Many agencies see legal expense as purely a cost center cutting into job profitability. But when approached correctly, legal can be an important tool in creating value for your agency.
The key factor is approaching your negotiations differently. Many people think negotiation is about a series of compromises, but that’s not quite right. Rather, you should look at negotiation as a series of trades. Don’t give up something without getting something back.
For example, consider a typical notice provision. Let’s say your agency wants 45 days’ notice for a client to terminate. But the client wants 15 days’ notice to terminate, so you compromise on 30 days.
While this compromise resolves the point, your agency has missed an opportunity to add something to its side of the equation by making a trade. Rather than compromising on 30 days, maybe you could have accepted their request for 15 days notice to terminate but asked for shorter payment terms in exchange..
Let’s look at some of the ways you can use legal to drive value for your agency.
Tie Pricing to Your Terms in Initial Proposals
Before you negotiate the Master Services Agreement (MSA) or even start drafting your Statement of Work (SOW), you have an opportunity to set the stage for more successful negotiations.
Say a new client contacts your agency about a brand and simple website package. You’ve done hundreds of these projects and know the typical range of fees. You’ll of course want to engage the client in a paid discovery process to really define things, but the client asks for a ballpark price before proceeding further.
Here is where you can start to set expectations. Use these initial communications to tie your fees not just to deliverables, but to the other terms in your contract. Your response might look like this:
Thanks for your interest in our shop! We’ve done a lot of these types of projects and we would love to see if we are a good fit for you. Our typical process is to engage in a paid discovery phase where we learn about your goals and specifications. Once we have done that, we can quote you a fixed fee on a defined scope.
But based on our experience, I can tell you now that projects like this range from $35,000 to $90,000 depending on the options you choose. Our pricing assumes that our standard contract terms will apply. If you require changes to our standard terms, our price will increase to reflect any material risks or obligations imposed on us.
By tying price to terms in your initial communications, you set the tone for treating negotiation as a set of trades instead of a set of compromises.
And you can (and should) remind your client of this approach throughout the negotiation process: “Hey, you’ve asked for a very extensive indemnity here. We can consider that, but realize we’ll need to increase our fee by 15% to compensate for the additional risk this indemnification clause creates for us. Would you rather have the broader indemnity or the lower fee?”
Give Your Client a Choice You Can Live With
Every parent knows you never ask your kid what they want for dinner. Instead, you give them a choice between two things that you, as a parent, find acceptable. “Do you want broccoli or asparagus with your chicken nuggets?” If you ask your kid what they want for dinner, they will invariably say “ice cream.” Don’t let your clients ask for ice cream for dinner in negotiations.
Every agency seems to have a few common negotiation points in their agreements. Portfolio rights is one common example as more large brands refuse to allow agencies to use the client name, logo, and work product in their portfolio and on their social channels.
Knowing that portfolio rights will be a point of contention, you can get ahead of the issue by quoting two prices: one (lower) price assuming full portfolio rights, and one (higher) price assuming no portfolio rights.
And make the difference meaningful – the client needs to put its money where its mouth is. If they really want to deny your agency the value of portfolio rights, make sure you are compensated if those rights are being taken off the table.
You might communicate the choice to your client like this:
You’ll see the attached SOW has two prices. The $100,000 price assumes that our agency receives normal portfolio rights. That means the right to use your name and logo in our list of representative clients. It also means that we can use images of our work (progress and final) in our portfolio, social channels, and in submissions for professional awards and recognition.
The $120,000 price recognizes that some clients choose to impose constraints on portfolio usage. As you can imagine, portfolio rights are quite valuable to our agency and the pricing difference reflects that.
The attached MSA includes our standard portfolio clause. If your legal counsel chooses to limit those portfolio rights, the price will be $120,000 in the final SOW.
This conversation does two things: First, it quickly communicates to the client what the stakes are. The client knows the consequence of negotiating this term. It is always best to avoid surprises when delivering difficult news. Second, you’ve framed the discussion as a trade rather than a compromise. You still have room to move. But you have established the context that any limits on portfolio rights will lead to an increase in price.
Treat Your Client’s Requests as Opportunities to Amend the SOW
Somewhere along the line, “good client service” got equated to doing free work. Agencies, always wanting to keep clients happy, often treat client requests for extra time, an extra round of revision, or an extra tweak on the website as little freebies. But if you unpack this, the practice is both unhealthy and unnecessary.
If you need to do free work for your client to keep them happy, that doesn’t sound like a very good client. You should probably think about setting some boundaries in that client relationship. Fortunately, we’ve found that clients generally aren’t expecting free work. They just don’t know the consequence of their requests.
Because it is hard to say “no” to clients or have conversations about money, agencies often end up doing free work because it is easier. This is the dynamic that needs to change.
To handle these things differently, start thinking about your client’s extra requests as requests to amend the SOW. Need an extra round of revision? Sure, you could do it for free to make the client happy. But our experience is that the client is more likely to just take it for granted and not associate agency value with the free work. So, use this request as an opportunity to amend the SOW:
Yes, we’d love to do that extra round of revision! To keep our paperwork straight, I’ll put together a quick change order. Do you want us to just bill hourly for that extra round or would you like me to quote a fixed fee for that change?
Even if it makes sense to not charge extra for the work, consider building the change order, showing a price for the work, and then marking that fee as “waived,” and having the client sign it. While this doesn’t put money in your pocket this time, it communicates that requests for additional stuff may come at additional cost. Further, you can use this strategy for all sorts of client requests: extra time to provide feedback, website updates, accelerating a deadline, providing new information, etc.
Can’t Afford All This Legal? Consider Increasing Your Rates
Lawyers are expensive. No doubt about it. But we often hear agencies say that they both:
need legal support, and
can’t afford legal counsel because it is cutting into profits
This isn’t a question of being able to afford legal services. It’s really a pricing issue.
Your agency’s overhead should include a line item for a typical amount of legal support. Once you’ve factored an appropriate amount of legal into your overhead, you can appropriately price your work.
If your work is appropriately priced (and you properly charge for those extra client requests instead of giving them away for free), you’ll be able to get the legal support you need while still maintaining a consistent margin on projects.
Trade Your Way to Higher Profits
By using legal to negotiate better terms in your contract, you’ll not only just cover the costs of that counsel, but you can expect to improve your agency’s profits. Set expectations early by tying terms (other than deliverables) to price. Respond to client requests as an opportunity to amend the SOW rather than an expectation of free work. And be sure that your pricing assumes a certain amount of legal support so you can get negotiation support without affecting your margins.
If you’d like to hear more about how Matchstick advises creative and digital agencies, let’s talk.