Protect Your Agency by Being Better Prepared for Economic Uncertainty - Part 2
Expect uncertain times for at least the next quarter or two. This is the second of two articles which share our thoughts on how to be prepared to handle the storm.
In Part 1 of this two-part series, we discussed how the stock market, tariffs, inflation and other factors have created a very uncertain business environment for clients. The result is a tougher path to revenue growth for agencies in 2025.
Also in Part 1, we outlined specific steps which agency owners should be taking now (or at least actively considering) to protect their firms during these more difficult times including:
Don’t panic. Remain steady in your thinking and planning.
How (and where) to cut non-people costs first.
Five strategies for then cutting people costs if this becomes necessary.
Developing and managing a pricing model to drive higher operating margins.
How to let people go if there’s no alternative.
Further, we reviewed in detail the first three of nine other steps to help you through uncertainty. The nine steps are:
Strengthen your client relationships.
Sharpen your agency’s brand proposition.
Increase your marketing efforts immediately.
Make sure your senior team is working the sales process… and that every pitch is the very best it can be.
Upgrade talent (since uncertainty can actually help you do this).
Adopt and faithfully execute best practices including Client Engagement Letter and Billing.
Tighten up financial management.
Ensure a strong relationship with your banker.
Remember that uncertain times present opportunities for your agency as well as challenges.
Review the Part 1 here.
Now let’s get into the details of Steps 4-9.
4. Be Pitch Perfect because every opportunity will now matter even more.
Ensure that the agency and its leaders are visible in the markets you serve. Also ensure that all leaders are aggressively networking their referral sources.
Then carefully examine your sales process because every opportunity to close new business will be even more important than before. During uncertainty, there will be fewer leads. So you’ll need to increase your win rate if you hope to keep growing.
How effective are your pitch process and presentations, really? Do your leaders follow the approved process for every pitch? After each pitch (win or lose), do you conduct an in-depth debrief so that you’re continually refining and improving over time? Are you staying in touch with the prospects you didn’t win so they can find you the next time?
Before every pitch (the earlier, the better), are you finding influencers or board members at the prospect who can help drive the decision to your agency?
5. Uncertainty can provide an opportunity to upgrade talent.
Many highly-paid senior leaders will be cut by the larger firms during difficult times. While other agencies are hunkering down, you can increase your competitiveness by cherry-picking from among the best of them. By zigging while the other guy’s zagging.
Now is the time to increase your commitment to employee training to enhance competitiveness through:
In-depth teaching and ongoing coaching on your agency’s core processes.
Enhancing key skills including public speaking and pitch deck development.
Improving the agency’s infrastructure.
Expanding knowledge of the business principles for running a successful communications firm.
It’s also the time to weed out under-performers. 10% of the people at just about every agency can be let go without negative effects. Invest this money instead in adding an A-list performer or two (or simply let it fall to the bottom line).
Beware of decreased workloads during these times. Idle hands can be morale killers. Keep your team busy with client work or important internal projects. Consider developing new IP, thought leadership, ever more engaging sales tools, marketing content and other growth-oriented initiatives.
However long this may last, use the time to help every person in your agency (including you) become better, smarter and more effective.
6. Protect your profit, people and future with a strong Client Engagement Letter and a “Best practices” billing process.
For every new client (and wherever possible for existing clients), we strongly encourage you to clearly define the client/agency relationship, expectations, compensation and workload in carefully-crafted documents including a Client Engagement Letter.
At a minimum, the Client Engagement Letter should include:
Billing type, mark-ups and payment terms.
Reasonable termination period. (Push for 90 days. If you can’t get that, try for 60, 45, 30… anything is better than no time at all.)
Define the compensation that will be paid to you during the termination period.
Indemnification.
Protecting your staff vs. poaching by clients.
Ownership of materials.
Get as much money as you can upfront so that you’re working with client funds and not your own.
Now is also the time to ensure that you’re following best practices for billing. This will further bolster operational efficiency and profitability by:
Fighting scope creep.
Improving cash flow.
Identifying where over-servicing is occurring.
Uncovering possible staff performance issues.
7. Tighten up every area of your financial management.
Start running your firm for maximum profit NOW. Profit protects you during tough economic times. Losing a large client at an agency operating at a 10% profit margin can be a huge threat to survival. If you’re operating at 35%, losing that same client is a hiccup.
Here are four keys to increasing profits even without adding new business:
Your pricing is designed correctly.
Client budgets are calculated accurately.
Maximizing the billability of each person and team.
Eliminating write-offs.
You should also be building up your cash reserves. Cash is king in an uncertain economy. You can increase cash by:
Pre-billing clients for large expenses.
Reducing payment terms to vendors.
Getting billing out more quickly. Every day lost impacts cash collections.
Timely collection of all accounts receivable.
Reducing non-people operating expenses to the degree possible
Finally, as needed, align your actions and operations with the agency’s “line of defense” where the sequence is:
Reducing profits.
Salary reductions for agency owners and senior leadership.
Dipping into lines of credit/debt.
Bankruptcy.
Prosper Group has the tools, team and CFO-level financial expertise to help you do all of these things.
8. Make sure you have a strong relationship with your banker.
Stay in regular contact with your business bankers. Keep them current on the agency by meeting every six months to review your financials, strategy and news (including any business wins or significant new hires).
The closer the relationship with your bankers and the more they know about the firm, the more likely they’ll be there for you when you need them.
9. Remember that uncertainty presents opportunities as well as challenges.
After you’ve protected your agency as recommended throughout this piece, don’t forget to take a close look at exciting opportunities that may arise during tougher times. Such as:
Since M&A prices may go down, this can be an excellent time to acquire another agency. How and where would an acquisition help you most? Which agencies could provide that?
As noted above, this can also be the right time to recruit game-changing talent that would often be unavailable in a more stable economy.
Further, consider building new offerings in creative, data, strategy development, content and other in-demand areas.
Prosper Group is here to help you succeed.
We exist 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.
To learn more about us, please visit our Services page
