Peter Coppinger, co-founder and CEO of Teamwork, discusses the days when he and co-founder Daniel Mackey built a thriving web design business — once they fixed their 12 biggest mistakes.

You may not know this, but before founding Teamwork, my co-founder Dan and I ran a small web design agency called Digital Crew.

When one of the founding members of our web design agency made the decision to leave the company, Dan and I found ourselves in a position where we had to take a brutally honest look at the business.

Unfortunately, what we found left us feeling dejected. Refusing to throw in the towel, we decided to give it one more year or get “real” jobs.

Thankfully, after making some changes, we pulled ourselves through the storm and emerged much wiser. While we do have some great stories about our big wins from that time, truthfully, the most valuable and long-lasting lessons came from repairing our mistakes.

With many agencies now using Teamwork Projects today, I wanted to share the biggest mistakes we made during the process of taking our web design agency from struggling to successful — and the most valuable lessons we learned from them.

By the way if you run a web design agency, you should checkout our website project templates. They will help you set up new web design projects quicker and manage them more efficiently

Mistake #1: Working without an agency-client contract

Believe it or not, we didn’t ask for contracts for years, probably because we started Digital Crew straight out of college without any real-world experience. We trusted every client on their word and a handshake. However, after getting burned a few times without a contract to save us, we knew we had to start protecting ourselves.

The fix: Make contracts a requirement for every project and every client — every time. Writing contracts can be a time-consuming task, so create a strong contract template that you can reuse and customize. Make sure to include a schedule of work within the contract to eliminate confusion surrounding what you are delivering for the agreed-upon price.

Mistake #2: Billing in full at project completion

For many years we didn’t take stage payments. It was only when the job was 120% done that we finally sent an invoice. This destroyed our cash flow and put our business at risk. One particular incident that stands out in my mind was losing a €20,000 payment after months of hard work. We hadn’t asked for an initial payment, so when the IT manager who initiated the project was fired, and his boss said she didn’t want to use what we produced, so we never saw a cent. Ouch.

The fix: Put your agency in a better position to plan cash flow and resources by using date-based milestone agreements for payment. Ask clients for 50% up front for smaller projects. For bigger projects, ask for 33% up front, 33% midway and 34% at the end. For massive projects, break them into mini-projects. Breaking large projects up into smaller steps will also have a positive impact on team productivity since deadlines will become more frequent.

Mistake #3: Allowing scope creep

The problem with scope creep is that it’s not always obvious. It might happen very innocently during a casual conversation between a valued client and an agency owner who’s willing to go above and beyond to keep them happy.

Client: “Hey, Peter! Can you add this thingamajig to the home page? It’s urgent. I know I could do it myself with the CMS, but I’m very busy, and this is important.”

Me: “No problem. I’ll drop everything and do that right away. Tell you what, while I’m at it, I’ll update the doohickey also.”

Client: “Great, how much for this work?”

Me: “Ah, it won’t take long, there’s no charge.”

Client: “That’s great. You’re the best!”

This sort of thing happened at Digital Crew all the time and resulted in our agency doing lots of extra work, including rush work, for free. When these additional feature or function requests start cropping up, your agency needs a strategy to curtail scope creep and prevent it from derailing your other projects.

The fix: The key to effectively managing scope creep is communication and transparency. We introduced charges for completing tasks that were outside of the original project scope and ensured that clients were aware of these charges from the get-go. We brought transparency to our process by using an early version of Teamwork Projects to track every request, log the time taken to do the work and generate regular invoices for all clients.

Because we had every effort documented, clients had no problem paying. We also created a rule that all “rush work” was charged at 2x our normal rate. So when a client said “I need this today!” and the task interrupted our other work, it was highly profitable to do it — making overtime worth the extra effort.

Mistake #4: Undercharging for our work

We had more work than we could handle and a great reputation, but it took us a long time to realize that we weren’t charging enough. The penny finally dropped when we recognized that we were providing clients with one of the most powerful tools for growing their business — and we needed to adjust our pricing to match the value we were creating.

The Fix: With nothing to lose, and recognizing that we had an abundance of work and an excellent reputation, we emailed our regular customers and explained that we were dramatically increasing our prices. I remember one customer laughing on the phone when called to say he was surprised at how long we had been selling ourselves short.

Changing our pricing allowed us to turn down projects that weren’t a good match for us or that we found too risky. Soon we found that we were working fewer hours but attracting more profitable jobs. We were working less, doing better work and making more money: win, win, win.

Mistake #5: Allowing “design by committee”

When working on large projects with many stakeholders, we frequently found ourselves in a position where we were trying to satisfy them all. I remember one meeting with a large pharmaceutical where I listened to 12 people arguing about the colors of their respective sections of the site for 2 hours.

The fix: We started telling clients that we wanted to deal exclusively with one delegate from their side. They could do all their arguing behind closed doors without us and just present the results. With a similar policy, you will encourage your clients to self-organize, which streamlines your process.

Mistake #6: Treating tax as an afterthought

In the early days, when we received a payment from a client, it included the government tax (VAT) of about 20%. Because we managed our cash flow so badly at the time, we often spent this extra 20% and then when the time came to file our taxes, we fell short and panicked, which created a boatload of stress.

The fix: We opened a separate bank account for this tax, and as soon as a client paid us, we transferred the VAT amount straight into this account. We were never tempted to dip into this account because as soon as the money was transferred, we treated it as if it simply didn’t exist. This led to better cash flow management all around and put an end to those stressful situations.

Mistake #7: Poor invoice management

We used to host a lot of client websites and had hundreds of invoices due in various different months throughout any given year. Our invoicing process was haphazard, to say the least, and our follow-up on unpaid invoices was even worse. We would never even consider pulling the rug out from delinquent accounts, and this lack of discipline around billing really hurt our cash flow.

The fix: We hired someone whose sole job was to manage our invoicing and accounts receivable (part-time initially and then full time). She was an ace at her job: sent invoices immediately when due, followed up with fervour when invoices went overdue, and also had the authority to take websites offline for non-payment if required (which very rarely happened). The result was our cash flow was excellent and we could concentrate on our work.

Mistake #8: Prioritizing projects based on who was “screaming the loudest”

When our web design agency was in its early years, we used to have a whiteboard in the office with all of our active projects scribbled on it. We set project priorities based on which clients were putting us under the most pressure. We called it the “Who’s screaming the loudest” approach. It was chaotic and unsustainable.

The fix: After trying the leading web-based project management system and finding it sucked, we built an early version of Teamwork Projects to help us stay organized (and sane) while juggling multiple client projects. We entered the milestones for our various projects and were able to schedule our projects on the calendar. This gave us a visual representation of how much work we anticipated, what resources we had and when we needed to hire. Robust project management software is essential to staying on top of your clients’ projects, so make sure that your chosen tool helps your team excel.

Mistake #9: Neglecting our own website

We were so busy with client work that our own website hadn’t been updated or redesigned in years. Despite pumping out hundreds of beautiful websites for our clients, our own looked dated and static. We probably lost out on several major contracts because we weren’t putting our best foot forward.

The fix: Every January, we budgeted some time to redesign our website. We gave it a fresh new look that showcased all of our more current work. We also established the rule that a project wasn’t finished until its case study was on our site; this kept the site fresh and featured our best work, leading to us winning more and larger contracts.

Mistake #10: Not measuring profitability

Building websites was a long, slow process. After analyzing every aspect of how we built sites, we realized that we were rebuilding the same type of code over and over on different projects, and we had no idea how profitable our projects were.

The fix: We constantly reviewed our website creation process to see where we were losing time and how we could reclaim it. For example, when we started a new project, we asked the client to find 5 websites they loved so we could quickly understand their style and design preferences in order to save time in the design stage.

We found that building web forms for projects was a painful time sink, so we started scouting for ways to copy blocks of useful code. Our development team started building reusable components and “engines” that we could keep improving and plug into most of our websites, which saved a lot of time.

We also found that designers invested the same amount of time on every website regardless of its budget. To overcome this issue we worked harder at helping them become more conscious of financial expectations and discussed strategically allocating their time at beginning of every project.

When we finally had a tight, streamlined process for building websites, we started measuring our effort vs reward ratio. Our analysis led us to pinpoint additional problem areas, refine our process, select better projects and improve profitability.

Mistake #11: Taking any work that came our way

For years we did any sort of web-based programming and design work regardless of the size of the client. Then we stumbled on a few web application projects for bigger clients and quickly found that not only did we prefer doing application development work, but it was also highly profitable. It took us a long time to realize that you can charge more when your agency specializes in one area of work where you excel.

The fix: When we officially made the switch from web design, we changed up our website and positioned ourselves as “Web Application Developers,” highlighting our best application development work, and we started turning down smaller web design contracts. Your agency’s speciality might be B2C or B2B sites or you might even specialize vertically. In any case, once your agency gets off its feet, look to specialization to maximize your profits.

Mistake #12: Not offering extras

After correcting the mistakes that dragged our business into the red (#1 to #11), our margins began looking a lot healthier. We realized that we needed to start thinking about maximizing our financial turnover without significantly increasing our workload.

The fix: We realized that some small, easy-to-add services were creating huge value for our customers, so we began adding a menu of these items to each proposal. Clients could choose features like forums, news feeds, image galleries and more to their sites just by checking a box. Later, we added more substantial services to the menu, like an annual SEO audit and email management. Discovering this low-effort, high-payoff work improved our bottom line, and clients were thrilled to be getting extras they hadn’t considered.

Mistakes made us who we are today

Building and scaling our web agency taught us a lot of valuable lessons and also led to Dan and I building the early version of Teamwork Projects which became the foundation of the Teamwork suite.

While the 12 biggest mistakes we made weren’t always obvious at first, they were all things that prevented us from growing the way we wanted to — until we addressed them. My hope is that discussing how we turned things around can help you bypass the same struggles and fast track your way to building a sustainable and highly profitable web design agency.

Found these tips helpful? Learn more about our transition from agency to SaaS company and the 11 challenges we faced as a start-up.

This post was originally published on May 25, 2017 and was updated on February 7, 2019.