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Agencies

No-Pay Client: Getting Stiffed for $23k (How to Avoid)

I lost $23,442 with a really bad choice.

That was money I needed, because this was my first business – and my bank account was running on fumes.

Here’s the bad choice I made, and what you can do if it happens to you –

I did what most businesses do: I delivered to the customer- then sent an invoice, and waited. And waited… Followed up… Waited some more… And again… Until I realized I wasn’t going to get paid.

It’s the worst feeling.

THREE Things You Can Do Right Now to Get Your Client to Pay

If you’ve got clients that aren’t paying, it’s the worst feeling. You’ve done the work, they aren’t paying the bill … And you feel this pit in your stomach like you’ve been robbed. If it’s an ongoing client, feeling like you need to keep working for a deadbeat.

Here are three things you can do right now to get your client to pay:

1. Negotiate New Terms

If the client says they don’t have the cash to pay, your first move should be to negotiate terms.

This could mean agreeing to be paid in installments. If you do this, the key is to get it in writing so you have a paper trail if they stop paying the installments.

The second approach is to agree to take a partial payment – say 60% of the total amount owed. Get it in writing. It’s better to take something than nothing at all.

2. Send a Demand Letter

If the client won’t play ball on negotiated terms, the next escalation is sending a demand letter. This is a formal letter saying you expect payment by X date and will pursue legal action if the deadline isn’t met.

Hire a lawyer to draft and send the demand letter on their legal letterhead for maximum effect. The letter will outline the amount owed and date it was due. It provides written evidence you have formally notified the client and are owed the money.

I find with my clients who are going through this (before fixing it once and for all as I describe below) – sending a demand letter results in successfully collecting payment 30-50% of the time. Not great odds – but better than nothing.

3. Go to Collections

If a demand letter doesn’t work, the last resort is to go to a collection agency. They’ll take a percentage cut of anything they can recover – usually between 20% to 30%.

I find the odds of getting anything vary between 10-30% on average. But collections agencies have legal knowledge and tools you don’t, so they may succeed where you won’t.

Be sure to choose a reputable firm (ideally getting a referral) and check reviews to avoid shady outfits who could make the situation worse.

TWO Things You Should NEVER Do

When trying to get a client to pay, there are two crucial things you should never, ever do:

1. Self-Enforce

Don’t take matters into your own hands by holding a client’s assets hostage, ceasing work until you’re paid, or releasing confidential information. These open you up to lawsuits (or even criminal charges), and make the situation much worse. Talk to an attorney before taking any enforcement actions.

2. Public Shaming

Posting on social media, writing bad online reviews, or telling all your contacts not to work with them may feel satisfying. But again – doing this without first consulting your attorney can create legal issues. Defamation lawsuits are not fun. Keep your fight confidential.

ONE Way to Prevent This from Ever Happening Again

Want to make sure you never have non-paying clients ever again? Here is the #1 technique:

Don’t be a bank.

Banks lend money based on the creditworthiness of the customer. And they charge interest for that. Invoicing in arrears is giving the customer a loan. Unless you’re evaluating creditworthiness, and charging for a loan, don’t do it.

Before starting work, have a written agreement in place requiring that payment is to be made in advance.

I did this with my clients – using ACH (directly debiting their bank account) to get paid before I delivered.

For large projects, require installments correlating with milestones or upon completion of phases – and get each installment in advance. The key is tying payment to progress – never, ever do 100% of the work before getting paid in full.

By getting payment upfront or in installments, you’ll weed out deadbeats unwilling to commit capital and will get compensated as you hit milestones.

Doing this one simple thing ensures you’ll get paid for the work performed. I’ve owned services business for over 15 years and not once had a collections issue once I adopted this.

Client not willing to pay in advance? Not a good client. Move on.

It isn’t fun dealing with clients who refuse to pay – negotiate terms, send a demand letter, and use a collections agency if needed. Then stop messing around and get paid in advance.

September 20, 2023

Innovate Or Die. You Have 3 Years.

My friend John’s business is dead. He just doesn’t know it.

He runs an agency that’s headed straight for irrelevance as AI tools improve month over month.

Growth was decent in the past years. But now it’s stalled.

Should he double down and tweak the existing model? Or is it time for something completely new? New offer? New product? New business?

His dilemma will be yours sooner than you think.

And it could determine whether your business survives the next decade.

When 20% Growth Goes Missing, It’s Time to Innovate

In the early days of your business, growth was easier. You figured out to go from nothing – to something. But lately, you’re justifying that “things are fine” when revenue creeps up 5%.

“If I can just increase 5-10% per year that’s great”

No, it’s not.

That’s a warning sign of irrelevance.

It means you’ve tapped out your existing market or existing offer. Things have shifted around you.

Is your current business model is doomed? Maybe, maybe not. But the writing is on the wall that it needs a serious revision.

You may be able to revive growth by making tweaks, like:

Embracing new technology to enable delivery
Moving upmarket and targeting bigger customers
Tapping into an adjacent niche you’ve ignored until now
Optimizing your sales and marketing process

But incremental fixes may only buy you time. To thrive instead of wither, you may need to shake it up more:

Will Your Model Survive the Future?

Let’s do a thought experiment. Fast forward 5-10 years into the future. Will your current business model still work?

I did this with John, now let’s do this together. Here are some big picture trends to consider:

How customers buy is changing. More buying happens online. Buying cycles are faster. Loyalty is fragile as customers try new options. Are you keeping pace? Are you giving customers reasons to try you for the first time? To stick with you?
New competitors are emerging. Low cost SaaS tools can replace entire services businesses. AI is automating complex tasks. New competitors with novel models will keep coming. How defensible is your niche? Your delivery model? Are you working to disrupt yourself before someone else does it?
Customer needs are evolving. With more options than ever, customers demand superior experiences. They expect transparency and alignment with their values. Are you exceeding these rising expectations?

Be brutally honest with yourself. If your current model stays unchanged, will it survive these changes?

Beware the Risks of Building Something New

Revolutionizing your model with big moves sure sounds appealing. Hey, we’re founders and “entrepreneurial ADD” is part of what got us here.

No doubt the idea of a fresh start and faster growth sounds appealing.

John and I have talked about this often over the years- should he start something else in parallel? Even before the existential threat this was an idea.

But … the grass is always greener. But don’t underestimate the risks and challenges:

Proving demand again – you’re back at square one trying to find product-market fit. You did it once with your existing business – but might not realize how rare that is. Not impossible – but it’s actually really hard.
New competition – competing with others who are further ahead in the new space. You’ve got a whole new set of competitors. Some of us love the fight (I’m guilty as charged) – but be prepared to learn a whole new landscape. It’ll be fun. But complacency isn’t an option.
Sunk costs – shelving existing assets that have taken time and money to build. Kill your darlings. You may think you’ve got a great process that delivers for customers. Fantastic. It won’t work tomorrow. Decide: rest on your laurels and risk irrelevance, or throw away work you did because it won’t serve you tomorrow.
Morale – employees may resist abandoning the model they know. You’re the leader, and leading through change is hard. You might need to look for some new team members who can look to the future.
Focus divide – split attention between old and new can spread you thin. It’s hard to focus on more than one business model, but it’s the price of future proofing. Again, it’ll be work.
Cash burn – financing the new efforts until revenue catches up. Innovation isn’t free. You’ll spend time and money. You can view it as “insurance” for your future business. Do you want to go uninsured and save a little today? Or invest for tomorrow.

This isn’t to discourage you, it’s to make sure you’re going in with your eyes open. Future proofing isn’t free.

But it may be the one thing between your business and irrelevance.

I can’t tell you what to do. It’s your business. Put on your big girl pants and make a decision.

Get Back to Business Fundamentals

I walked through John this thinking model that will help:

Before choosing innovation or optimization, take a step back. Revisit the core of your business:

Where is the proven demand? Forget assumptions. Talk to real and potential customers about what they truly want and need. What gets them excited?
What value are you building? How does your product or service create value in customers’ lives? Are there new ways to expand that value? Other ways to serve it with technology?
What lights your fire? Which path gets you jazzed every morning – improving the existing or creating something new? You’ll need to put in serious focus, so dreading the journey will only make it harder.
Which builds the better asset? Will one business model ultimately be more valuable if you wanted to sell the business? Keep the big picture in mind: building an asset for yourself, not a job.

The right choice will become clear if you ask the right questions.

It helped John clarify and make a decision.

When in Doubt, Run Experiments

Still can’t decide if it’s time to tweak or reinvent? Here’s where we landed with John’s business: run experiments.

Come up with a few hypotheses about what could work.
Test demand for the new model before going all in.
Keep the existing business humming while you validate and build up the new.
Once the new shows more promise, gradually shift focus. Manage both models under one roof, or split into two companies.

Tests and small scale experiments reduce risk. They help you make decisions based on real market feedback.

Sure, it’s messier than choosing just one path. But it boosts the odds you’ll end up on the right track.

The future is scary only if you haven’t planned for it. This is your wake-up call. And I want to give you a worksheet and process for doing this in your business: The Innovate or Die worksheet. Get a copy at the CEO Workbench: ceoworkbench.com

September 4, 2023

Tracking Time Sucks. Embrace the Suck.

Should you track your time in your company? If you run any services business – especially an agency like I did, you might hate the idea.

Time tracking is frustrating, painful, and for most services business owners it’s a major source of unhappiness.

So why should you do it?

I hate tracking time – before I ran an agency, I was a lawyer and there was nothing worse than spending your day watching the clock and writing down everything that I did. So much so that I converted my law firm business model to never track time.

So many years later when I started the agency, I didn’t track time either.

I’m going to tell you why I was wrong – how I learned to love time tracking – and why time tracking will:

Make you a lot more money, and
Make your profitability numbers more believable in an acquisition.

Before we start, though, I want to be clear – I mean tracking time internally for your own records – NOT for clients. As I’ve said a million times, if you run a services business you should NEVER bill by the hour.

First we’ll look at WHY time tracking is important

Then we’ll look at FEARS people have for implementing

finally we’ll go over HOW to do it to be most effective

So first, the WHY

Let’s imagine that every member of your team – at every level – had a company credit card. They’re told that they can buy whatever they need for work, and that’s it. They’re not told how much it can cost, or what’s work appropriate.

And you never look at the credit card bills.

That’s what you’re doing if you don’t manage time.

Your team is getting paid for their time, but without knowing how they’re spending it, you don’t know if they’re making good choices. You don’t know if the things they’re spending time on are actually a good value for you or your clients.

In fact, you don’t know much of anything about how well they’re making decisions with the thing you’re paying for – their time.

This means that if you don’t look at their time, you could be paying for massive inefficiency. You could be under-paying superstars and overpaying for laziness.

I know, you’re probably thinking “I have a sense of who’s good and who’s not” … But I can tell you, having looked at the time in more businesses than I can count, that you’re wrong. You have no idea.

And it’s hurting the team.

So that’s the downside. What’s the upside?

Tracking time gave me huge insight into:

profitability – imagine looking at a dashboard and being able to see that you could make 10% more profit with just a few tweaks.
resource allocation – think about not feeling understaffed all the time because you know how to cover all your client engagements
team effectiveness – imaging being able to reward superstars and keep them from leaving
timing hiring – imagine knowing the right time to hire, and having the budget to do it

When I finally got my head around time tracking, that’s what I got out of it.

But wait, I’m afraid that it’s going to make my staff unhappy. And not only that, I don’t want to track my time.

Let’s talk about the fears of forcing the team to track time

They’ll hate it
They’ll leave
They’ll just lie on the timesheets

Before your mind goes there, remember what you’re trying to create – a great business that attracts superstar employees. And guess what? Superstars LIKE accountability. Sure, time tracking might piss of Lazy Larry who spends most of his day on eBay, but isn’t that a good thing?

Remember that time tracking is a way to have the team get better at what they do. It’s a way to be more effective for clients. It’s transparency so that everyone knows that the whole team is pulling its weight

And that’s ALL things that superstars love. (side note, I’ve got other videos on hiring and rewarding superstars)

Now how about you? Well, here’s the thing. As the owner you don’t have to track time (you can breathe a sigh of relief now). I recommend that you do, as I’ll get to in a moment – but you could make it a requirement just for anyone doing client work (which shouldn’t be you, but that’s a different topic)

So before we wrap up, here’s how to run your billing system to get the information you need from timekeeping. The software tool isn’t important – what IS important is how you collect and use the information.

Here’s the formula in four easy steps:

Before each week, the staff should plan their allocated work time to each account and record it for the upcoming week (based on the metrics you set for profitability per account/service line).
At the close of the week, compare actuals to estimated. This gives a sense for “is the organization learning how long it takes to do things” and “where are we misestimating things due to internal or external efficiency?“. This process was huge for me getting good at time tracking and profitability.
Add the agency as a “client” in your tracking software and have staff bill to that. This does a couple of things: (1) lets you see who is working on systems/processes to make the business better, and (2) makes it so there’s an ‘escape valve’ for where people bill time. Without this, they’ll fill up a 40 hour week by inflating client billable time and that will make your metrics less useful
If you, the owner, are billing time – set up a client called “Client Number One”. You are Client Number One. Time you spend working on the business vs in the business gets put there. Your goal is to increase Client Number One time as much as possible.

Wait – there’s one more thing before you move on to the next thing. And that’s to know that of the hundreds of services businesses I’ve helped, ALL of them that got any scale tracked time. So now is the time for you to decide whether that’s going to be you.

August 14, 2023

How To Double Your Agency Profits Without More Clients

If you want to see how you can double or more the profit in your agency WITHOUT adding any clients, this article is for you.

I’ll show you how I’ve taken agencies – including my own – from 10% or less margins to 35%+ in under 30 days by slicing profits in multiple ways.

Now a disclaimer here – if you run this process correctly you could end up with margins of 40% or more – and there’s a big risk in doing that, so stay to the end to make sure you read to the end to discover why.

In the fourth year of running my agency I had a knot in my stomach from stress. We were getting clients, and keeping them – but my profit margins weren’t that great. In fact, some months I’d go negative.

I’d been scoping each engagement really carefully, but somehow that wasn’t enough.

It was the weirdest thing – on paper I should be making money, based on the retainers we were getting and the cost of my staff. BUT some months I’d actually go negative, and it was completely frustrating

What was going on?

I’m going to show you how I figured it out, and the method I now use to help agency owners fix their margins to double profitability even if they don’t get any more clients. In just 10 minutes you’ll have the 7-step blueprint, and at the end of this article I’ll give you two critical pieces – (1) a surprising reason why you don’t want your margins to be TOO big, and (2) a way to implement in just 30 days even if this seems overwhelming to you.

Before we jump in – there’s one secret that nobody has told you. That is that the blended profitability of the agency is only somewhat relevant until the business gets to scale.

In other words, saying your profit margin is 15% for the whole agency is a nice number to know, but it isn’t actionable.

You can’t DO anything with that number

That’s why I was tearing my hair out one day, and just depressed the next – because I felt trapped. I thought the number was fine, but things still weren’t working

So the first discovery I made is that real gains are made by slicing the numbers and doubling down on what works, and cutting what doesn’t.

This is important – don’t just look at overall profit, and margins. Look at 7 different profitability numbers

If you don’t do this, you’re going to be spending time and energy on things that are making you LESS revenue.

Now here are the 7 things to to analyze:

(shameless plug, if this seems hard I can help you do this if you work with me):

Profitability by Client Some of your agency clients are killing your business. That’s because you might not have looked at profitability on a per-client basis. Understand what the margins are on a per-client basis. You will likely find clients that are losing you money. Fix the economics or fire the client. Identify profitable clients and find how to keep them delighted, and repeat with other clients. Then, only sign on new clients that meet that profile
Profitability by Service Line If you’re like most agencies, you’ve added on service lines – and might not realize that some of them are killing your profits. But, you might only be measuring profitability of the whole business, or by client – but not by service line. Each service line will have its OWN margin. You could be making a TON of profit with one service, and losing on others – but not realize it because it’s blended in one scope. Tease these out and look at each service line separately … Then make sure your bids and scopes ensure profitability.
Profitability by Team Member You might hate to hear this, but it’s real. You might have agency employees who are losing you money. The fact is, some team members are more profitable than others. They might be great people, but sometime employees aren’t as profitable as others. Which ones might depend on if you’re billing hourly, fixed fee, or retainer. Slow and methodical may do great on hourly, but kill your margin on fixed fee. Match the person to the bid type.
Profitability Over Time Did you ever have a month where your profits were really thin, but you had no idea why? Many engagements vary in margin over time. For example, in my agency there was a ton of up front work so margins were low at the beginning, then got high during ongoing delivery. In almost every agency, profitability is lumpy. And expenses can be lumpy too. And collections might get lumpy. Understand when these points are otherwise (a) you can’t plan and resource engagements, and (b) you could hit a convergence where a bunch of low margin work happens at once and tanks cashflow.
Profitability by Season Ever notice how people shop differently during the holidays? During the summer? Nearly every business has seasonality, even if it isn’t obvious – and this applies to agencies too. It could have to do with selling seasons (in my agency, no new clients ever came in late summer), usage seasons, when the clients launch campaigns, etc. Look over the your prior years and find out if certain seasons had different profitability – and make sure to manage cash accordingly.
Profitability by Market Segment I started my agency with the cheapest, lowest-margin segment of the market possible – and it sucked. Until I raised retainers, I didn’t even realize it. I’ll be the same is true for you – Some segments of your client base will be more profitable than others. Could be large vs small customers, certain geographies, certain psychographics of the buyer. If you think every market segment is the same, it just means you haven’t analyzed it.
Profitability by Fee Level Higher total fees don’t always mean better margins. Sometimes big clients can squeeze margins. I’ve seen many agencies that would be better off firing a client that’s 50% of revenue.

You’ve just heard 7 things to analyze – and yes, this is a pain in the ass. BUT, this will make you a ton of money. Do you know how important I think this is? So much so that it’s one of the first things I do with clients because it can double margins in just 30 days of understanding what’s going on.

At the beginning of this article I mentioned there’s a risk if your margins get over 40%. You want good margins – that’s why you do this. But if your margins are WAY too good with one client, ask yourself this: am I delivering enough value? Because if the margins are too good, they might realize they can hire in-house or find another agency. The secret not just good margins for you – but a long term relationship with the client so you get paid a long time.

I get it. This seems hard. It’s easier to just keep on doing what you’re doing.

But if you really want to double margins, either take the time to do this yourself – that’s right, open up your calendar and schedule it – or work with someone who’s done it to guide you through it.

August 10, 2023

Why Adding More Services Could Wreck Your Agency

Expanding your services might seem exciting at first, but it could end up being a costly mistake. As an agency owner, you need to be very strategic about what you offer – more doesn’t always mean better.

The Story of Jim’s Agency Struggling at $1M

Here’s the story of an agency owner I worked with named Jim. His agency was doing about $1 million in annual revenue – but growth had stalled for two years.

Jim’s agency started out just focusing on SEO services. But then he expanded into content marketing and social media as well. After all of that, Jim was frustrated that his agency was only bringing in $50,000 in profit each year.

Recently, Jim had gotten some inquiries from potential clients interested in video production and podcasting services. He thought if he added those services too, he could “soak up additional revenue” from clients.

5 Reasons Why Expanding Services Can Backfire

I explained to Jim that adding more services could easily cost him millions in lost opportunities. Here are the 5 key reasons why expanding services often backfires for agencies:

1. Dilution of Expertise and Market Position

Being a specialist is a unique selling point for an agency. Broadening your services undermines that perceived expertise. It’s like the difference between a general practice doctor vs a brain surgeon – the specialist commands higher fees.

By staying lean and focused, you can make MORE money while taking on FEWER clients.

2. Lower Margins

More services means you need to hire more specialists and managers. If you resort to freelancers, how can you ensure quality? All of this eats into profits.

3. Quality Control Issues

With each additional service, there are more chances for something to go wrong. Since Jim had no experience with video or podcasts, this risked delivering a bad customer experience.

4. Higher Management Complexity

Scoping projects becomes exponentially harder with more service options. Managing capacity and workflows across multiple disciplines is a nightmare.

5. Competing Against Larger Agencies

By expanding your services, you end up competing directly with much larger agencies who already have the systems and staff to deliver those additional services efficiently.

6. Harder to Get Acquired

With a wider range of services, buyers just see you as a portfolio of clients. But as a focused specialist, you’re an attractive acquisition target – they want your expertise!

Focusing on Most Profitable Services

After I explained all of this, Jim understood the pitfalls of service expansion. He was already feeling overwhelmed by his agency’s complexity.

Instead of adding new services, we did the opposite – narrowed the focus to just the most profitable offerings.

It turned out content marketing was not very profitable for Jim’s agency. But SEO and social media had great margins.

Jim stopped taking on new clients for content marketing and directed all sales and marketing efforts toward SEO and social media. He also increased pricing to match this more premium positioning.

The Results: Higher Close Rates & 26% Profit Increase

By focusing on fewer, strategic services, Jim’s prospects saw him as more of an expert. His sales close rates increased substantially, with larger average deal sizes.

Within just a few months, Jim’s agency profits were up 26%.

The key question is – are you going to continue adding complexity? Or get focused, strategic, and make your agency more profitable?

August 7, 2023

Your Agency Margins Suck. Here’s Why It Matters

If your agency is operating at 5-10% margins, you’re just a few weeks from dead.

I talked to three agency owners in the last week, each doing around $1M in revenue, each with margins under 10% (they’re bringing in $100k in profit)

And they AREN’T relentlessly focused on fixing their margins

I’ve seen this play before, and I can tell you something with conviction: two of those agencies won’t be around in a year.

None realize how fragile this is. Just a few clients lost, a slight dip in sales, and they’re underwater

They’ll need to trim staff. Which will destroy morale, and clients & staff will leave

The death spiral will begin

THEY ARE NOT SAFE but also in denial

How do I know this?

Because when I hit $1M in my agency, margins were 40%, and there was a financial hiccup

And if I had been running at 10%, the whole thing would have collapsed

But I didn’t have to fire anybody and made it through

I gave 2 of the 3 agencies the same offer. I’ll give them a strategy to fix margins. If they don’t like the strategy, they pay nothing.

Both had excuses about why now wasn’t the time to fix it.

Here are the excuses I got, so you don’t make them:

“I need to just get more sales”

NO. More sales on a broken model is going to make things worse.

You should count yourself lucky to have a business that hasn’t been blown over by a slight breeze

Sales does NOT fix this.

You’re filling a leaky bucket

“I’m busy fixing X right now” (where X doesn’t have to do with margins)

NO. Every moment you’re not fixing your financial model you are risking the business as a whole.

You might think this is overblown, but it’s not:

Too many people are just assuming tomorrow will look like today

And one day, because they didn’t focus on what mattered the business they poured blood sweat and years into will be worthless.

If you care about your business, your clients, and your team – and your margins are under 20%, this should be your #1 priority. It won’t get better on its own, and more sales won’t fix it.

If you’re not sure how to fix it – get help. Don’t risk the whole business because you don’t know how to fix it. Many of us have fixed it for ourselves and for our clients businesses – get help from someone who’s been there.

August 3, 2023