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In episode #533, Eric and Neil discuss how to manage clients who are never satisfied and ask for work above and beyond their contract. Tune in for some great advice on how to satisfy clients and remain profitable.
Time-Stamped Show Notes:
- [00:27] Today’s Topic: How to Handle Clients that Always Want More for Less
- [00:43] In the early days, Neil would give his clients whatever they asked for.
- [00:47] However, the moment you give in to unnecessarily demanding clients, you find that your margins decrease and it becomes a vicious cycle of rewarding complaints.
- [01:05] What he learned from this, was that it is of the utmost importance to structure your deal properly from the get-go.
- [01:18] When a company asks for something above and beyond the terms of the contract, tell them it won’t be possible, but that you can renegotiate/draw up a new proposal. It is important to set boundaries!
- [01:58] Once you do too much for free, you will lose money, and you will always have unhappy clients.
- [02:20] You have to track how much time you spend on each client to determine profitability.
- [02:40] You can always draw up a Zero-Dollar Change Order, just to have a written trail of the changes in terms.
- [03:15] The third of fourth time the client tries to adjust the terms, point to the free Change Orders, and tell them you will have to charge them in the future. This way, you are protecting yourself.
- [03:49] iProspect charges based on an hourly rate. They will do whatever the client wants, because they are still getting paid for their time.
- [04:41] The hourly rate model is simple and straightforward, which prevent confusion and hard feelings.
- [05:27] Neil still does flat-rate pricing, but internally they track client hours and the ensuing costs.
- [05:42] Hubstaff is an invasive time-tracker, but works well for Eric and his company.
- [06:02] Toggl and Harvest are other great time-tracker options.
- [06:17] Ogilvy will charge by the hour, but will charge additionally for face-to-face work.
- [06:56] That’s all for today!
- [06:58] Go to Singlegrain.com/Giveway for a special edition of Crazy Egg, the heat mapping tool.
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The post How to Handle Clients that Always Want More for Less | Ep. #533 appeared first on Marketing School Podcast.
Full Transcript of The Episode
You're listening to Marketing School with your instructors Neil Patel and Eric Siu.
Erik Siu: Welcome to another episode of Marketing school. I'm Erik Siu.
Neil Patel: I'm Neil Patel.
Erik Siu: Today, we are going to talk about how to handle clients that always want more for less. I'm curious Neil, you're the one that started your consulting company a long time ago ACS and now you have another one, so what are your thoughts around this? How did you deal with this in the early days?
Neil Patel: In the early days, I just kept giving them whatever they asked for, but as a slippery slope, and the moment you do that, you're going to find that your margins are going to end up going down, you're not going to have a happy client, because they've realized that the more they complain and the more they ask for, the more you end up giving them and eventually, you're just going to end up getting cut off, because they're not going to be satisfied or you stop giving them what they want.
What I ended up learning and I learned this the hard way is, it all depends on how you structure the deal from the first place. If you structure the deal right in the first place, you can avoid the situation. Here's what I mean.
When a company asks for too much, based on what you agreed upon, before you even start, you would say, "No, sorry about that, that's not in our agreement. I really wish we can help. If you want to discuss it we could create a new proposal for you or we can do a call with our sales reps, or whatever it may be. If they keep just asking for more and more, always stick to your position or your guns and be like, "No, this is what we promise in the agreement and here's what we're going to deliver. We want to focus on this and we want to do an amazing job. If you want more, we can discuss it, but we can't just keep doing more and more for free or else the economics don't work out on our side."
You're being honest, because once you start doing too much for free, you're just going to end up losing money and they won't be a profitable client.
Erik Siu: One thing I would add is ... We call this scope creep, right? When people keep asking for more and more and more and it's really easy in a services based business if you aren't ... First and foremost, I think you've got to be tracking your time if people are ... especially if you're doing services right? I'm not necessarily saying charge by the hour, but from your end of the things. In the last episode, we talked about CYA, cover your ass. You got to be tracking how much time you're spending, then also, basically multiply the labor that you're spending and to make sure that you're profitable on the client.
Here's the other thing. If you are working with someone, you've got to make sure that you've got some measures in place where ... Here's an example, a Zero dollar change order, right? Let's say Neil starts working with me and then Neil starts asking for more and more things. I say, "Okay Neil, that's okay. Here's a zero dollar change order for what you're talking about, and here's explicitly what you looked for." I'm just sending Neil an invoice for zero dollars right? Just for our records, and it's great, okay.
Then, maybe we get the job done, Neil comes back two weeks later, he's like, "Hey Erik, I want some additional stuff too. Do you think you're going to be able to knock it out?" "No, problem Neil." Here's another zero dollar change order, right? So, you do one, two, three of those or so, you have the record for it. Maybe the third or fourth time Neil comes back to me and says, "Hey Erik, I want something ... you think you can hook it up with this other thing?" It's like, "Neil, we have these two or three zero dollar change orders. We've done a couple of things for you. Unfortunately, here we're going to have to start charging because we are running a business here."
Neil talked about being honest with people too. Be honest, be direct, be candid with people saying, "Hey, we've done these things as a sign of good will and then we're going to have to charge you. Here's the new price, here's the new invoice and here's the actual price for it."
That way you're protecting yourself and you're documenting as you're going through things.
Neil Patel: I actually learned something interesting the other day from a company called iProspect, which is one of the biggest ad agencies out there. Now a few of the people that used to work there, now work for me. They were explaining to me that their process is they don't just charge per project. It's not like a fixed 500,000 a month or a million. They do have things like that, but the way they run everything really comes down to an hourly rate. When they pitch customers, they pitch them based on an hourly rate.
Let's say the hourly rate is $180.00. They'll do whatever the client wants and as the client keeps asking for more and more, they're familiar with the hourly rate, they're getting the breakdown of everything that is happening and the hours it took, so now there's full transparency. If the customer wants to keep asking for more and more, you can provide it, they're just going to be billed, right?
Think of you hitting up a lawyer or an accountant. A lot of times the lawyers are just like, "Yeah, we'll do whatever you want. Here's our hourly rate." That model is very simple, because there really is no worry about clients just keep asking and asking for more, because if you had an agreement with the customer in the first place, that, "this is my hourly rate, we'll do whatever you want."
If they keep asking for stuff, they know they got to keep paying, and then you're also not put in that awkward situation where they're just like, "Hey, we want more, we want this, we want that for the same monthly retainer," that's what screws up your margins.
The moment you charge an hourly rate and you know your fixed cost, you can be like, "All right, I'm paying John $100.00 an hour, I'm billing out $180.00 an hour, and I have office and some overhead and stuff like that, but in general my profit is 40 bucks an hour." Yeah, they can keep doing whatever they want as long as they pay $180.00 an hour because I'm profitable. That just makes things so much simpler on your end.
Erik Siu: Is that what you guys do now?
Neil Patel: We don't. We still do flat rate pricing, but internally, our accounting system is based for every time a consultant does a task for a customer, we track how many hours it takes and our cost so that way we can break down the profitability per customer.
Erik Siu: Great, so what I recommend and I'm not sure what time tracking tool you guys use. We use Hubstaff internally. It is a bit, I will say, it is a bit invasive, because it does take a screenshot of your screen every five minutes, but at the end of the day if it's during working hours, it should be okay, all right? Especially for us, we're in the office three days a week and we remote two days, so that's the trade off, so you can use a tool like Hubstaff. You can use a tool like Toggl to track your time, that's T-O-G-G-L, or there's Harvest.
You can use those tools, check them out. I remember talking to Neil's point. I have a friend that's a director over at [Ogilvy 00:06:13], manages 120 people and sometimes they do something creative where they charge you by the hour, but sometimes they'll charge you even more to have that person sitting in your office onsite with you, because some people need more hand holding or they want that person there, right?
It's good because you can build a relationship with the agency, or you could build a relationship with the client I should say. Then from there, you're basically, same thing as what Neil's talking about, you're basically narrowing things down and you're aware of what profit you're making at the end of the day.
Neil? Anything else you want to add?
Neil Patel: No, that's pretty much it. You guys learn from us, don't make the same mistakes we did, tell people no upfront that way you won't run into these issues, or just charge hourly for everything.
Erik Siu: Great. That's it for today, but before we go, you can get a special edition of Crazy Egg. Just go to singlegrain.com/giveaway. That's a heat mapping tool that can grow your business and we will see you tomorrow.
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