client-return-on-investmentClients (rightfully) demand a solid return on investment, but agencies should also expect a return on the investment of their time. After all, we’re all in this business to make money at the end of the day. Accordingly, here are some techniques that will help you ascertain the client return on investment, or CROI, of each account.

All Hours Count

For project-based work, there are hours that actually get billed — usually based upon the original estimate and perhaps some additional agreed-upon overages or special that occur throughout the course of the relationship — and there are the extra hours for last minute changes, meetings that extend past the designated time, and extraneous things that come up throughout the course of the relationship.

It is essential to make sure you and your team are accurately tracking these so you can not only calculate the correct return on investment for your agency, but also understand if you need to adjust your estimates in the future. We know that virtually no one enjoys doing timesheets, but they are a necessary evil and a key element of determining the value of a given client or account.

Determine Client Return On Investment (CROI)

Calculating your agency’s ROI by client and by project is quite similar to how your clients determine the ROI of your agency’s activities. It is just done in reverse. For instance, here’s an example formula:

ROI = (Profit from the Project/Client minus Costs of the Project/Client Relationship) divided by the Costs of the Project/Client Relationship

This equation will provide you with actual numbers, but there are other “softer” factors that affect client ROI as well.

It’s not Always all About the Money

Sometimes you may have a nonprofit or low-budget client (or high maintenance but otherwise pleasant client) who offers other benefits. For instance, supplying referrals, trading services, appearing in case studies, or other activities that support your agency that aren’t directly fee-based. In fact, sometimes these intangibles can be more valuable than cash alone.

Granted, this strategy works best for smaller, independent agencies that have more flexibility, but pro bono or charity work can be a great way to promote a positive attitude internally. And you can usually garner some nice publicity — many news outlets love to cover feel-good topics like these.

On the other hand, a client that provides excellent CROI but constantly makes unreasonable demands or requires impossible deadlines, is consistently rude and disrespectful, or otherwise makes your team’s work lives incredibly difficult may not be the best client to keep around. Workplace morale and enthusiasm should be important to your agency's leadership team.

Your Agency Deserves Just Rewards

In the end, it is essential to know exactly how much your team’s time, reputation, and mental health are truly worth. Not all client relationships are created equal, and that’s why being able to calculate the CROI is so important.

Deciding when to strengthen a connection versus when to pull back or even terminate a client relationship is always difficult. It can even get emotional when it comes to long-term clients you have built friendships with. Knowing the cold, hard numbers can be a good starting point for these tough decisions.

Overall, every client and every project has different merits that should be considered when working out the CROI. That said, the one thing all accounts have in common is that figuring out their worth to your agency is a crucial component of both learning from previous mistakes and creating more success in the future.

Originally published Sep 3, 2014 3:00:00 AM, updated July 28 2017

Topics:

Agency Increasing Profits