Building new client relationships is always an exciting time for agency owners. Knowing that a potential client has accepted your proposal and is ready to work with you is always a good occasion, and can turn into a fantastic growth opportunity if you know how to leverage it.
This is a chance to generate much-needed revenue, but be warned, it also comes with a lot of responsibilities.
If you do not create a solid foundation and draft airtight agency contracts, you are leaving yourself open to litigation. Ask yourself: how robust are your agency-client contracts? If you have even the slightest doubt about the strength of your contracts, you need to go back to the drawing board and revisit it.
What is an Agency Contract?
A contract of agency is a legally binding contract which results in a fiduciary relationship between two parties, the principal and the agent. The agent is then allowed to make agreements on behalf of the principal, giving them authority to act on behalf of the principal.
The Importance of Drafting the Right Contract
As an agency owner or manager, it is your job to take steps to protect your business. This begins with drafting a solid contract of agency that documents the roles and responsibilities of all the parties in the contract.
You need to do everything in your power to draft effective contracts. A written contract plays a critical role in business transactions and ensures that all parties agree to the core requirements of the task and that the document identifies and places legal responsibilities at the right party.
A contract of agency ensures that all parties which are privy to the contract understand their legal obligations. More importantly, the contract serves as a tie-breaker in case there is a misunderstanding between the parties, and can mitigate the need for litigation proceedings in the future.
Unfortunately, this is much easier said than done. It is important to understand that a digital agency contract is more than just a document that you send to a client, and then file away neatly in a folder. Each section must be carefully drafted to protect your business interests, in case things go sideways.
Do You Always Need a Contract?
The process for procuring customers varies from agency to agency. No matter how well you have pitched to a new client, you have to negotiate a contract that highlights the job responsibilities of all parties before you start work.
Without a legally binding contract in place, you expose yourself to the prospect of doing additional work without any consideration. The customer can request more action items if the job responsibilities are not clearly mentioned in the contract. Ultimately, this could lead to a loss in revenue for your agency.
To make matters worse, there’s a risk that your clients might file a lawsuit against your agency. This can drag on for months, even years, and can cost your agency a pretty penny. In a recovering economy, agencies simply do not want to worry about potential litigation.
So, to sum it up, you need a contract with your clients that highlights your responsibilities and the clients’. It should highlight any terms and conditions that your agency has set for work purposes, and must include a brief but specific summary of the services offered by your entity.
Here is an example of a basic agency contract template. It is by no means definitive and can be changed as needed.
This is a basic agency contract template, and it can be customized however you please. You should feel satisfied that all expectations, payment milestones, and work deadlines will be clear for both parties once your client signs the contract
The essentials of contracts are integral to the document – that’s what makes them legally binding in the first place. Here are the key essentials for contracts that you must incorporate in every legal document.
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Agency Contract Essentials
The main focus of your contract will be on the legal obligations towards the client, and the scope of work. However, it is best for you to run the contract by your legal team before you send it to a customer.
Certain terms or words might require changing. That aside, here are some essentials that you need to add in every contract.
1. Names and Addresses of Client and Agency
This is usually highlighted in the first few lines of the contract. You must write these particulars at the top so that anyone reading the contract can immediately identify the parties to the contract. It should include your legal trading name as well as your client’s, along with each business’s legally registered address. Up-to-date contact information must also be added to the contract.
2. The Duration
One very important component of a contract is the duration of the work. The contract must mention the start and finish date. It should state the time of completion, along with a clear definition of when you can demand payment from the client after work comes to a close.
3. The Scope of Work
The scope of work is a critical part of the agency contract and needs detailed coverage. It should include all deliverables, expected outcomes, the payment milestones, and general duration for the completion of each.
Make your scope of work as robust as possible. For instance, if you allow revisions, how many do you offer for free? The scope of work should be clearly detailed on the first page. Some important things to highlight under this heading are:
- The agreement between you and the client;
- All the services your agency shall provide to the client;
- Anything needed from the client;
- The number of revisions allowed;
- All tangible deliverables to be provided from your side;
- Deadlines for the deliverables.
It’s imperative that you do not write open-ended statements in your deliverables. Be as specific and clear as possible, no matter how many pages it takes.
4. A Crystal-Clear Payment Schedule
The last thing that you want to do is to create a contract that doesn’t clearly define the payment schedule and terms. Nobody likes to keep buzzing a client for payments. It could adversely affect your business relationships.
To prevent this from happening, ensure that you add a clear payment schedule, along with the total amount that must be paid to the client. List the payment modes, and specify if refunds are allowed.
If you have a retainer, you can also decide to bill your client monthly. Or, if you are working on a project, you can request a 50% advance before work begins, and the rest can be paid once the project is completed.
Finally, you can also bill the client in milestones so they can track the progress of the work done. Make sure you highlight what happens in case of late payments. For instance, most agencies add a small surcharge such as a late payment fee in case invoices are not cleared on time.
You also need to mention how client reporting will be carried out.
What if a Client Adds More Work?
Known “scope creep” in the industry, this is a common occurrence, and something that agency owners are quite used to. It usually starts small; a client may ask you to add a couple of touches here, make a couple of changes there.
Before you know it, your client will start asking you to perform work outside the scope, without any compensation. To keep this from happening, you need to create an airtight “scope of work” section. Also, mention additional work requests in the client contract, and highlight the payment terms for that.
5. A Termination Clause
Play it safe when writing the terms and conditions of the contract. In this vein add a termination clause. When you want to part ways with your client, you should be prepared with the relevant legal knowledge about what can happen. The terms for breaking up are going to be the same for both you and the client, so make sure that you write as descriptive a termination clause as you can. Add important things like:
- The notice period before termination;
- The mode of sending a notice;
- How you will handle outstanding work with the client.
6. Consequences of Breach of Contract
When drafting a client contract, add what will happen in case you, or the client, breaches the terms of the contract. Firmly state the consequences, such as a monetary fine, or termination of the contract without any refunds.
When two parties enter into an agreement and a signed contract, they are expected to uphold their end of the bargain. It is one of the main reasons why you need to be as strict as possible so that other parties do not try to breach their contracts. You can also add a clause to prevent your client from working with any agency that offers similar services while they are under contract with you.
7. Legal Ownership
As an agency, you are the creators. Who gets the ownership once the job is complete and the payment is made? Be as clear as possible because copyrights are quite confusing in the first place.
Copyright clauses allow both parties to know about the ownership of intellectual property. Agencies use specific processes when creating projects, and it is up to you to decide whether to keep them or transfer ownership with the contract price.
This clause ensures that your client will not speak in public about things that you don’t want them to. For instance, common things like the rates charged, your service procedures or workflow, or email threads are all confidential.
A non-disclosure allows your client peace of mind regarding the secrecy of their operations or requirements.
Most agencies overlook this clause, to their potential downfall. For example, say a client you work for takes a hit as a result of said work. If you do not add an indemnity clause, you could end up losing a lot of money. You need to add an indemnity clause to ensure that your liability is limited. These clauses are quite complicated, so you need a legal team to go over this. This is especially important for high-ticket clients.
7 Tips from Industry Professionals for Agency Contracts
Now that you know the essentials to add in a contract, here are 7 tips from experienced agency professionals for drawing up agency contracts.
1. Use an Experienced Attorney
Donata Kalnenaite Esq., the President of Termageddon LLC, says that you must use an experienced attorney to write or review the contracts. Make sure that your contract is extremely clear about what your client’s responsibilities are (e.g. how many days does the client have to respond to your requests or how they can provide approval on certain designs). “Allow for some flexibility by providing a way to add additional items to the scope in a well-documented manner,” she says.
2. Disclosure is Very Important
Hans Skillrud, the cofounder of Termageddon, LLC, believes that the agency must disclose responsibilities and penalties as clearly as possible. He says, “Disclose penalty for when a client is late to providing you information. Building websites requires both the client and the agency to work together and they both must have a sense of ownership and responsibility.”
“A good example of a ‘penalty’ would be that if the content is delivered more than 1 week after its due date, the project may go on hold and you charge a $25/mo fee to host all the project work. This fee is rather small, but it serves as a good reminder to the client that you are waiting on them so that you can finish your job.”
He also says that the agency must disclose that they are not responsible for providing or keeping website policies up to date. Privacy policies are required by law for the majority of business websites, and you want to have it recorded that you are not the client’s privacy consultant
3. Protect Your Agency
Sun Vainer, the Co-founder and CEO of R.S.L Negital Ltd, believes that a contract must be designed in a way that it protects your agency. He says, “The most important thing to keep in mind is that your contract needs to protect your agency.”
“Make sure to include paragraphs that protect your agency from client’s business and revenue damages that can be caused by the service that you provide, also include a paragraph about refunds and money returns, at what circumstances is the client eligible for a refund? How much of the original deal is the refund?”
“The second thing to keep in mind is that your contract can be used to raise your client’s confidence in closing the deal. Make sure to include paragraphs that give your client a way out of the contract, a refund paragraph and a commitment to the quality of your services.
“Can the client make a down payment first before paying the full price? How long will it take you to complete the service? Can he receive a partial refund if the service is late?” He believes that the contract must include all the relevant details before it is sent to the client.
4. Have a Clear Scope of Work
Erin Austin, the founder of Erin Austin Law and The Contract Whisperer, has more than 25 years of experience in practicing law. He has worked on thousands of contracts, and his company provides strategic advice to clients on NDAs and agency contracts.
“My number one tip for agencies is to have a very clear scope of work and process for changes. The enemy of service providers is scope creep – when a client adds new tasks or deliverables to a project that is outside of the original scope of work. The result is an unhappy client because of missed deadlines and an unhappy agency when the project is no longer profitable.”
“My number two tip is to make sure there is no restriction on working with competitors in the client’s industry. Your value goes up if you are the specialist in your niche. Of course, you must not use any client’s confidential information when working with any other client–but you must be able to work with multiple clients in the same industry. If you can’t work with competitors, you can’t dominate your niche.”
5. Adopt Different Approaches
Nate Nead, CEO of SEO.co, believes in adopting different approaches when pitching to different kinds of clients. “When we are pitching clients, we have very different approaches depending on whether a client is another white label agency reseller or a direct non-agency client. For agency resellers, we offer non-recurring, a-la-carte type orders, depending on their needs. The Agreement reflects that.”
“For non-agency webmasters, we often require long term commitments of 6 to 12 months to ensure we can actually deliver on expected value. In all cases, we require mutual confidentiality, non-disclosure, and non-circumvention clauses in all of our agreements. This protects both our clients and ourselves.”
6. Create Flexible Contracts
Steve Ryan, the Founder, and CEO of RyTech, a full-service digital agency, believes that contracts should be flexible. “Contracts should be flexible in an effort to allow for ease of shift in strategy, adjusting scope, and delivering results on behalf of clients.”
“Some key components that we include with our contracts is a mutual 30-day cancellation notice. We don’t lock our clients into long term contracts and find that helps with client retention overall. We’re building relationships with our clients and delivering results.”
“Additionally, we include the core deliverables that we include as part of the monthly and project-based agreements. This defines the scope and provides some guidance on tangible deliverables our clients can expect. We typically go above and beyond our contracted deliverables to assist our clients.”
7. Make it as Simple as Possible
Tim Absalikov, the co-founder and CEO of Lasting Trend, a digital marketing agency in New York, says “The key thing is to define the professional terms in simple words so that even a child can understand. The Feynman technique will help you with this. Choose a concept, teach a toddler, identify gaps, review, and simplify.”
To wrap up you can see that most experts focus on one thing: eliminating the possibility of misunderstandings between the agency and the client, and making sure that both parties are on the same page about the services and compensation. The best thing to do is to hire a legal team who will review your contract, or better yet, draft a new one for you based on the nature of the job.
Agency contracts need to be written with great care. Having a legal team on your side can provide significant legal coverage and make sure that your exposure is limited. More importantly, well-drafted contracts provide peace of mind to the stakeholders at the agency and as well as the clients.
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