terrifiedBudget, estimate, and cost - the three words that all marketing professionals (and clients) dread. Marketers are inherently creative, and we hate to put our creativity in a box by putting a number on the time or effort it’s going to take to complete a project.

Sometimes inspiration strikes while you’re exercising at the gym, and sometimes you spend hours in team brainstorming meetings before you come up with something everyone is happy with.

Agencies also tend to use these three words interchangeably, which can cause confusion for both the client and marketing agency.

Unfortunately, we all have to think about money in order to stay in business, so consider these definitions and tips when embarking on your next marketing project:

1) Budget

The project budget is the amount the customer has indicated they are willing to spend to get the project completed. Usually the budget needs to be approved at a management level so that the customer can plan its expenses. The agency must define and limit the scope of the project to make sure the final cost of the project doesn’t exceed the established budget.

Common Challenges:

  1. The customer doesn’t know what the project should cost, so they haven’t established a budget.
  2. The customer has established an unrealistic project budget for the scope they have in mind.
  3. The customer is unwilling to reveal budget to the agency for fear that the project estimate will inflate to match the budget
  4. Customers frequently forget to budget for the time their own internal team will spend working with the agency to complete a project

Solutions:

  • Before you begin talking to agencies about your project, it’s important to have an idea of what you can afford to invest and what the ROI will be if the project is successful.
  • Talk to other companies in your industry about what they have spent to complete similar projects, and consider planning a phased approach to your project to spread cost out.

2) Estimate

Marketing and web design agencies create estimates for both time and cost to plan their team resources, and to make sure the scope of the project will stay within the defined budget and timeline. Most agencies include a cushion of 10-20% to account for inevitable scope changes and unanticipated issues without having to go back to the customer to approve additional budget.

Common Challenges:

  1. It can be difficult to create an in-depth, accurate project estimate without a significant investment of time on the agency’s part. Most customers don’t want to pay for this activity, so agencies may feel pressured to give you a quick but inaccurate estimate to make the sale, only encounter scope and budget issues once the project gets started.
  2. Customer communication styles and workload can contribute to project delays or can inflate the amount of time being spent on project communication, which is out of the agency’s control. Some agencies absorb this risk into their estimate and benefit if everything goes smoothly, while others hope for the best to keep their estimate competitive and end up absorbing the cost into their profit margin (or going back to the customer for more budget) if they encounter problems.
  3. Comparing estimates from agencies can be difficult due to variations in hourly rates, the efficiency of agency processes, or the format of the estimate.

Solutions:

  • Ask the agency to provide a “back of the envelope” estimate to determine fit with your budget, then engage the agency for a paid in-depth discovery phase to clearly define the scope and thoughtfully plan the entire project before providing an in-depth estimate for execution.
  • Work together to define and acknowledge the risks on both sides of the table, then collaborate and communicate clearly and regularly to get the project done as efficiently as possible.

3) Cost

From the customer’s perspective, the final cost of the project is what they pay to complete the project. The customer’s goal is to have the final cost be equal to or below the original budget. From the agency’s perspective, there is also a cost to paying its employees to complete the work - and there needs to be enough profit in the deal to cover the overhead of running an agency and send money to the bottom line.

Common Challenges:

If the project costs the agency owner $6,000 and they charge the customer $5,000K, the agency isn’t going to stay in business for very long!

Many customers want to see detailed time reports and invoices to feel like they are getting their money’s worth, which can add to the project overhead as the agency spends extra time documenting and justifying instead of getting the project done.

Some agencies bill based on a fixed-price while others bill based on time and materials, and each approach has its own set of pros and cons.

Solutions:

  • Customers should consider the agency’s time tracking and project reporting style when selecting your agency partner - make sure their way of working is compatible with your expectations.
  • Agencies should be clear with customers on how much documentation they plan to provide to the customer - it’s very hard to go back and recreate history when you are 6 weeks into a project, so be clear from the start in order to avoid costly delays.

There’s a reason nobody has come up with a computer program that guarantees 100% accurate project estimating and budgeting: because people are involved - and people are unpredictable.  The agency and the customer each need to enter their relationship with eyes wide open, acknowledge the risk and responsibility of both parties, and establish a level of trust that enables everyone to focus on the most important priority: completing your project and realizing a return on your investment.

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Originally published Mar 12, 2014 2:00:00 PM, updated October 20 2016

Topics:

Marketing Strategy