I say timecards can suck?
  • If an agency gets paid to audit-and-recommend, as opposed to spending unpaid time responding to RFPs, the front end advice sure as hell better be great.

Most advertising agencies depend on some kind of hourly/flat rate mix. Whereas it’s always been our objective to knock down longer term deals, we’ve had success by focusing our attention on short term evaluator service, as a prelude to taking on longer term assignment. While there are challenges, we believe that the advantages far outweigh the natural obstacles.

While aimClear has a healthy mix of short & long term lengths, the longer relationships now come by way mutual vetting and there’s way less wasted and unpaid time up-front.

We’ve observed interesting advantages to diving in whole-heartedly on a short term retainer agency-intake model which, though counterintuitive on the face, transcends recessionary triage measures.

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2 Comments

  1. Will Scott on April 13, 2009 at 11:04 am

    Great concepts Marty!

    The biggest problem I’ve found (perceived, deluded myself of, whatever) is inventory control.

    With longer term more “standard” projects we can forecast better. In other words if we sign 1 client of type X we will need 1/5 content person, 1/3 SEO/HTML person, 1/15th account manager and so on.

    We do occasionally take ad-hoc and shorter duration engagements – usually no fewer than 3 months – and they are typically higher monthly / hourly costs.

    And they’re typically industries where we may not have the depth of experience enabling us to gauge ROI.

    Given an industry where I abso-friggin-lutely know the ROI I’m personally reticent to break our primary model.

    But, we do have our Small-Business Plan for the truly budget conscious :)

    You are always thought-provoking, sir.

    Will

  2. Marty Weintraub on April 13, 2009 at 12:18 pm

    @Will Scott: That’s easy dude, charge $600.00 and hour and you’ll get more out of short term engagements than the small biz packages. The idea is for the budget clients to only have access to your team for a short while. Or guess what…they can’t afford you Will.You’re too cool to do budget clients. They don’t add up.

    I’m not saying quit longer term terms. I’m saying. Identify good long term prospects in a short term structure…really all it means is getting paid for groundwork previously done for free and raising your prices.

    In a long term contract, GETTING the deal takes tons of time, HOURS of groundwork. Your investment is reasonably expected and you have no idea how the client will work out.

    Taking the approach noted in this post, puts a lot more billable time in your month and ya’ still get the long term deals. I’d way rather do 2 short term high hourly-rate deals than 11 small business packages.

    It claims your place at the table, for the exceptional ROI, by honoring every shred of work you do with cash, all the while vetting clients-while they vet you.

    Of course, some folks come to us and we know to start talking long term straight away. Very large companies want assurance you’ll be there. However, even very large firms appreciate a first phase that’s evaluatory and sane.

    Finally, we don’t DO the job in the short term contract. We PLAN it. It’s not bad to have a business model that’s getting paid well to plan. To our mind production companies are less profitable than planners. Even so, we get plenty of production work after the initial engagement.

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