Can You Survive the Worst?
If you’re a movie buff then you have probably seen The Perfect Storm starring George Clooney and Mark Wahlberg (Marky Mark). If you happened to miss the movie, it is about a fishing boat captain convincing his crew to go out on a late season expedition that takes them out to sea farther then they have gone before, risking their well being for financial gain.
I think most know how the story, or at least the movie ends. The vessel gets caught in the perfect storm and gets submerged by a rogue wave that destroys the boat and the crewmembers do not survive.
The point of this intro is not to rehash a love for George Clooney, but to spark your thoughts on how your marketing agency or any business is currently structured. If you have seen the movie then you know that Clooney (Cpt. Billy Tyne) convinced his crew to start the fishing trip extremely late in the season strictly for financial gain, then he makes an even riskier decision when he decides to go where the Andrea Gail has never gone before. The Captain puts the boat and crew at a deeper risk for better fishing.
As an owner of my own marketing agency I often think of how I should lead my team and what my responsibilities are to protect the well being of the company and my staff. To be honest, this is the primary goal and concern. My business partner and I have always sacrificed ourselves and put our employees first. After all, if we make a bad decision they may not be able to make rent, a car payment, or put food on their families table - especially if we are chasing the big fish and don’t land it.
The Big Question – Where to Start
Start by evaluating two aspects of your business – Client and Revenue diversification. Many times, we think these are tied together and they may be currently, but we need to evaluate them separately to ensure true diversification.
Client diversification is looking at all aspects of your current client base.
Industry – Are all of your clients based in one industry or are they spread across multiple industries? Being locked into one industry means that your revenue streams will be impacted if this industry takes a turn for the worse.
Company size – Are all of your clients a similar size?
Your services – Do the services you provide on a recurring basis remain the same or do you differentiate services between your clients?
Revenue model – Are you project-based, retainer-based, or both?
Client investment - What resources are you investing into each client? Can these resources be used for multiple clients if you lose a big one? Are you tied into long-term contracts?
All too often we see that marketing agencies learn to service a specific industry and don’t diversify. Well, what happens when that industry falters? Your agency might be the authority in a specific industry, but you must diversify and branch out into new verticals to ensure longevity.
The second component that we see is investing too much into one large client. This includes staffing to service the client, resources, software packages, and even office space. What happens if you lose the big fish to a rogue wave as the Andrea Gail did? Do you have a pipeline of clients ready to onboard? Are you prepared to replace the large client with multiple smaller clients from a staffing and profitability standpoint? These are all questions that should be answered today so you can iterate quickly.
Revenue diversity is critical to not only create a pipeline, but for growth. If you are a project-based agency, you are very reliant on your sales team month over month to bring in new projects and revenue. If you are a retainer-based company, the sales cycle is typically longer than that of a project-based company. If you lose one big client you may not be able to backfill the lost revenue fast enough without a negative impact on the company.
The key to diversified revenue is to have both, but most importantly don’t allow one client to make up more than 20% of your overall revenue. I know this is easier said than done when a big client is ready to close and will add 35%-50% to the bottom line, but think about the ramifications if it doesn’t work out. I am not saying don’t close the big client, but if you do then you really need to manage the internal resource allocation well, and make a concerted effort to diversify after you have taken them on for long-term stability.
Plan on Losing the Big Fish
If you go through this exercise of evaluating your clients and revenue then you can formulate a plan of action. If you do have a large client or two that make up large percentage of revenue, I would strongly advise you to plan now for not having that revenue at some point in the future. This is an emergency plan that will keep staff employed, the company afloat, and the lights on so you can continue to service your smaller clients.
If you are like us and provide a full suite of inbound marketing services to the majority of your clients, the fix is very easy. Start breaking down your services based on category and offer them individually. Instead of having three inbound marketing packages that consist of SEO, Blogging, Social Media, Lead Generation, and Graphic Design, break them down into stand-alone service packages that you can offer at a lower price point while maintaining your profitability.
If you are a project-based model, the process above works in reverse. Package multiple services together to create a value proposition for ongoing monthly services that you can sell in 6-12 months agreements. This is what we call an MRR Model – Monthly Reccurring Revenue - that will allow you to plan for your growth and better project your monthly, quarterly, and annual revenue. Having this revenue pipeline will also allow you to easily manage your growth and hiring stages more efficiently for new staff.
Look, at some point we all lose a big client. It is inevitable. The question is – are you ready for The Perfect Storm?
I would love to hear your feedback below in the comments.
image credit: victor habbick/freedigitalphotos.net