A client recently mentioned that he plans to go after bigger projects this year, as a way to grow his digital agency faster.
He asked me for feedback on the plan, which he hoped would improve his profit margins.
In my experience, bigger projects (and retainers) can be good, bad, or ugly. You can expect a mix of pros and cons.
Consider what you’re getting into so you can decide how fast to grow your agency’s typical project (or retainer) size.
The “Good” about doing bigger projects:
Large projects make it easier to grow your agency with less sales time. Selling three $100K projects ultimately takes less effort (overall) than selling 10 projects at $30K, even if each $100K sale takes longer than each $30K sale. The same is true for big vs. small retainers.
The cash influx creates new opportunities. This includes building your cash reserves, giving bonuses, paying down debt, etc.
Onboarding more team members at once forces you to systematize your employee onboarding process, which creates an incentive to make things more consistent—rather than making it up every time.
Bigger projects can be good for your portfolio, although I find agencies’ potential clients are more impressed by big-name clients (even if it’s a small project) than big projects for no-name clients.
The “Bad” about doing bigger projects:
Project management is more complicated. For instance, a $50K project might have 100-120 tasks, while a $100K project might have 250-300 tasks (the faster increase comes from needing to integrate more things). Your PM systems—and the project manager—need to keep up.
Withheld invoices hurt more. A client nearly went out of business after a huge client disputed his agency’s work.
You need to hire carefully, to ensure that labor expenses don’t overrun the new revenue. I noticed this at a client recently, where their labor costs grew significantly faster than their revenues. This mismatch hurt profit margins.
Client-generated delays have a bigger impact on your agency—waiting for client feedback, content creation, and so on. Having 5 people “on the beach” (scrambling for billable work) is a bigger deal than 1-2 people “on the beach” when a smaller project pauses… or if the client pulls the plug entirely.
The “Ugly” about doing bigger projects:
There’s a higher chance of things going wrong. Large budgets magnify everything, including your stress levels when things go wrong.
Bigger projects frequently represent a big chunk of the client’s budget, meaning it’s typically high stakes for clients when things go wrong.
Absolute profits are typically higher than on smaller projects, but profit margins can get squeezed as big-to-you clients demand free out-of-scope work.
Bigger projects are great for challenging team members—good for variety and retention—but people can feel like there’s no forward momentum. That can hurt morale, especially if someone’s day-to-day contribution is barely visible.
Applying this at your agency
Want to grow your agency? Bigger projects and bigger clients can be good or bad—so plan ahead now to help things go smoothly.
Question: How have you handled bigger projects at your agency?
Image credit: Dinosaur photo by epSos.de via Creative Commons license (Update: Photo is no longer listed online via Flickr.)