It’s been a while since I wrote a blog article for Agencies 2 Inbound. There are a lot of exciting changes going on at Square 2 and I’m happy to share those over the next few weeks. One of the biggest includes a bunch of experiments related to improving results with clients.
However, my work with agency owners has been continuing and over the past few months, I’ve spoken with well over 50 agency owners.
During those conversations, I’ve collected the top 10 questions that agency owners ask me when we chat. Since there is a common theme and a definite trend in what agency owners ask me, answering them in the blog seems to be a good idea.
Sit back, relax because I’m guessing that many of you have similar questions. Here is part 1 of a two-part blog series on the most pressing questions facing digital agency owners right now.
Question 1 - How Do We Get More Leads?
It’s ironic that we’re tasked with getting leads for our clients but most agency owners are neglectful when putting the time, money, and energy into generating leads for their own agencies. It's not that they don’t know how, but that they don’t prioritize the effort.
Waiting for referrals is no way to scale an agency. You need your own Marketing Machine. You need to create your own demand and generate enough interest in your agency that people are coming to you in a scalable, repeatable, and predictable way.
There are no shortcuts. There are no Easy Buttons.
If you want more leads for your agency, you have to create more content. It has to be highly educational, entertaining, thought-provoking, leadership-oriented, and different from your competitors. Then you have to distribute this content through as many channels as possible. Monitor the performance, lead into the content that is getting traction and engagement and move on from the stuff that is falling flat.
Measure everything, run experiments, try new channels and new content types. Make sure you know who you’re targeting with the content either by industry, role, or specific pain point.
Invest enough time, money, and energy to start seeing results and then continue this effort, optimizing along the way—forever. You can never stop working on this. Regardless of how busy you get, this work has to be a priority.
In 60 to 90 days, you should start to see more visitors to your website, more engagement on social channels, more people reading and watching your stuff and more people wanting to talk to you.
If after that time frame you’re not seeing results, well then, we should talk. You might NOT know how to generate leads for you or your client and that’s a much bigger challenge.
Questions 2 - What Services Should We Offer?
This is a more difficult question. I usually ask owners a host of questions to help me answer this. Questions like, “What are you good at?” or “ What are you passionate about?” or “ What do most of your clients need?”
You could try to offer everything, or you could focus on what you’re good at. You should focus on what your clients need. Most clients need a lot, so that’s not always helpful.
However, this answer is more about you and less about any other agencies. My advice to most agency owners who ask me this question is to offer the services you need to offer and to deliver on your service promise.
If your promise is content creation, then you should be great at everything related to content marketing, content delivery, and content optimization.
If your promise is more leads, then you should be great at generating leads and offering everything you need to help companies get more leads.
If your promise is growth, then you better be excellent at all aspects of business growth. I see this often. Agencies promise growth but are really just good at inbound marketing and HubSpot. That’s not always aligned.
Pick a lane. It could be a narrow lane or a wider lane. But pick it, stick with it and orient your services to the clients in that lane and your promise to them.
Question 3 - How Can We Improve Net Profit?
This is one of the best questions I get asked, and surprisingly I don’t get asked it as much as I think I should. Net profit is really about two elements which are your operating costs and your fixed costs. Operating costs include salaries of all your employees and your own compensation. Fixed costs include items like rent, insurance, utilities.
If you want to think about it a little differently, operating costs are anything associated with delivering services and fixed costs usually have more to do with running a business.
If you have revenue of $1,000,000 and operating costs of $500,000 and fixed costs of $200,000 but you don’t take a salary, your net profit is NOT $300,000 or 30%. A lot of agencies think that’s the case. Net profit is calculated after ALL your expenses have been deducted including your reasonable compensation as owner or CEO.
With that out of the way, you can improve net profit in three ways. One is charging more which means your costs will stay the same but your revenue will go up, pushing up net profit. This is, of course, my preferred recommendation.
This will get more efficient in the way you deliver, pushing down your operating costs and driving up net profit or reducing your fixed costs, like giving up your office. You can also do all three and probably should be trying to do all three most of the time.
Let’s look at all four options.
Charging more is something you should probably do immediately. I don’t have to know your hourly rate or your average retainer to know you’re not charging what you’re worth. Want to make more money, and want to improve profit? Raise your prices. If a client is paying $4,000 a month, they can afford to pay $5,000. You won’t lose them if you’re adding value to their business.
Lowering operating costs is harder, but also doable. If you have the right information then you should know roughly how long it takes you to do just about anything at your agency. Start with the projects you do the most and the projects that appear to be the most out of line from a profitability perspective.
Operating profit or Gross Profit should be at a minimum of 50% and you should be working to push that up as high as possible. Some agencies see 60% or 70% gross profit.
You should be able to track this number as a key operating metric. You should know gross profit monthly and you should know it by client, by project, by client team, and for the entire company. This is going to help you focus your efforts on improving efficiencies in the places that need it most.
Fixed costs. These are typically harder to control unless you want to make some big decisions like giving up your office. Most agencies don’t have a significant amount of reducible fixed costs but you could get a cheaper accountant, lower insurance coverage, or eliminate any unnecessary software subscriptions.
Finally, as I mentioned, working on all of these at the same time, is probably best. Keeping an eye on these every month is mandatory. Focusing on these metrics will help you improve net profit in short order.
Question 4 - Who Should We Hire Next?
You’re growing, your team is busy and you know you could use an extra hand or two. But who do you hire and in what order? It’s one of the hardest questions to answer.
Here are some guidelines that might help.
If you have people doing multiple roles, I like to suggest you consider splitting them up. An example would be if you have consultants who are also writing or consultants who are also project managing their work. It could be a designer who is also doing HubSpot implementations. This is a great place to consider letting people focus and be brilliant at one thing, instead of asking them to be average at two or more things.
One other place to look is expertise. Is there something you need 40 hours a week that would help you get better results for your clients? Are you doing an OK job with SEO or paid social? Would an expert help you improve your company’s performance in those areas? If yes, I’d consider that as an important next hire.
One approach we’ve been successful with is what we call, “try before you buy.” Consider bringing on someone you need part-time to start. Work together as you get to know them and they get to know you. If the business is there you can expand their hours until they are a full-time team member.
I’ve had many of these experiences where the team member thanked me for letting them get to know us before they joined full time. Win-wins are good for everyone.
Question 5 - What Should The Structure of The Agency Look Like?
My last question in Part One of this blog series is a big one. Agency structure is tricky. A lot of it depends on the kind of agency you are and the focus of your services. However, I have guidance on this question too and I have an exercise that might help.
Create an org chart right now. Structure has one major goal, and that is to ensure your people have the right oversight, mentorship, and direction to be successful. If you have 12 team members reporting to you, you can’t do your job, nor can you help them do theirs.
Agency structure also helps put similar people with similar roles on similar teams so they can work together, collaborate, innovate and help each other grow professionally.
For example, we like to put design and copy together on the creative team. Pictures and words need to go together to tell a story. Video production people would also be on that team.
Interactive, web development, or anyone doing technical work might be better served on a separate team. Their skills, processes, and needs are different. They’re more mechanical than creative folks.
Finally, the people who service clients would be on their own team. Their jobs are dramatically different and they need different types of support. I might recommend putting your project manager on this team too since that person works closely with the people delivering the work and the people promising them work. That's a nice bridge from one team to another.
There are a lot of good, productive ways to structure an agency. If you’d like to talk about your shop, specifically, I’m happy to hop on a call and see if I can help.
If you liked this content, consider joining a Cohort with other agency owners just like you. I have people interested in starting a new Cohort in July, so the timing is perfect right now. To talk to me about getting into the next Cohort, click the button to the right and we'll schedule a time to talk.
Stay tuned for next week, when I’ll finish up with the remaining five questions agency owners ask me and the answers I share. Questions like, “What’s wrong with my sales process?” and “How do I differentiate the agency?” or “ Should we use points for pricing?”
In the meantime, here’s the one action item you should take away from this article.
Start Today Tip – You’re not charging enough. I know you want to land new clients. I know you’re worried that if you charge too much you won’t win the business, but losing a prospect to someone who charges less has nothing to do with money and everything to do with your ability to prove your value. You should be charging more. All agencies should. Raise your pricing, just a little bit at first, but keep raising it a little bit each month. Your prospects won’t know. You won’t lose any business because of it and your profit margins will be increasing. Before you know it, your agency will be more profitable and you’ll be making more money.
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