Just Say No!
[Editor's Note: Many years ago, I was a speaker at a Seattle direct marketing conference. I sat in on a session at which a young Bob Hacker presided. He was articulate and made a lot of sense. Back at a meeting of Direct Marketing Days New York program committee, I suggested Hacker be invited to speak. He became a regular at DMDNY and later at annual DMA conferences. He would always walk out of his session with pockets stuffed with business cards. Many of those inquiries were turned down for the reasons stated below. At the past DMA conference in San Diego, I saw Hacker in action—still very much at the top of his (and everybody else's) game. I'm delighted to welcome him as a guest columnist this week.]
There is a great deal of information out there on how advertising and direct agencies can generate more new business. We're not going to talk about that today. Instead, we're going to talk about growing your business faster by saying no to a new client.
I was founder, CEO and Big Game Hunter for HackerAgency (née The Hacker Group) from 1986 to 2002. During that time, we grew about 50 percent per year. One of the major reasons we could grow that fast is we knew when to pass on a piece of business.
To understand our rules, you need to understand our business model at the time. (This is no longer the HackerAgency business model. It's changed a lot in the last 12 years.)
- We were 100 percent direct marketing. Our singular focus was on creating and managing high-performance direct marketing programs.
- Ninety percent of our profit came from direct mail. If a prospective client wasn't a major mailer, they didn't become a client.
- We would only do programs where we could make our target gross margins. No loss leaders allowed, no matter what the brand or how cool the work might be to do.
- All our work was bid on a fixed-bid basis. If we burned too many hours on a job, it was our problem, not the client's.
By understanding our business model, the rules make more sense. You will have a different business model and that model will generate a different set of rules. Rules are important in the agency world because all agency people, me included, love to chase after shiny new things. The rules keep you from bringing in a shiny, new thing that can hurt or destroy your business.
Rule No. 1 — A new client had to have a substantial direct mail budget. We never asked for the budget number. Often the client won't tell you and asking the question was rude. In discovery, we'd ask what the direct marketing cost-per-sale was. Later on, we'd ask how many sales units the direct mail group had to generate. Multiply the two and you have the approximate direct mail budget. Typically, that was the low end of the budget range. We knew that if we could create a channel with a lower cost-per-sale than other channels, the money would be reallocated.
Rule No. 2 — Were their direct mail programs having performance issues? If the answer was yes, we'd keep going. If the answer was no, we'd thank them for their time and move on. We felt that if a client was getting good service at a fair price and the stuff was working, they should stay with their current agency or vendor. That's the relationship we wanted with our clients, so we didn't break up good marriages.
Rule No. 3 — Could we fix what was broken? About 20 percent of the time we'd look at a program and couldn't figure out how to fix it. When that was the case, we would pass on the work, and often refer them to somebody who could help. I've got three good friends who run general agencies. One of them said to me, "We take clients all the time when we don't have a clue on how to fix their problems, why don't you?" General agencies can do this, direct agencies can't. When advertising is bad, it might take years to figure it out—if ever! In the direct mail world, you are a hero or zero 10 days after in home/office. There's nowhere to hide. So never take work when the probability of failure is too high.
Rule No. 4 — Will they let us get full margin for our work? We would discover this by bidding on projects, even if they didn't ask us to. We wanted the prospect to see what working with us would cost. If there was going to be a pushback, we wanted to hear it before we did the work, not after. I learned this lesson when I was the head marketing guy at Kenworth Truck Company. My mentor, Keith Rowe, used to always say, "Don't you wear out my factories unless you're bringing in full margin business that I can invest in the future." I think that applies to agencies, too. If you can't reinvest in people and new technology, you can't survive, so don't discount your services.
Rule No. 5 — Did the client want to have compensation negotiations? For us, that was a deal killer. We would show them the bids, even give them a menu of what various programs would cost and guarantee those costs for a year or two. But we never opened our books. Our books were none of their business.
Rule No. 6 — Does the client have a good or bad reputation in the industry? Some clients are known for abusing their agencies, others are known for great agency/client relationships. We would run away from abusive relationships. Bad clients are very demoralizing. I remember one week where I brought in a huge new piece of business and also fired an abusive client. On Friday evening, there was a big wine tasting bash going on. I stopped by and asked my peeps if they were celebrating me closing a deal with our huge, new client. "No, we're celebrating that you fired the meanest S.O.B. client this agency ever had."
Rule No. 7 — Will they work on a fixed-bid, project basis? If they wanted us to work on a retainer basis, we'd pass. Somebody always gets screwed in a retainer relationship. And typically, it's not the client.
Rule No. 8 — What was the client's approval process? How many people in the loop? Who had final say? Did the work have to pass the brand police? (If the brand police were in the loop, we wouldn't take the work; they kill more good programs than lawyers.) We had to understand the approval process for three reasons. First, a bad approval process can almost guarantee program performance problems. Typically we wanted to address this before we got hired and make approvals easier to get. Second, we would have to plan for longer approval times in our production schedules and, third, we may have to add more money to the fixed-bid budgets to handle additional overhead and re-writes.
So you might ask, how does passing on new business help you grow faster? The answer is clear to me: Morale is higher. By bringing in the right clients, the agency does better work with less effort. Clients then stay around longer, which takes pressure off the entire agency since with longer term clients, agency efficiencies and profits increase, too.
Most agencies have guidelines as far as the kinds of clients they want or the kind of work they want to do. In great part, these are the creative department's Christmas list. These rules go further, helping to define the relationship between the agency and client for the benefit of the account service teams. In addition, these rules align the client's business with the agency business model.
Again, your rules will be different because your business model is different. But the important thing is to have a set of rules in place that keep you from chasing shiny, new things that are bad for you.
Takeaways to Consider
- You can grow an agency faster by saying no to disruptive and/or unprofitable accounts.
- If you take on full margin work, you'll have more resources to invest back in the agency and make it even better in the future.
- The rules should not only reflect the creative department's wish list, they should also support how the agency wants to work and how the agency makes money.
Bob Hacker was founder and CEO of HackerAgency (née The Hacker Group) from 1986 to 2002. Before that, he spent most of his career on the client side, running some of the largest direct marketing accounts on the West Coast at that time. He is a frequent speaker and writer on all things direct. He graduated from the University of Washington with a BA in Advertising and Harvard Business School with a double concentration in Marketing and Entrepreneurship. As his mother often said of him, "Bob is not always right, but never in doubt." Reach him at firstname.lastname@example.org.