While many agency owners believe that recurring revenue is the answer to all of their problems, the reality is that a large number of agencies become quite successful by generating most of their income from individual projects.
However, project work comes with a unique set of challenges, especially as it relates to dealing with clients who may end up inadvertently delaying completion of a project.
The unpredictability of resourcing and revenue that these delays can create mean that agency owners need to find ways to account for that.
Chip and Gini offer tips for improving cash flow, minimizing delays, and increasing your flexibility to handle the ebbs and flows common with project-focused agencies.
- Chip Griffin: “People shouldn’t turn away from project-based work simply because of the challenges.They just need to be thoughtful about how they go about doing it.”
- Gini Dietrich: “As the agency owner do not say, well, I’ll just do it myself.”
- Chip Griffin: “You need trip wires, fail safes, whatever you want to call it, to make sure that you don’t get In a bind because a client didn’t get you what you needed in a timely fashion.”
- Gini Dietrich: “Hope is not a strategy.”
The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.
Chip Griffin: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.
Gini Dietrich: And I’m Gini Dietrich.
Chip Griffin: And I’ve got a real project conundrum for you right after this.
Gini Dietrich: Conundrums such a great word.
Chip Griffin: I, I, I really like conundrum.
Gini Dietrich: You like that word? Yeah. Yeah. It’s a really good word.
Chip Griffin: I don’t know whether it was the right word here, but That’s okay. It was, it works as, as every regular listener knows, I just make this stuff up literally on the fly Sometimes it literally works and sometimes it doesn’t.
Last week it did not work at all.
No, no. But you know, it is what it is, and it just adds to the adventure of this recording. That’s right. And really, as we said before we do this recording for ourselves, the fact that listeners come along for it is that’s just an added benefit. So let’s talk about agencies that rely mostly on project work.
And there’s all sorts of different kinds of agencies that might do this. You know, might have web development agencies, for example, design agencies, even some PR agencies, particularly if they’re more crisis focused or something like that, might have either all or a large chunk of their business in project work.
And I think this creates some unique challenges for agencies to think about because everything from cash flow predictability to resource planning to, I mean all sorts of different things are, are much more challenging when you are project-based. But I don’t think that people should turn away from project-based work simply because of that.
They just need to be thoughtful about how they go about doing it.
Gini Dietrich: Yeah. And, and I will say from my experience, one of the biggest challenges that we have with project work is they’re usually milestone reliant. So you hit a milestone, you get a check, right? That that’s Or an ach what, however you get paid.
We don’t get paid check in checks anymore. But you, you get money. You, you send a bill, they send you,
Chip Griffin: I take cash in envelopes, small unmarked bills. That’s, that’s my preferred payment method.
Gini Dietrich: Gold bars. But that, that’s one of the biggest challenges because if the milestone is missed because of something the client has done, like they’ve, they’ve missed their deadline or they’re slow to respond, they haven’t gotten you what you need now, you’ve missed your chunk, your chunk of payment that you’re relying on to be able to pay your team and do all those things.
So I think there’s, there are a lot of challenges and project work that we should, we can and should talk through today to help everybody figure those pieces out.
Chip Griffin: Yeah. And, and my first agency back 20 plus years ago probably had about two-thirds of the revenue was project-based. Wow. Part part, part of that was web development type things, which again mm-hmm.
And the other part was research projects that were either corporate or political research. Interesting. That, that had you know, basically a defined beginning and end and, and all of that work was milestone based. And it, it certainly creates some real challenges from a cash flow perspective because sometimes the projects slow down for reasons that are entirely out of your control, right?
And so one of the things that I learned was you had to have trip wires, fail safes, whatever you want to call it, to make sure that you didn’t get In a bind because a, a client didn’t get you what you needed in a timely fashion.
Gini Dietrich: Yeah. So you, before we started recording, you had a couple of really good ideas on how to set up those tripwires. So what are they?
Chip Griffin: So I, you know, I, I, one of the, the easiest is to do a clause in the contract that says, you know, payment number two, well, payment number one should be due before you start any work. And that, yep. Anytime you’re doing a project work, you need to get some cash upfront. Yep. Yep. Before, before a, a single minute of time is spent on it.
And, and make sure you actually receive it, because I, this is the first mistake I see in project work in particular, where someone will get started before they have cash in hand. And that first payment tells you a lot about how timely the client is going to be with payments so that you can figure that out and figure out if you need to to start chasing right away or if they’re gonna be nice and reliable and easy to deal with.
So that’s point number one. Make sure you get cash up upfront and, and the more cash the better. In general, I am a fan for most projects, depending on the length, but most projects it’s suitable to have at least 50% upfront.
Yeah, I agree with that.
And honestly in, in the work that I do now, if I’m doing project work, I just do a hundred percent up upfront.
Period, end of story. No, no installments pay once done, that’s it. But for larger, longer projects, you know, you might have to break it up and, and in those cases, if you get the 50% upfront, great. Now what you need to do is for payment two or three, and I wouldn’t generally have more than two or three payments because there’s really no reason to break. I’ve seen these agreements where it’s like, and the next 10% and the next 10%, and the next 10%. Oh, no. Geez. I mean, that’s a nightmare for everybody involved a nightmare. So, and, and you don’t want to have to, you don’t wanna have to do a lot of paperwork on both ends, right?
Because that requires the more payments that you make, the more your team has to spend creating invoices, the more time the client has to spend in processing those invoices. And if ironically, if it’s a larger client, that’s a bigger problem. Yep. We oftentimes think, well, larger client, you know, we gotta give ’em more favorable terms.
No. Larger clients just take their money because their accounting departments are generally ridiculously slow to process any paperwork. So if you’re breaking them into too, too many, too small chunks, it, it’s not worth the, the effort. So, so on those second and third payments just put in there it is due when this milestone is reached or when this date is reached, and that date can be a date certain on the calendar or it can be a relative date. Dates from the last milestone reached, dates from the start of the project, you know, days from the start of the project.
Some, some sort of, Calendar, time-based trip wire that will allow you to make sure that you’re getting paid no matter what. And of course, if you are the reason why the, the project is behind, don’t send that invoice until you actually get caught up.
Gini Dietrich: Get caught up, and then send that invoice. Yeah, I mean, I imagine especially for web development firms, this is a big deal because huge, I mean, they have a beginning, a middle, and an end and, and typically, A website gets delayed because the client. Because the client hasn’t submitted content or the client hasn’t, you know, they haven’t done their part.
And I imagine that’s a pretty big deal I’ve seen in my own experience, seeing that happen where, you know, we’re, we’re working with a web firm and working with the client together and the client, the client’s not providing what they need to be for us to be able to do our job, to be able to give to them.
And it becomes this huge circle of like never ending, never launching kind of thing. And that’s. Yeah, I, I agree with setting in dates, so 50% upfront, and then the other do another 25% after 30 days or 45 days or whatever happens to be. And then of course, the, the rest of it at the end. But I like the idea of, of date triggers there.
Chip Griffin: Yeah. Honestly, I would go even higher. I, I, I think that final payment should only be about 10%. Oh, okay. Because the, the, the, I like it, at least for WebDev work, right? Because, yep. Essentially that last payment is just, you know, kind of making sure that all of the little details are all buttoned up. I like it.
The, there’s no reason to leave large chunks of money outstanding and, particularly with WebDev work, 99% of those cases are indeed on the client side. Usually it comes down to they didn’t get you feedback or content. Right that you need. Yes, they generally start at a pretty good pace, but then they slow down and so, you know, you wanna make sure that it’s continuing to move forward.
Now, I’ll be honest with you, you’re still gonna have a hard time getting those payments, so you have to be pretty aggressive in chasing them because they will say, well, but we, we still haven’t gotten this done. And that’s your opportunity to say, yes, but.
so now I think the other thing we should talk about is resource planning, because it’s not just about payments, it’s also about understanding.
You know, how you can allocate your team when it’s project-based. And so, you know, you need to have more flexibility in your team. Something that, that you and I preach all of the time on this show, that, that having flexibility by having a hybrid mix of employees and contractors can be important, but I think even more important when you’re doing project-based work.
Gini Dietrich: Yeah, I think, I mean, I’m a big fan of, of using contractors, especially in this kind of situation. And you mentioned earlier crisis work. So we do quite a bit of crisis work and. I have my core team of three to three to five people that we use internally, and then I have a core, a team of contractors that I go to time and time again for that work.
And it’s nice because they can, those contractors can come in and out as, as the, you know, the, the work increases and then decreases. And I don’t have them on the payroll, but it’s a group of people that I have worked with over the years and I have really begun to, I really trust and have built really good relationships with so that we can work together cohesively as a team, as if we were all together internally.
So it has taken me years to get to that point, but we’re certainly there now and it’s a really great way to have that hybrid approach so that when we’re not working on a crisis client, we’re working with a crisis client, the contractors go and do their own thing and then when we are, they come back.
Chip Griffin: Yeah. And I, I, I think in addition to that, you also need to, to think about how you communicate with your clients mm-hmm. When you’re doing project work. And so you need to be realistic about what you can provide, and you need to build yourself more cushions into your schedules that you give them. So that.
You know, as, as one project slows down and another one speeds up, you’ve got a little bit of wiggle room, which also means you need to price that in, right? Yep. If you know that there’s going to be uncertainty and you know, you may need to tap into contractors to to fill the gap, and those contractors are more expensive than your in-house employees.
Yep. Make sure you’re factoring that in when you’re putting together your cost budgets. Yes. And so you can communicate that right up front to the client. This is what it’s gonna cost and you know, here’s our, our timetable. But build yourself that cushion so that when they do inevitably get behind, you haven’t found yourself in a bind meeting some ultimate deadline that the client may have.
Gini Dietrich: Yeah, and I think there’s a couple other things where that could become an issue. One is where, let’s say you have two or three clients project with based clients. That have staggered, have started in a staggered motion like one every month or so, and then all of a sudden they all get behind and they all come back together and come back to you at the same time.
Now you have three clients that you’re trying to finish projects for, and that’s important to, to consider too when you’re resource planning and creating your contracts to make sure that everybody stays on on task because that can really hurt you as well.
Chip Griffin: Yeah. And, and when you have firm immovable deadlines, that’s something you really need to factor in.
So let’s say that you’re an agency that does a lot of event work. Obviously the event’s taking place Yep. On a date certain, yep. It does not move. Right? And so you need to make sure that you’re working with your team very early on to map out when do we need all of these things to be completed? When do we need this feedback?
Build in that cushion for what you ask, so that if you ask for the client to give you something 30 days out, you know, maybe ask for it 40 days out so that you still have that wiggle room. And, and you’re not caught playing catch up. So the, you know, these, these firm deadlines are in, in some respects good because it can be a forcing action for the client to get you what you need.
At the same time, it can also be an opportunity for you to get egg on your face because the event is taking place on that date. If you do political work, the election is taking place on that date one way or the other. So you need to make, it’s a shareholder meeting. If you’re doing investor relations work, those shareholder meetings happen at a specific date on the calendar.
You gotta have all your ducks in a row for that. So make sure if you have immovable deadlines, that you’re planning appropriately. And so you need to do much more detailed planning than you might on a flexible end date project.
Gini Dietrich: I hope that none of our clients are listening to this, but I always, always, always build in cushion on deadlines.
Always. You should, because nobody ever delivers on time, ever. And so I always do that even on, even on retainer work. We build in extra time.
Chip Griffin: Oh, well, and, and it, I mean, it, it goes to, you know, even when the clients aren’t behind, you know, this goes to something I think Donald Rumsfeld said when he was Secretary of Defense, he talked about the known unknowns and the unknown unknowns.
And so, you know, the, the known unknowns here is, is the, Client may be delayed in getting back to you, but then there’s all sorts of other things, the unknown unknowns that can come up. You know, you can have a team member who’s out sick, you can have a collision of different projects that weren’t supposed to be colliding.
Yep. And, and speaking to that, by the way, don’t accept projects that you know are going to collide. Right? So if, if you do not have the bandwidth to do it, don’t, and you’re an events focused agency, for example, don’t take two events that are in the same week. Yeah, unless you’ve got the bandwidth and you know, you can do them simultaneously, just don’t do it.
It’s better to turn away the business than do a bad job and get a bad reputation.
Gini Dietrich: You know, I think that we can take a page from solopreneuers in this aspect because they are one, one person and they have only a certain amount of time, and so. Many of the contractors that we work with will say, happy to do that, but I don’t have time until two weeks from now or three weeks from now.
Yep. And so I have to, you know, from my perspective, I have to remember that and, and work that into our timeline. But also it’s a good reminder that they can’t just drop everything and help us when it’s, it’s time. It’s time. So I think that’s a really great lesson. That we can all take into account because I think agency owners in general are like, oh yeah, well, we have the team and we have the time.
It’s not a big problem. No big deal. And we don’t think through those things. So take a page from a solopreneur who is like, I can do it, but I literally can’t until three weeks from now.
Chip Griffin: Right. Yeah. Agency owners can very often be guilty of magical thinking. Yes. And, and, and, and they believe that their teams are even better than they actually are.
And we know your teams are great because I’ve seen it in all of your credentials decks,.Our teams are different. They’re the best ever. Okay, cool. Whatever you, there’s still limits to how much you all can do, how many hours in a day you can work. That’s right. So be realistic about those. But on the flip side, the other thing that I see is, Agency owners who are counting their chickens before they’re hatched.
Mm-hmm. And they sit there and they say, well, we can’t take this on because we’ve got this client that’s probably gonna sign. No. Has the client signed? It up until the point that you actually have a signed agreement it didn’t happen. Yep. It just didn’t happen. And so to, to turn away some other piece of business or to slow something else down because you think this is coming in.
Just don’t do that. Because things will change. Maybe that deal does come in, but maybe something else gets slowed down or canceled or something else. So don’t, don’t be going and making decisions based on what might happen a month, two months down the road. Do it. What, what you know is going to happen, what you’ve already booked, what contracts you have signed.
That’s how you need to do resource planning, not based on, you know, Dreams, hopes, aspirations, or anything like that. That that’s how you end up looking at your bank account and saying, oh, oh, oh dear. Oh boy.
Gini Dietrich: Hope is not a strategy, as we’ve learned. That’s really good advice. That’s really good.
Chip Griffin: You know, we’ve all done it from time to time because you always sit there and you’re like, oh, I’m having this great conversation with this giant client.
Yep. I know it’s gonna happen. And Uhhuh, you know, and maybe it does happen, but sometimes it happens a few months later than you think it would for whatever reason. And so my experience is that many of these problems just end up sorting themselves out. So I don’t get to wound up about them in the moment.
Now when you get the ones where you, you do have the collision and you do have a resource issue, that’s where you need to have the flexibility to tap into other resources in order to get it done, even if it may be at a lower profit margin because you know it, it just came together at exactly the wrong moment in time.
It is what it is. Sometimes you do have to, to spend to get the, the fix in place.
Gini Dietrich: And I think, and I will say that I have been guilty of this and I know that some of my agency owner clients are guilty of this. As the agency owner do not say, well, I’ll just do it myself. Yes, because that may be true, but now you’re working a hundred hours a week and can’t figure out why you can’t get out of client service and why you aren’t running your business and all the other things that we talk about on this podcast.
So don’t, do not, do not say, well, I’ll just do it myself.
Chip Griffin: Especially if that’s followed by, I’ll just do it myself because then it won’t cost me anything. Cause I hear that one you right. No, no. It cost you a lot. You may not have had to write a check to someone else to get the work done, but it does cost you, it absolutely 100% costs you when you spend your time.
Yeah. So do not look at that is, oh, and the other, the, the other way I hear that expressed is it’s all profit if I do it. No, its not. Not, it’s not all pr. Nope, it’s not. No, no, no. Not all profit. Nope. Not all profit. You totally do not understand what profit is and you should go back to our episodes that we would talk about that because it is very, very different.
Gini Dietrich: Yes. So magical thinking. Nix. Thinking you can do it yourself. Nix. Thinking you have all the time in the world and your team has lots of, lots of capacity. Nix. Do your resource planning. Ensure that you have team, both team and contractors to help you and really think about how your contracts are set up and you should be able to, to manage project work just fine.
Chip Griffin: Yeah, because project work can be great. It can be very profitable, so you know. Yeah. As long as you’re planning for it effectively, you can be in really great shape. In fact, I think the best model for any agency is a mix of project-based and retainer-based revenue. I think having, having a combination of the two gives you a little bit of the best of both worlds.
So just just plan accordingly.
Gini Dietrich: Plan accordingly. That’s great advice.
Chip Griffin: And you should plan to listen to the next episode of the Agency Leadership Podcast. But that will bring an end to this episode of the Agency Leadership Podcast, I’m Chip Griffin.
Gini Dietrich: I’m Gini Dietrich.
Chip Griffin: And it depends.