How agencies should handle procurement and legal

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Chip Griffin: Hello and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich

Chip Griffin: Gini, the finance department has a few questions for you. Um, they’re not real happy, so you’re going to have to deal with those. Okay. Right after this.

Gini Dietrich: Great.

Chip Griffin: So, you know, I was talking with my finance team and they’ve got a few questions and, you know, they think we’re paying a little bit too much and maybe you’re not being quite accountable enough in what you’re doing for this show. So, you know, I’m going to put you in touch with them and they’re going to, you know, grill you.

Gini Dietrich: That sounds amazing. Great. Thank you. Can’t wait. And I

Chip Griffin: said, no one ever I’m happy. I’m thrilled with the way things are going. Fantastic. And I, you know, I they’re finding,

Gini Dietrich: yeah, that sounds that this is why I, this is also advice. I give, find somebody hire somebody on your team either it’s internally or outsource that handles those conversations and are good at those conversations so that you can remove yourself from it because. All that would do for me is ended not having a client.

Chip Griffin: Yeah. See, this is, so this is, uh, something that, that came about from a Reddit conversation that has since been deleted. So we can’t actually refer back to it, but that’s okay. Um, it is, it is something that comes up, particularly as agencies start working with larger clients that have. Finance teams, procurement teams, those sorts of things, and they can often make a Royal mess of, of the relationship.

Uh, and so what we’re gonna talk about today is how you handle that, how you approach those kinds of issues to make sure that you’re not in a situation where you suddenly have, uh, work, that, that you’re not being paid fairly for, that you don’t really want to do anymore.

Gini Dietrich: Yeah. I have a, I have a really good friend who works with a gigantic corporation and they sent an email earlier this week and said, we’d like to know what your hourly rates are.

And we’d like to lock you in for three years. And we’d also like a credit back on some of the work that you do. And she sent it to me at all. No, but this is how they negotiate with the procurement team is this is what they do. And if you say that your managing supervisor is $200 an hour right now got by golly, it’s gotta be $200 an hour, three years from now, and you’re not getting a raise and they’re not getting a raise.

And there’s no like there’s no way to work around that. So I think trying to figure out the best way to handle those kinds of things. Certainly you can’t say, well, our rates are $550 to accommodate for inflation and all that right later. But if you want to be working with larger companies, there has to be a way to work around that kind of stuff.

Chip Griffin: And I think you’ve just hit on the nail on the head there, which is if you want to work with big companies. Right. And so you need to think about whether or not that’s really something you want to do. And most agencies that I’ve come across, they dream of working for. Big brands. Cause they’re like, oh, I can put, you know, these fortune 100 logos on my site.

And it’s just, it’s a, it’s a heady experience. And, and you, you get all excited about you figure they’ve got big budgets and that’s, that’s all true, right? I mean, those logos do look fantastic on your website. It’s great for the ego to have them. They can be big budgets, but they come with a lot of challenges.

And so if you are a small agency, you really have to. Very carefully about whether that’s the kind of business you really want to do.

Gini Dietrich: And I mean, it goes back to something we talk about all the time, which is really figuring out what it is that you want to do. And, and you say this all the time. Figure out what it is that you want to do, figure out how much money you should be making figure, like design the business around you.

And if you are comfortable with procurement and contract negotiations and creating rates for the next three years and trying to figure out what inflation and cost of living it, like all of that, stuff’s important, but that’s typically not the reason you started your agency. So. You have to figure out what you’re comfortable with, what you, what your level is for, um, dealing with that kind of stuff.

And if that is something that you want to do great, but you don’t want to handle that kind of stuff. Like I said, you should be finding somebody too, that can handle it, outsource it, or bring somebody in internally that can help you do those kinds of things. Because from my perspective, it really would be the fastest way to losing a client because I would

Chip Griffin: just.

Right. Well, and, and big brands bring not just finance and procurement, but they typically bring RFPs. So I mean, at that point, from my perspective Euro for two, and yeah, so it doesn’t mean you shouldn’t do it, but if you’re going to go down that path, you have to understand what you’re getting into and you have to be realistic about it because it’s very easy to get so excited about the logo.

That you don’t think about everything else that comes along with it?

Gini Dietrich: Yeah. And I would say zero for three is they expect you to do a ton, a ton, a ton of upfront work. Before you even get paid a ton in the new business process in the dog and pony show in the travel and expenses in the meeting with people.

And it could take six months to a year and that’s time and resources and all of that invested. And so you have to, you have to take that into consideration as well.

Chip Griffin: Well, and then you have to think about the payment terms because the big brands don’t just want you to do a lot of work for nothing upfront.

They want you to do it after you’ve become, uh, their agency as well. Because they’re typically going to ask for sixty, ninety, a hundred and twenty day, I’ve even heard of 180 day payment terms that some big brands are asking agencies for it’s bonkers. It’s absolutely nuts. And so. Again, if you want to do that, that’s fine.

You have to understand it and go into it with your eyes open. And I think, uh, Karen Swim, who is participating in our chat here has, has made a great point that if you’re working with these kinds of brands, you have to make sure that finance and procurement are involved from the get-go. And, and one of the things.

That often happens with procurement is you’ll be working with the brand. You’ll be working with the contact and you’ll say, okay, here’s what we’re going to do. And you’ll reach an agreement on scope of work and price, and then they bring in procurement. And so you think you’ve got a deal and procurement now tries to whittle it down and.

It’s very disheartening. Um, but it also sets you up for a lot of failures. So make sure that you’ve got, you know, find out right from the get, go. If they’ve got a procurement or finance team, that’s going to be involved and get them into that process as soon as possible.

Gini Dietrich: Karen, thank you for that because I just had that experience.

But for speaking of. Where a very large company came to me and said, Hey, we’d like you to do some, um, workshops for our communications team of, of, uh, of about a hundred people. Would you be willing to do that? And I was like, yeah. And we worked out the deal. We worked out the scope and everything, and then procurement got involved and I was like, oh no, I mean, no, we worked at it.

That’s what I’ll do it for. And if you’re not willing to do it, then I’m out. And I also don’t want to do it right. This close to Christmas. So it’s fine. But yeah, I mean we, and we worked months on that and then they brought procurement in. So that is great advice that I didn’t even consider making sure that they’re involved from the very, very beginning.

That would have saved us a lot of

Chip Griffin: time. And I, you know, honestly, I’m not even sure I would have thought about asking for procurement’s involvement in something like that, because that’s not typically something that procurement is going to. Get involved in, but yeah, I mean, it’s, it’s always helpful to ask those questions so that, you know, I mean, you know, we were trained to think about, okay, what’s your budget, who’s your decision maker, those kinds of things.

But, but find out if you’ve got these other players who are going to have to be involved in, in some way, shape or form, and if they’re going to be involved, then you probably seriously want to consider a Pete attacks in your pricing. Um, yes. Uh, because you know, if they’re going to be a pain in the. Then then you want to make sure that you’re getting compensated even more, fairly particularly, cause they’re probably gonna whittle it down and what you think you’re getting compensated.

It’s not what you’re going to end up with at the end of the day, no matter what the contract says.

Gini Dietrich: So speaking of that tax, what do you normally do? A percentage.

Chip Griffin: Uh, you know, I, at this point in my career, I ended up with sort of a gut feel. And so I just, you know, it’s, it’s not a set percentage. It’s, you know, it, it it’s, you just sort of sit there and look at it and you say, okay, well, you know, normally I charge 5k for this.

This is going to be 7,500. Yeah. Or, you know, you just, you really, and it depends on the scope of the work and all that kind of thing, but just assume that it’s all going to take longer than you think that they’re going to try to nickel and dime you. At some point, you start. You know, we, we talk about pricing a lot, but pricing has to be a function, not just of the work that you’re doing, but also the payment terms.

And so if you’re going to extend 90, 120 day payment terms, you essentially need to be compensating yourself as if you’re loaning money to them. And so there needs to be an imputed interest rate to your pricing, um, to make up for that. And so those are all things that you need to be. Thoughtful about, and at the end of the day, you just want to make sure that as my old business partner called it, the pain per dollar ratio is something that you can live with.

Gini Dietrich: And I will also add to that, that usually if you’re adding a pita tax, it’s not worth it in the end.

Chip Griffin: Well, there there’s that too. I mean, look, I, I am generally of the mindset that you should avoid. If you have an RFP and procurement involved, you should probably run. Yep. I agree with that. I mean, I think that 99% of the time for a small agency, it’s not worth it.

Now, if you’re a big agency and you’ve got your own legal and accounting team, that they can handle a lot of it. And you know, you’ve got these, you know, giant bank roles that you can afford to be paid, you know, six months after the fact. Go for it. I mean, I, I think it’s not still not a good idea, but go for it.

You know, it’s it, I mean, at that point, the people who were running the business, typically it’s not their own money anyway, so go for it. But if you’re a small agency, you know, you need to be thinking about not just the logos that are on your website, not the, not the top line revenue. You need to think about the work that you’re doing, the amount of money that you’re, you’re taking home and just your quality of life.

Yeah. And, and generally that doesn’t mix with these big brands that want to nail you with procurement.

Gini Dietrich: I would also say with the exception of the gigantic brands that most organizations really just want to work with the agencies that they, they know they have an expertise, they know that they know their industry.

And that they know they’re going to get results. So for most organizations, they don’t care if you’ve worked with IBM or GE or apple or whoever Amazon or Peloton, or whoever happens to be, they care that you’ve done really good work. And so I would focus my time on showcasing that work and doing a really good job of showcasing the results that you get with the budget and the ideas and all that versus trying to get those big brands.

Logos on your website and truth be told we did work with GE for years, years. We couldn’t put their logo on our website. Right. So,

Chip Griffin: well, there’s that too, right? If you’re, if you’re doing it so that you can get the logo, make sure you can actually get that logo. Most of them won’t let you do it. Correct. And, and it’s, you know, look, I mean, I, as someone we talked to in a recent episode about, you know, being on the client side of the agency, client relationship, when I’ve hired agencies for my businesses in the past or places I’ve worked, I don’t really care about the logo slide in the deck.

I don’t, I don’t go to their website to look well, Frank, I would go usually go to the website at all. Right. I mean, we, we, in the agency world, we overestimate that logo slide and our website logo page and all that. Nobody cares. They just don’t and, and, and, and Google slides are actually a double-edged sword anyway, because it sometimes can make it harder to get the smaller class.

Right. So if you’ve got one big brand and you’ve got, you know, most of your bread and butter is that the SME market, you’re going to have a hard time because they’re going to look and say, well, geez, I’ve no, gee, I can’t, you know, I can’t compete. You know, they’re going to be too expensive. They’re they’re not going to pay attention to me.

You know, so think about it from that perspective. Um, and so, but let’s say so, I mean, the purpose of this episode is you’ve already agreed to go into relationship with someone who’s got a finance and procurement team, right? So we’re, if we haven’t talked you out of it in the last 10 minutes, we’ll probably never go.

So if you find yourself in that situation, how do you handle those kinds of conversations?

Gini Dietrich: You know, there are a couple of things that we have done, and it certainly depends as, as you will know. Um, but we’ve done a few things where we’ll work with procurement and the account team and create an opportunity for us to start work now.

And then, you know, wait the 90 days or whatever it happens to be. And then the moment we get a check, then we actually start the work. So we’ll get all into the system and do everything. And, you know, then the team may send stuff over for us to, to read and, you know, start to get knowledgeable, but we don’t actually start work until we get the first check, um, that doesn’t always work, but it is an option that I’ve used several times with big brands to be able to, to get started and, and.

Perfectly Frank with them. I’m like, look, we’re a small business. I don’t have a huge bank roll. I don’t have a line of credit. Like I can’t, I can’t do this work and pay my team if I’m not getting paid. So I explain it from that perspective. And, um, usually they’re pretty good about that. And so it kind of feels a little bit like you’re tricking procurement.

Um, but it, that, that is one option that we’ve tried that, that typically.

Chip Griffin: Right. And, and just to be clear, you’re not suggesting you work before you have a signed document. You’re suggesting that, that what you did. Let’s do it before you start getting paid. Right? Right. Yeah. I mean, make sure you have a signed agreement.

Gini Dietrich: Yeah. Yeah. Like we get all that done and then we submit the first invoice and then we wait to get paid and then we start the work.

Chip Griffin: Right. But it is, it is not uncommon for the client team to say, yes, let’s do this and them want you to start going. You know, and just say, well, just work it out with procurement.

You know, you’re going to get paid for this. Don’t worry about it,

worry about it. Right. And also be really careful about incurring any. Additional expenses, um, in those early stages of the relationship, if you’ve got a long payment cycle or something like that, don’t go out and hire new people or get big subscriptions, or I add anything like that, you know, make sure that that at most what you’re putting at risk.

Is your, your staff time, right. Which is still bad. It’s bad, but yeah,

Gini Dietrich: not as bad

Chip Griffin: as, but it’s not as bad as these third-party expenses that I’ve seen get brought in. And then you, you know, you find out that they’re going to delay payment even more and all of a sudden, now you really are becoming a bank.

And there’s no reason why a small agency should be a bank for, for, you know, GE or someone like that. I mean, frankly, a large agencies shouldn’t be right. Um, and we’re not meaning to pick on GE here. So if you you’re listening, gee, you know, it’s just an easy name to say.

Gini Dietrich: I mean, we really did do work with them and it was a great experience, but yeah, there were very like, they, they had rules.

You couldn’t put them on the website, you could talk about them, but you couldn’t, you couldn’t put them in a deck. You couldn’t. So in a new business presentation, I could say we work with GE and I could talk about it, but I couldn’t even do a case study in a presentation. Like if they were super, super strict about that stuff.

Um, But they are one of the ones that we worked out ahead of procurement to be able to make sure that we were getting paid. And I never took on an expense. I always said, all right, either give me a credit card or you make this, you know, the invoice goes to GE or whatever happens to be because they that’s how they make their money.

Is they right? I mean, they use your money to make money.

Chip Griffin: Exactly, exactly. There they’re taking the float and that’s that that’s just completely wrong. Um, and, and it’s. Yeah. You know, there are brands that are better than others, right? So I don’t, I, we shouldn’t paint with one brush. Cause you say, you know, GE was great to work with.

I’ve worked with plenty of Fortune 100 brands over the years that were fantastic to work with. There are some that I will never, ever, ever entertain a conversation with ever again, no matter how big the contract is because it’s just not worth it. And so, unfortunately those are the things you will learn from experience.

But if you, if you’re thoughtful about how you protect yourself, you can. Yup. Minimize the risk, shall we say? Yeah. Yeah, yeah.

Gini Dietrich: I totally agree with that. Yeah. The accounting accounting departments are often a nightmare, so that easily can turn from 90 to 180. You’re right. I love the whole

Chip Griffin: Karen Swim from Solo PR Pro is, has offered up the chat for those of you who are listening to the podcast.

Sorry. Sorry.

Gini Dietrich: We, we, uh, we never got the invoice and you’re like, come on. I can see you opened it.

Chip Griffin: Right. Yeah. Accounting kind of departments are sometimes very good at sitting on invoices, even, even if the payment terms say that they’re supposed to pay up. Um, and, and, and you should be, you know, we’re not just talking about, you know, fortune 100 brands here.

This also comes into play a lot. If a small agency is doing work for a large agency, some of the large agencies are just as bad, if not worse. Then the big consumer brands and that sort of thing when it comes to finance departments and payment terms. So, you know, don’t, don’t say to yourself, oh, you know, we’re in the same boat.

We do the same thing.

Gini Dietrich: Well, and that always rolls downhill too, because then you hire contractors to help you, but then you can’t pay them until you get paid. And like, it’s just this vicious cycle. So it’s.

Chip Griffin: Right. Yeah. And, and so, so those are, those are all absolutely problems. Now, all of that said all of the trashing that we’ve just done, finance and accounting, finance, and procurement, I will say you should go into the conversations with them.

Not assuming they’re going to be the. More often than not they are, but sometimes they can be an ally. And even if they’re not going into it with that negative attitude is probably going to lead to an unproductive conversation. So go into it with an open mind, just know that, you know, they, they, they may have the, you know, the stiletto behind their backs that they’re going to jab you with.

And you’re not looking. I hope it’s

Gini Dietrich: a really expensive one. Like a Jimmy Choo or. That they’re using a

Chip Griffin: knife.

Gini Dietrich: I was thinking, shoot

the little shoe.

Chip Griffin: That’s how

Gini Dietrich: we differ right there.

Chip Griffin: Yeah, that was not where my mind went anyway, so, but, so, so go, you know, because I have had situations where I’ve actually been able to take advantage of the procurement team to help me deal with some issues with the client. Right. And a lot of this comes down to.

What kind of finance or procurement team that you’re working with. So if you are working with a business that doesn’t have a lot of experience dealing with agencies or professional service firms is going to be a lot more challenging. So I’ve done some work with some manufacturing companies in the past that their procurement departments had no idea how to deal with agencies.

It was just not something that they really did. And so they approached it all more from the standpoint that they would have a, a vendor who who’s selling them, widgets of some kind. And so, you know, that just makes for a very awkward conversation because the thing is they’re worried about aren’t even relevant to the conversation.

And you’ll see this in the contract language. I know we’ve talked about this before, where they’ll put in requirements for, you know, vehicle insurance and things like that. I’m doing it all over soon. There’s no vehicle involved. Why do I have to name you in my vehicle insurance policy, right? Yeah.

Gini Dietrich: That’s a really great point, you know, and there’s there often conversations in the counselor’s academy, Facebook group about that very thing, like I’m being asked for, um, our life insurance and our, um, like all sorts of insurance that you’re just like, w Y.

Right. Yeah. It doesn’t vehicle insurance that doesn’t make sense. I’m never leaving my desk.

Chip Griffin: Right. Exactly. And, and, and this is, this is just something that you need to, I mean, as we’ve said on contracts, you always need to look at everything. They’re asking you to get it assigned. And particularly when you’re dealing with finance and procurement, there can be a desire to just to blow through it as quickly as you can, because you’ve already reached in your mind, the agreement with the client.

This is what we’re doing salary. So let’s just get this paperwork out of the way. And so, you know, and, and most times if procurement or finance is involved, they don’t just have you sign a contract. They have you sign all sorts of other stuff that goes along with it, certifications and this and that, and read them, understand them, know what you are committing to.

Gini Dietrich: I’m just going to say that this is why I don’t do RFPs or work with procurement departments because I don’t have the time or the patients.

Chip Griffin: Yep. And the other thing that you need to be aware of, if you’re dealing with procurement finances, they don’t go away after the deal is signed. There’s this assumption that they only show up again, if there’s going to be a new contract and that’s not true, a lot of times procurement likes to do their own check-ins.

So, you know, you may be doing, you know, regular client check-ins, but sometimes procurement wants to do a quarterly or semi-annual check-in as well. And you’re like, why, why. And I I’ve been, I’ve been down this road and I had to sit down for like half day conversations with procurement, where I have to justify everything that the business is doing for them.

Are you kidding?

Gini Dietrich: Yeah. See, this is, I told you, this is the fastest way for me not having any clients.

Chip Griffin: Yeah. I mean, it is why I am generally very negative on, on working through an RFP or procurement type process because it, it generally doesn’t end well, unless you have a lot of resources on your end to throw at it.

Um, and. You know, I, I, I know that that’s not a popular position cause people do like the idea of working for the big brands, with the big budgets and all that kind of stuff. But I think most of the time it’s not worth it, but

Gini Dietrich: I also think that that was more relevant 10 years ago, but in the world that we live in today, there are plenty of budgets and plenty of money in certain industries.

Like if you’re in travel and hospitality, not necessarily, but if you’re in. It’s the startup world or tech working with entrepreneurs. There’s plenty of money,

Chip Griffin: plenty of money, plenty of opportunity, plenty of places where you don’t have to deal with these things. And so you want to know if they’re involved from the get, go as Karen suggested, and then if they are get them in the involved or walk away one or the other, you know, and just, just understand.

You know, don’t, don’t short circuit, a shortcut, any of those conversations, make sure that you’re actually engaged in them. If you’re going to continue down that path, make sure you understand what they’re asking, make sure that you figure out, you know, what the pitfalls are and that you’re protecting yourself.

And you’re not just doing their bidding because they’re big and you’re Small.

Gini Dietrich: Yeah. And to close this out, I, 100% agree that you have to pay attention to the stuff that. Hi, Dough.

Chip Griffin: Doug Haslam has chimed in. So I’ve got to work with you on this Gini. See, this goes out as an audio podcast where people don’t see us.

So the fact that I put a comment on the screen

Gini Dietrich: tell people that Doug is here and he’s been riding his bike again, which I see on Strava. And I’m very proud of you. Go get

Chip Griffin: them. Absolutely. We’re very happy about that. I don’t understand it. I didn’t, I mean, I’m not a bike rider, I’m not a bike rider. I had a

Gini Dietrich: really bad cycling accident and he’s getting back

Chip Griffin: on the bikes.

So, which is why I will never get on a bike one of many reasons, but I much prefer to run rather than, than to, to ride a bike. So

Gini Dietrich: I have no idea what I was saying, but I’m more, I’m more happy that Doug was here. Yeah,

Chip Griffin: you, you were trying to wrap up. So that’s what we’ll do because since this is a behind the scenes episode of Small Agency Talk Show or recording the podcast, we crash land every episode.

So this is, this is one of the least bad crash learnings that we’ve had. So with that I’m Chip Griffin,

Gini Dietrich: I’m Gini Dietrich,

Chip Griffin: and it depends.