Strategy to save business

[Terrence84]

Evening all

I am the director of a small Web & SEO agency - it started out with me as a freelancer and I now employ a designer and another developer and became a limited company. I re-branded at the time I employed them (Jan 2016) and we've shown 30% year-on-year growth since. During this time, as is inevitable, costs increased a bit but we were on-boarding a lot of new business and things were good.

We also white-label for a lot of bigger agencies and between them, and regular clients, we've really never struggled to fill the diary. However, this is where I got a little complacent, I think.

We've reached a stage where we are all working flat-out, I am doing 16 - 18 hour days (with two under-2s and a very tired wife at home too!) and have been for months, but we're making very little money. As a result, our customer service level is falling and we are missing deadlines left, right and centre. We are SO busy that we've been unable to entertain new leads as we simply couldn't begin to even deliver within a 2 month timeframe. As a result, new work is drying up too. We seem to spend 70% of our time working on the lowest value projects and the not enough working on the higher value ones.

Throw in a very unfortunate run of illness, childbirths (and now the weather!) that have reduced our overall capacity and I feel we've hit crisis point. Here's a quick summary of where we are:

• £1,500 in the bank after paying this month's salaries and bills
• Around £32k of work to be billed in the next 6 weeks - not yet completed
• £11k/month outgoings (including an averaged estimate for quarterly VAT and other tax payments) - anything above is generally company profit
• £44k indebted to Funding Circle (repayments included in outgoings above but included for context)
• We charge £80/hour + VAT which is at the absolute top of what the local market can bear, although we charge £50/hour + VAT to other agencies

As sole director, it's very hard for me to get perspective on the situation and welcome anyone's thoughts as it's crazy we've hit a cash-flow problem. Even crazier that I should have seen it coming. Here's the best strategy I can think of at the moment:

• Get a temporary bridging loan to cover next 6 - 8 weeks of outgoings while we wait for payments for outstanding work to come in - the thought of more borrowing worries me but I don't see another option
• Cut all agency work - this was great when we started. They get a reduced rate on the basis they know what they're doing and should provide us with a clear, easy brief. In reality, they take up far more time than a regular client paying nearly twice as much.
• Clear out clients from our client list that take up a lot of our time with trivial things for very little financial reward
• Only accept projects over £2,000 - we've spotted a trend where clients spending around this marker or below expect significantly more, with no regard for our quoted timeframes, than those paying more
• Increase spending on marketing - we barely spend a penny as our name as been such that word of mouth has sufficed so far. This is clearly an error on my part.
• Look, in time, to employ another developer so that I can focus on the business side of things and not get wrapped up in developing sites and SEO for the entire workday.

Although the above will reduce our current income streams drastically, and increase outgoings if I employ someone else, the only way I can see out of this cycle is to cut what isn't working and focus on the 'bigger picture'. Am I wrong? Am I best just to settle up as best I can and get out? That doesn't feel right.

I'm genuinely interested to hear the advice from other business people. I want to restore the business to something I'm proud of and offer a service that I stand behind once again but, at the moment, we're barely treading water, it's impacting my home life and it's barely making money.

 

[Mr D]

While not in your trade can certainly agree on looking at limiting your customers.
The ones who take the most work, the most hand holding may not be the best customers for you and get dropped in favour of capacity to reduce hours (for a start) and take on new custom later.

Your health is important, killing yourself or making yourself ill can impact the business badly (and of course impact your family but that goes without saying).

Take a few hours to sit down with someone not involved with the business. Someone who isn't as tired as you or as involved in the day to day. Friend, relative, professional or whatever. And strategize what you want to turn into with the business.

Look closely at your costs. Anything you are able to drop, get quotes elsewhere on, cut down on.

 

[Alan]

I think your strategy is pretty sound.

Definitely when I was building sites as a primary activity we identified the sub £2000 clients were poor value. We set a target minimum of £3000. It costs virtually the same to market / sell a £3000 site as it does a £600 site - about £200 cost of sales so the maths is obvious.

I might not cut ALL agency work, but I might push the rate ( say to £70/hour )and see who drops out.

So £32k in 6 week says you are turning over £20,000 per month between three of you, about £7,000 each. at £80/hour is 87 hours a month( 20 hours a week ), at £50 is 140 hours a month ( 33 hours a week ), so in theory your utilisation is OK, but what doesn't make sense is why you are not making money, unless your staff earn £70k p.a. each.

Not sure why you think the market will only bear £80/hour, with web design it is rare to bill by hours and normally by projects, which is priced on value delivered. To stay in business you will need to think about internal rates closer to £100/hour.

So basically charge more, do less.

Where are you physically located?

 

[Annoying Donkey]

Agree with above... and in addition,
How about instead of discarding the sub 2000 clients pass them on to freelancers for a commission...?
Find other services that your clients want and "become an agency for them". You get commission while others do the work.

 

[Chris Ashdown]

There is a rough check that seems to nearly always work the 80-20 rule which would mean that 80% of your regular good work would come from 20% of your clients and the other 80% of your clients bring in the remaining 20%

So do the sums look where the most profit comes from and drop the ones at the bottom of the pile

Factoring your invoices may help bringing in a large percentage of the money when the invoices are sent out at a small cost Ian on this forum is someone to talk to
Ian Johnston - Factoring Solutions

 

[Terrence84]

Thanks for the speedy replies - all really helpful advice.

So £32k in 6 week says you are turning over £20,000 per month between three of you, about £7,000 each. at £80/hour is 87 hours a month( 20 hours a week ), at £50 is 140 hours a month ( 33 hours a week ), so in theory your utilisation is OK, but what doesn't make sense is why you are not making money, unless your staff earn £70k p.a. each.

Yes, I can see how you come to that conclusion. Our work goes in peaks and troughs - demand is there but our ability to service it, mainly for the reasons I mention above - varies drastically. We on-boarded nearly £30k in January alone but in February we on-boarded £4k. Tellingly, it cost us the same amount of money to get that £30k of work that it did to get the £4k of work. This is my biggest hurdle and one I think I can only smooth out with a bigger marketing spend and focus on more profitable clients.

The reason we're in quite such dire straits is that we had 6 months of around £7-8k/month incomings prior to Christmas. January's boost of new work will help when it all finally comes to billing but we haven't had a profitable month since June 2017.

I don't like borrowing money though I am aware that most businesses 'borrow to grow' and I feel like that's the natural course for me to take right now. We still owe £44k to Funding Circle and it's because of that borrowing that we'd had the buffer to last this long.

 

[Socio South West]

It's a higher risk strategy to borrow more, so be sure that your customers are sound and will pay - if one of the larger debtors collapses owing you anything significant that would severly damage your plan - maybe even spell an immediate end to the business. With the current economic news, I would be very hesitant in recommending the borrowing, given the change in monthly income between January and February.

Certainly review your client base on a case by case basis... and be ruthless..... No business is better than bad business!

Regarding employing another web designer to free you up.... if you can bring in £50/hour or more, an administrator/ accountant or whatever will cost less than that - maybe even part time..... You keep doing what you do best, and employ someone else to look after the aspects of running the company.

 

[Terrence84]

Yes, that's also my concern too. We've never had a client default on us yet (though I'm sure it'll happen at some point...). We're a little protected in that we get a 50% non-refundable deposit before we even start any work.

The change in monthly income between January and February is not uncommon for us (although evidently part of the issue). Some months we've on-boarded £40k+, then gone three months without any new work whatsoever. I'm aware this really comes down to me spending more money and time on marketing - we get almost all our work through organic SEO and word of mouth.

I understand your reservations about borrowing. Not to sound confrontational at all, what would be your alternative? With only £1,500 in the bank account, we don't have enough money to pay the bills coming up in a few weeks, let alone March's salaries.

 

[Socio South West]

I understand your reservations about borrowing. Not to sound confrontational at all, what would be your alternative? With only £1,500 in the bank account, we don't have enough money to pay the bills coming up in a few weeks, let alone March's salaries.

You say you get 50% up front.... If it has to be borrowing, my preferred route would be to draw up a detailed cash flow (you will have to do this for a bridging loan anyway) and take the less formal and cheaper route of negotiating a short term overdraft rather than a bridging loan: This is also more flexible than a loan.

 

[The Byre]

There is a rough check that seems to nearly always work the 80-20 rule which would mean that 80% of your regular good work would come from 20% of your clients and the other 80% of your clients bring in the remaining 20%

Good advice there from Chris - BUT that should not mean that you throw away that 80%. Aldi does not insist that customers must spend at least £20. Indeed, their business started with selling small amounts of really cheap goods back in the 1950s.

If you walk into Aldi, you can buy just one can of beer for 89p and they will gladly sell it to you and (and this is the important part) they will make a small profit!

What is completely wrong is not the customers, but the structure of your company! You need to be able to sell websites for £200, £2,000 and £20,000. Some of those £200s will turn into £2,000 and some of those £2,000s will turn into £20,000. You don't turn customers away, you deal with them differently.

For £200, they get a free-lancer making basic WP sites. For £2,000, they get a better WP site - and so on. For £20,000, they get a photographer, copywriter, designer, database, etc., etc.

Agency work - If they are causing hassle by not knowing what they want or are doing, just force them to jump through set hoops. Be nice about it. Tell them that you are restructuring the business - streamlining your work-flow to provide them with a better service! For example, such-and-such a website requires 200 words per page and they (or rather their customer) have to write those words and provide all the images, ready-sized. Not the right size? Reject! Org and flow chart for the website has to be part of the brief - and changes cost extra!

They are dumping all that woolly and vague briefing onto you, because they can! In the advertising world, agencies get 20% discount (and not the 25% you are giving!) because the magazine (or whatever media) knows that the ads will be ready, in CMYK pdf, at the right resolution and dimension and the whole transaction takes minutes and not hours.

The same applies to TV ads. Joe Blow rocks up and causes all kinds of problems. An agency is supposed to have cleared all images, have release forms signed for all appearances and the footage will come in the right format will have all the right test signals and comply with all EBU standards for resolution, colour, compression and audio levels. That's what they get their 20% for!

An agency should have the know-how to be able to come to you with everything stitched up and ready to roll, all images ready, all texts ready and well-written and the structure fully mapped out. If they can't do that, they are not really an agency!

 

[Terrence84]

I think you're pretty spot-on with the agency stuff, The Byre.

However, I'm not sure we should be offering websites at any price point. I'm not up for outsourcing to low-cost freelancers - our differentiation is that we offer a top-quality product with great customer service and all work is done in-house. Admittedly, the customer service element is slipping recently and that's a big concern of mine. But I don't want to, nor do I think we need to, offer budget low-cost solutions. To be clear, we're talking right at the bottom end here (£300 for a website, etc). We don't do anything for less than £750 + VAT so when I talk about cutting out low-value clients, I'm talking between £750 and £2,000.

I do get your point but it seems to me a large part of our issue is that we spend disproportionately more time on lower value clients and, therefore, earn less profit per hour work. They also tend to be a lot more fickle and more likely to leave because their mate at the pub can do it for £20/year less.

 

[The Byre]

I have a friend who has a five-man/woman company that does what you do. Custom-built websites at c.a. £70 p.h. and he has a big range of customers, from breweries to flower shops, from broadcasters, political parties and one of the largest estate agent sites in the UK, to the local chippy.

He also has a free web-builder site and company that can be up-graded to £30 a year, or £300 a year with all sorts of additional features, such as on-line shops. That mops up all the bottom-feeders and many of his customers make the jump from a free site to starting to pay for SEO and database functions and thereby becoming lucrative customers.

 

[The Secret Strategist]

There is a lot of great advice on this thread, so hopefully you already have a few ideas on things you can look at?

Hopefully I can give you another thing to consider; Regarding this.....

I'm not up for outsourcing to low-cost freelancers - our differentiation is that we offer a top-quality product with great customer service and all work is done in-house.

. Could you expand on this a little more please?

Top quality products, with great customer service and all work carried out in-house for a business that doesn't receive any new business over a 3 month period sounds a little concerning.

I wonder if you are producing the right product, at the right price point, for the right customer??? These factors may differentiate you from the competition but at what cost? Do your customers specifically use you for this reason, or do you just think they do?

 

[Scott@KarmaContent]

Tellingly, it cost us the same amount of money to get that £30k of work that it did to get the £4k of work. This is my biggest hurdle and one I think I can only smooth out with a bigger marketing spend and focus on more profitable clients.

This is where you hit the nail on the head. I don't know what you currently spend on marketing, but it might not be that you need to up your marketing spend, just be a lot more focused and effective.

Have you thought of specialising? Focusing on a particular sector such as dental etc? Not only does it make your marketing a whole lot easier and more focused, you can charge premium prices because you're a 'specialist' in that sector.

 

[Andrew_P]

What about efficiency? Are you using the right tools for the job? What about workflow and time gaps, pauses, lunch breaks and all other distractions that slow down overall performance?

Review your work day, look where you and others can optimize, stop wasting time, apply 'structure and order' to your business.

 

[dan19900]

Outsource to 3rd world countries. Don't really understand why anyone would pay a developer 80 pounds per hour.
I have a developer for $15 per hour from the Philippines and I highly doubt you or your developer can do anything that he can't (no offense lol). For customizing wordpress sites I'm just paying $3-4 per hour.

 

[Chris Ashdown]

High Quality is not connected to the price you pay but the overall product, a 1p nail can be the best in the world or a single page £30 site can be of high quality

As dan19900 states £15 in the far east is a great wage and the same in India. not a great thought for developers in this country but unavoidable that many customers will go abroad for this type of work in the future

 

[alex360]

Hi this is a very common theme for growing business, the comments made above are very good, I will add; you need to define your role in the business you say you are the director but are you still doing the work you were doing when you started? You need to be managing the business now; getting clients, managing work flow and pass on all the SEO and development to staff, have look at working with freelancer? this limit your cost, help with cashflow and can help you grow.

 

[Noah]

Outsource to 3rd world countries. Don't really understand why anyone would pay a developer 80 pounds per hour.

Off the top of my head : because they want to sell their products to people who can afford them through being gainfully employed within their target market?

 

[dan19900]

Off the top of my head : because they want to sell their products to people who can afford them through being gainfully employed within their target market?

I don't really understand your point, I'm suggesting they should cut their costs by paying $10-15s for a developer who produces the same standard of work as the one's they're paying around $50 per hour at a guess.

 

[Noah]

I don't really understand your point, I'm suggesting they should cut their costs by paying $10-15s for a developer who produces the same standard of work as the one's they're paying around $50 per hour at a guess.

Simplistically, it makes sense to keep one's own money circulating in the economy in which one wishes to sell; if you are hoping to sell primarily in the UK, sending money out of the UK economy is detrimental to your own business prospects.

Yes, I know about globalisation.

Yes, I lknow that this only really works if we all more-or-less play the same tune.

Yes, I know I'm a hopeless dreamer.

...but maybe I'm not the only one.

with apologies to JL

 

[The Byre]

Simplistically, it makes sense to keep one's own money circulating in the economy in which one wishes to sell; if you are hoping to sell primarily in the UK, sending money out of the UK economy is detrimental to your own business prospects.

AKA What goes around, comes around.

 

[Mr D]

Simplistically, it makes sense to keep one's own money circulating in the economy in which one wishes to sell; if you are hoping to sell primarily in the UK, sending money out of the UK economy is detrimental to your own business prospects.

Yes, I know about globalisation.

Yes, I lknow that this only really works if we all more-or-less play the same tune.

Yes, I know I'm a hopeless dreamer.

...but maybe I'm not the only one.

with apologies to JL

You do keep the money circulating in the economy in which you wish to sell. The terran economy.
You don't usually spend money and it disappears into some black hole in New Delhi. Money gets circulated.

 

[Noah]

You do keep the money circulating in the economy in which you wish to sell. The terran economy.

Oh yes, sorry - I forgot about globalisation.

Silly me.

 

[Mr D]

Oh yes, sorry - I forgot about globalisation.

Silly me.

Not globalisation. Money circulated before anyone had heard of the term.
A copper coin spent in one part of the world could find its way physically to someone thousands of miles away when people travelled on foot or riding.

Trade.

 

[Chris Ashdown]

When I started in the oil industry offshore in 1973 we were employed by the Americans who basically had the experience but had stood still in their limited depth waters, we were on half the pay of the Americans

A few years latter us and the Europeans had brought in new technology and much higher standards and our wages exceeded theirs, our equipment became world leaders, and whilst the Americans and their basic obsolete equipment still got work in the third world it was th Europeans who got awarded the high value work

Not sure how that relates to the OP question but a bit about enterprise world wide

 

[lesliedocherty]

Good advice there from Chris - BUT that should not mean that you throw away that 80%. Aldi does not insist that customers must spend at least £20. Indeed, their business started with selling small amounts of really cheap goods back in the 1950s.

If you walk into Aldi, you can buy just one can of beer for 89p and they will gladly sell it to you and (and this is the important part) they will make a small profit!

What is completely wrong is not the customers, but the structure of your company! You need to be able to sell websites for £200, £2,000 and £20,000. Some of those £200s will turn into £2,000 and some of those £2,000s will turn into £20,000. You don't turn customers away, you deal with them differently.

For £200, they get a free-lancer making basic WP sites. For £2,000, they get a better WP site - and so on. For £20,000, they get a photographer, copywriter, designer, database, etc., etc.

Agency work - If they are causing hassle by not knowing what they want or are doing, just force them to jump through set hoops. Be nice about it. Tell them that you are restructuring the business - streamlining your work-flow to provide them with a better service! For example, such-and-such a website requires 200 words per page and they (or rather their customer) have to write those words and provide all the images, ready-sized. Not the right size? Reject! Org and flow chart for the website has to be part of the brief - and changes cost extra!

They are dumping all that woolly and vague briefing onto you, because they can! In the advertising world, agencies get 20% discount (and not the 25% you are giving!) because the magazine (or whatever media) knows that the ads will be ready, in CMYK pdf, at the right resolution and dimension and the whole transaction takes minutes and not hours.

The same applies to TV ads. Joe Blow rocks up and causes all kinds of problems. An agency is supposed to have cleared all images, have release forms signed for all appearances and the footage will come in the right format will have all the right test signals and comply with all EBU standards for resolution, colour, compression and audio levels. That's what they get their 20% for!

An agency should have the know-how to be able to come to you with everything stitched up and ready to roll, all images ready, all texts ready and well-written and the structure fully mapped out. If they can't do that, they are not really an agency!

One of the best and most useful replies i have read in bloody ages