Two key documents for protecting your agency’s profitability and your people

Jun 8, 2022

USA

Prosper Group, the company that help the owners of independent marketing communications agencies achieve their ambitions and maximize the value of their life’s work,  offers the keys to better protect your agency and the staff and make more money.

The first key document is to always begin every client/agency relationship with a comprehensive Client Engagement Letter, a strong document that will help the agency be more profitable and better protected. It should include: billing type, mark-ups and payment terms, termination clause, idemnification, staff protection, ownership of materials, mutual expectations.

The second key document is to clearly define the scope of work for all that you do for each client. Scope creep can drain the profitability from an account. It also discourages your people from giving their best to each project.

You need a process for carefully assembling the budget for all of the work you do.

Agencies too often forget that they’re placed on the path to either making or losing money at the budgeting phase. Never guess what a project will need. Always begin with zero-based budgeting which includes:

  • Every tactic to be employed.
  • Every role that will be involved.
  • A tight estimate of the hours required multiplied by your billable rates.
  • Accounting for all costs including mark-up and any sales tax.

Also ensure that you have a budget category for “Strategic Counseling & Reporting”. Agencies frequently underestimate the amount of time they spend in meetings, phone/video calls and reporting to their clients. We recommend that this category be 15% of the tactical work budget.

Every SOW should be in writing and very specific.

If you don’t have one already, create and adhere to a fixed format which documents every scope of work. It includes:

  • The SOW is an addendum to the Client Engagement Letter dated “X”.
  • The work to be executed. Attach the approved client program or proposal to the SOW.
  • The timing for when the program begins and ends.
  • The budget.
  • How the billing will work (e.g. – hourly, retainer, project fees, minimum monthly retainer reconciled against hours).
  • How any incremental work beyond this SOW will be budgeted, approved and billed separately.

Building even more protection into every SOW.

State that the budget included in the SOW is a good faith estimate with a possible variance of plus or minus 10%. Budgets are educated predictions of the future which no one can predict with 100% accuracy.

Include that you will a) notify the client if the 10% contingency must be accessed and b) attempt to find other options if necessary (such as reducing work in other budgeted categories).

Finally, also state that the agency reserves the right to move money around between budget categories as needed. It frequently happens that some budgeted tactical categories have success while others do not. You should have the ability to shift money from categories that aren’t working well to those which are driving client success (or to move unspent funds from a category which came in under budget to another one).

How the Client Engagement Letter and SOW work together.

The Client Engagement Letter clearly lays out the broad rules and expectations of the client/agency relationship. It’s the roadmap for how the two parties will work together positively and productively for mutual benefit.

The SOW addresses the specifics for each project including what will be done, when, the cost, when it will be billed and when payment is expected.

Together, these two documents can make a significant difference in the profitability and performance of your agency. Prosper Group can help you create either or both of these. We have the experience to help in virtually any area throughout the life of your firm.

By Prosper Group

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