Is Your Agency Viewed by Clients as a Valued Strategic Partner or as a Commodity Agency? (Part 1)
Agency differentiation and providing more value to clients are the keys to achieving premium pricing and higher profitability.
Many marketing and communications firms endure a chronic struggle to differentiate and thereby raise their value in the eyes of clients and prospects. The urgent need to service clients and pitch new business often overwhelms an agency’s ability to raise the perceptions of its value through
clear and meaningful differentiation and,
the building of intellectual property.
It doesn’t help that most agencies spend too much time talking about their services rather than the value which those services provide to clients. It’s also difficult for many agencies to find enough time for their leadership team to consistently focus on the longer-term objectives of differentiation, productization, marketing platforms and proprietary processes. As a result, they find it challenging to achieve premium client pricing, above-industry-standard profitability and ultimately increase the firm’s M&A market value.Of course, a lack of differentiation also detracts from the agency’s ability to attract and retain top talent (and provide above-market compensation packages), invest in future growth initiatives and meet owners’ financial and retirement goals.
Prosper Group’s experience in developing strategic growth plans for agencies has identified a clear path to earning a premium profit through compelling differentiation and supporting intellectual property. This is the first of two mailings in which we will share these insights with you.
Understand and execute the three key building blocks for agency differentiation.
Clear, strong and profit-building differentiation flows from constantly paying close attention to executing these three critically important steps.
First, the most profitable agencies have built and sustained a powerful sense of “mission”. They successfully communicate a higher calling to both their employees and clients. In the words of noted business author, speaker and consultant Simon Sinek, they have found their “Why”. This is the core reason why they exist, why top talent should work there and why high-quality clients should hire them.
A compelling mission is the first step toward market differentiation. It also provides alignment between the agency and the prospects you wish to serve… and the talent that’s right for your firm.
Second, these agencies fully understand what they’re selling… and to whom. They’re not simply trying to sell what they do (creating press releases, ads, etc.). Rather, they’re selling salvation by helping their clients solve complex problems and seize opportunities. These firms understand that:
Their true value lies not in providing media relations, social media, advertising, etc. They recognize that these are expected skills, commodities and likely the least interesting things about them. Prospects assume that you can execute the basics. What they really want are deep insights and strategy.
They provide value through their knowledge, experiences and storytelling skills that are applied to tactics which then build awareness, credibility, authority, engagement, conversion, impact, influence… and concrete results… for clients.
The more you talk about value and the less you talk about tactics, the higher up the client food chain you will rise.
Third, to keep moving further and further away from being perceived as a commodity and becoming a valued strategic partner instead, these agencies relentlessly nurture and leverage their brand positioning (USP) in all they do.
Here’s what successfully differentiated agencies look like.
These firms have been built from the ground up to solve specific issues for a well-defined set of clients. They are not trying to sell all things to all people. And they understand they’re not the right agency for everyone.
To be as compelling to prospects as possible, they’re built around knowledge and experience for a specific set of clients. They often have a tightly-defined focus upon a selected category (or, in the case of larger firms, dedicated practices) including industries such as healthcare, technology, financial or other specific specialties.
Some agencies enhance competitiveness by drilling down even deeper and building sub-niche expertise within specific industries. For example: A healthcare agency might have a Medical Device Practice and then build expertise within that practice in disease states. So, when they pitch for a device within diabetes, they bring to that pitch deep healthcare landscape, device landscape and disease landscape expertise.
This level of specific depth of knowledge is VERY competitive.
There are also agencies which differentiate themselves by offering a specific and valuable service such as change management, IR or M&A-related communications. Importantly, all of these agencies are very good at building their reputations within their target prospect universe through effective marketing.
How to effectively differentiate your firm.
If your agency is small, it should first have a narrow, strategically-defined focus on the categories and clients you are most qualified to serve. As you grow, you can then broaden into other areas via new practices or deeper services such as creative or digital.
Everything you do should then support your position as a strategy-driven firm with a deep understanding of your chosen target revenue streams. This type of positioning starts with developing and seriously investing in deep IP, productization and thought leadership which proves your expertise.
These are the core drivers of differentiation… and in demonstrating that your agency has what it takes to truly be a strategic partner to clients and not simply just another commodity firm.
And that’s not all, not by a long shot. Effective differentiation and higher profitability also require:
Building a powerful senior team who
a) have strong relationships with senior officers at your clients and prospects and
b) will lead account management.
Developing dedicated teams within the same category knowledge.
Being adept at using research (including funding your own studies) to better understand the issues, attitudes and motivations of target audiences which will form the basis of communication strategies.
Also investing in growing your reputation among your target prospects.
Attracting a strong client roster which demonstrates your differentiation and also your ability to manage high-profile client engagements.
Proving the outcomes of your efforts and providing quantifiable ROI to clients.
Following a pricing model akin to management consultancies.
Avoiding write-offs.
These are the traits of differentiated, strategy-led agencies. There’s no reason why your firm can’t be one of them.
The more you differentiate, the more you can be paid for what you contribute.
The path to increased profitability also requires
having a robust pricing model in place and
closely managing that model.
Your pricing can be increased in line with clients’ growing perceptions of the agency’s value.
At a minimum, an effective agency pricing model contains four critical elements:
Carefully constructed billing rates that are in alignment with billable targets and salaries.
Markups on client expenses and travel.
Surcharges on fees to cover IT costs and subscription services.
Commissions on digital advertising buys.
Your model should also ensure that you have the right to increase rates annually per your client/agency service agreement. In particular, as the agency staffing mix skews more senior, you should increase the billing rates for those people even more (or profit margins will fall).
Finally, the pricing model must be closely and actively managed as a core responsibility throughout the agency. This requires a detailed client budget process, thorough billing review and proactive management of capacity and staff allocation. There should also be weekly and monthly planning updates of the staff’s progress in meeting their billable targets.
There are additional design/structural elements which need to be developed.
First, for the leader to be successful, the billing target for senior leaders must reflect the non-client-related responsibilities that you are assigning to them. For example, networking to generate referrals, writing marketing content, building intellectual property and other important tasks all require time to do well. Therefore, the billable target should be set accordingly. Depending on the level of the responsibilities assigned, a senior leader may only be 50-65% billable against a 1,750-hour standard billable year target.
Second, senior leaders will need the right staffing architecture under them so that their 50-65% of billable time is worked at their highest and best use with clients. This would include high-level client strategy, relationship management and ensuring that client programs are achieving the expected results. It’s often helpful for the senior leader to have a dedicated VP (or more) depending on the revenue level so that the leader is freed from doing too much tactical work.
Third, the financial processes that protect the model include managing every level of staff to hit their billable targets. This is accomplished through tight staff allocation in the first place, monitoring process and reviewing all client draft invoices for mission creep (or extra client requests that should be billed over and above the normal program billing).
Prosper Group can help you to differentiate your agency and achieve higher profitability.
Based on our deep experience in helping a wide range of marketing and communications agencies overcome challenges, grow their businesses and increase market value, we know that what we’ve shared here with you today works.
Please feel free to contact us at any time to learn more.
Here’s a deeper look at how to manage your agency for premium profit.
We’re here to help you prosper.
Prosper Group exists to help the owners of independent marketing and communications agencies achieve their ambitions and maximize the value of their life's work.
Our team of former agency leaders and owners focus their deep experience on implementing proven proprietary methodologies across our three practices of agency performance, owner exit planning and M&A transactions in order to drive owner and agency success.
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