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How Can Digital Agencies Protect Themselves Financially and Legally?

Client acquisition, client retention and client satisfaction – these are mostly the principles of every agency. Every team member is willing to go the extra mile to keep the client happy and ensure that the client is successful. You do some creative work, it helps the client generate more business and you get paid for your work.

This is the ideal case. And we all know that a business never works on the best-case scenario. Let’s face it, bad things happen in business and the purpose of this article is to help you through such situations.

Prevention is better than a cure!

Just imagine, you acquire a client, decide on what needs to be done, and you start work. You work hard and you ensure your team members are committed 100% to the client. After the first month, you raise your first invoice and that’s when things start going south.

 

Let’s just break down the costs involved in this client:

 

Client Acquisition Cost

For this either you have an outbound or an inbound initiative going on. Measuring inbound can be difficult as you spent a lot of time and effort on your brand including your personal time. To break it down the costs involved are lead generation cost, pre-sales cost, time taken in pitching including multiple meetings, and then the legal part comes into the picture.

Resource Cost

The usual structure of an account would be, an account manager with 2 designers, 2 content writers, SEO expert, SMM expert and so on. Depending on the type of work, you might engage some freelancers and technical resources.

Opportunity Cost

While you are working on this business, you would be unable to pick on more leads – in services quality is everything.

Misc. Costs

The costs to the company, the hardware, software licensing, office costs, recruitment costs to name a few.

You end up with Client Acquisition Cost + Resource Cost + Opportunity Cost + Misc. Costs.

Did you consider these in your pricing? No shame in admitting it. It took us a long time to get this right. Unfortunately, the Indian ecosystem is extremely price-sensitive and there are multiple Digital Agencies working for a loss just for the sake of getting business and keeping themselves busy.

Do you or your teammates end up showing up for every meeting? What is the due-diligence that is being performed at this stage? Do you try to seek alignment between your company and the company that you plan to work for?  It’s better to work for lesser but bigger clients rather than smaller clients. This is what we learnt when we attended the Google Masterclass.

Divide your leads into a quadrant and choose only the ones that understand and respect your business. In the long term, the quality of your client matters a lot. This is what goes in your portfolio, this is what you get paid for and this is what you get a sense of achievement for as well.

The final and most important part is a contract. This is the part that agencies neglect the most and this part hurts the most as well. Let us guide you through the basics of contracts.

  • Proposal – This is something that you, the agency would send to the lead
  • Agreement – Once both the parties are satisfied then the proposal is an agreement
  • Contract – An agreement that is enforceable by law is called a contract

There are certain conditions that both parties should have an intent to get into a contract, and people making the contract are of a certain age and of sound mental health, etc.

Also Read: What is Digital Transformation, According to Experts

 

Basics of a Contract

  • Contracts can be of multiple types, but here we would take an example of a service contract.
  • Setup clear definitions of yourself as well as the client. Ensure you get the address and other information right.
  • Scope of Work – The scope of work needs to be very clearly defined. If there could be designing work involved, ensure to have a fixed number of iterations clearly spelled out. This ensures that the client takes the iterations seriously and does not give you 100 rounds of repetitive corrections. Taking an example of a social media marketing contract, the number of creatives, schedule calendars, campaigns should be clearly mentioned. If there are certain benchmarks or results that the client wants, you can try to put it in the contract too. In terms of technology contracts, if you are going ahead with fixed pricing, ensure that there is a contingency factor. Estimating the number of hours for a technology project is very difficult and, in most cases, a complete failure. So, use your best estimates and add a contingency factor to it. In case you end up spending twice or thrice the time, you can ask the client for some money. In hourly pricing, clearly spell out what will be counted and what would not be counted. For example, bug fixes are usually not charged.
  • The terms of support and/or turnaround time ensure that it is communicated clearly. The timings at which you operate, as well as the days you operate should be mentioned.
  • Payment terms – These are extremely important. Ensure that these are mentioned in the contract as well as communicated to the client. Taxation clauses should be added. The invoicing date and the payment within a certain timeframe should be mentioned in the contract.
  • Termination – Ensure that you also have the right to cancel or terminate the contract and what all needs to happen when the contract is terminated.
  • Other rights – IP rights, warranties, disclosures, etc. – As you grow you would see more of these things.
  • Other standard clauses – Force Majeure, jurisdiction, disputes, arbitration, etc. These are standard clauses that should be common to all your contracts.
  • Final Step – E-Stamp or Signature

Article 5 General Agreement – Add this to your contract if required. Though your contract would still be enforceable without this e-stamp.

We use a combination of the E-Stamp, DocuSign and our internal tool, Contractify for this purpose.

Hope you have enjoyed reading this. Send an email to hello@dignitas.digital if you want a free version of Contractify or if you have comments and suggestions.

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