With the COVID-19 pandemic decimating marketing and PR budgets this spring and onward, many agencies are reconsidering something they often took for granted: the business scaling strategies they have relied on for many years.
Case in point: Many brands haven’t followed the rule of thumb to never have more than 20%-25% of their adjusted gross income depend on a single client. It’s a good way to dodge risk — and one that, until recently, was easy to overlook. Now, however, the businesses without diversified income streams also lack adequate safety nets. Being dependent on one or two clients makes the financial strain of client churn harder on them, and their owners often rely on lines of credit that place them further into debt at a time when they want to reshape their organizations. Worse, competitors with cash to spare are eyeing those unfortunate agencies as potential takeover targets.
Other businesses are stuck in a negative cash flow cycle as their clients stretch payments out for longer and longer to keep cash on hand. And most importantly, agencies are regretting how much weight they’ve gained over the years with no solid strategy in mind. (After all, how many agencies’ marketing strategies have revolved around simply adding talent and services to fulfill one-off client demands?)
As we consider how to grow a business during the most significant economic downturn in recent history, we must redefine the traditional metrics of growth: revenue, client acquisition, and employee headcount. Those metrics make sense when the economy is humming along, but they’re unreasonable when client budgets are contracting and situations are shifting faster than many can keep up. During a downturn, growing your agency is all about becoming more efficient and getting better at delivering your services.
With no clear end in sight to the COVID-19 pandemic, adapting now means your continued resilience in an increasingly uncertain future. Here are a few things to consider when mapping out your business’s scaling strategy for leaner times:
Invite your entire team to “straight talk” sessions where you can discuss the economics of your business and potential response plans. Your first session should cover the state of the agency, and for good reason: Your team members are likely anxious about what’s to come, and they need an accurate read on the current state of your business.
Subsequent sessions can revolve around very specific matters such as client retention, marketing ideas, and cost-reduction plans. Although many of your employees will appreciate having their questions answered in this forum, it’s also important to provide an opportunity to schedule one-on-one conversations, as many people will want their questions answered in a private setting. If your business’s outlook is dire and layoffs are a possibility, it’s even more important to be clear and honest about this and to help employees plan for that scenario. Remember: They (and often their families) depend on the income you provide.
Likewise, the more you integrate open, honest communication with your team into your agency’s strategy, the easier it will be to be just as honest and open with your clients. Has this pandemic changed their business model or the way they approach their market, for instance? They’re experiencing similar challenges, and spending quality time collaborating with your clients will help you understand how to serve them better.
To further support transparency, you can get your entire agency comfortable with scenario planning.
You might have been forced to take a hatchet to your own budget as your clients have stripped theirs — and it’s OK if you’re unsure of how to move forward with a revised budget. In fact, work to embrace that uncertainty. Scenario planning is about building multiple plans around different assumptions about the future. In particular, scenario planning allows you to:
1. Develop an understanding of the variables that drive your business.
2. Prepare for uncertainty.
3. Expose blind spots in your business.
During an economic downturn, it’s especially important to focus on scenario plans that impact cash. An easy way to do this is to focus agency brainstorms around specific what-if questions. These types of questions provide an early warning signal for an incoming cash crunch:
• What if we lose our largest client?
• What if that client requests a fee reduction?
• What if that client wants to extend payment terms to net-45 or net-60?
• What if we completed a round of layoffs?
• What if we increase our marketing investment?
• What if we invested non-billable hours with current clients?
When you can, lend your expertise to clients during conversations with their own internal departments. (Of course, this expertise should be given free of charge.) You might be able to help those internal departments see a new solution to one of their problems. This also has the benefit of providing insight into new issues you could solve for your client individually. As you strengthen your relationships with your partners, you’ll learn how to refine your offerings to grow your agency more efficiently and strategically.
Likewise, give clients actionable marketing data to work with. One of the biggest needs your clients have right now is for expertise that can help them respond and adjust more fluidly to changing consumer needs. Your agency can play a key role in this by providing them with detailed marketing data you’ve collected about their consumers, audiences, and overarching markets. If you volunteer this data as a value add, you’ll be able to position yourself as an essential partner in their business operations and strategy.
Most brands’ marketing and PR budgets certainly aren’t what they used to be, leaving little wiggle room for the items they often took for granted. That means your own business’s scaling strategy will have to change in response. With these tips, you can respond in a way that both strengthens your team and enhances your client relationships. You’ll also be able to grow your agency into a highly valuable asset for all of your stakeholders.