“You should start your own agency, you’re a great designer, website guy or search engine expert.” That’s probably why you started your agency, everyone encouraged you to branch out on your own and now that you’re on your own, you realize you—are on your own.
What you’ve already learned is that starting, running and then growing an agency are three distinctly different challenges. You’ve probably also learned that getting over the $1MM mark is very hard.
If you’ve done that already heads up, there is another hurdle at the $2MM mark and then again at the $4MM mark.
They are all different in the nature of those challenges and definitely in the answers to getting past those challenges.
Having grown Square 2 Marketing from less than $1MM to over $6MM in revenue here’s what those challenges look like, how to get over them, and more importantly—how to be proactive as you approach those revenue milestones, so the transition is smooth and easy.
General Observations After 15 Years Of Agency Growth
There are definitely different challenges at different levels of growth but there are also some general challenges that need to be addressed to see any growth at all. Specifically, I see three ingredients necessary for an agency to grow.
The first and most important part of growth is you must be able to pick the right clients and then keep those clients for at least 18 to 24 months.
While you won’t ever keep every client forever, extending your average length of your client engagement is critical.
If you pick the right clients, then they will stay with you longer, be better advocates for your agency and actively work with you while you grow.
This is critical and hard for new, growing agencies to manage. Anyone who wants to pay you, looks like a good opportunity when you’re actively trying to grow. This can be a hidden pothole you want to avoid if possible. Clients are not created equally and selecting the right ones to work with is key.
The second most important ingredient for growth is you must have your marketing and sales activities firing on all cylinders. While you will lose clients here and there, if you don’t have a pipeline that brings in more than you lose, you’ll end up treading water. This is, by far, the biggest challenges I see with agencies under $1 million in revenue.
You have to be signing more than you’re losing. If that’s not happening work on fixing the leak in your client services bucket or ramp up your own sales and marketing efforts.
The third and final area for growth is risk. You’re going to have to take some risk. The key is mitigating that risk with back up plans. But you won’t grow if you don’t take risks.
One risk I see in smaller agencies is hiring when you think you can’t afford it. Another is taking on clients who might be bigger than you think you can handle and finally charging more for your services.
All three of these risks are required for growth and all three can be mitigated to make the risks manageable.
Now let’s look at some revenue specific challenges facing agencies today.
Getting over the $1 Million Mark
This typically has everything to do with the team and hiring the right people. Assuming you have the sales, marketing and client selection piece down. Assuming you’re prepared to take some well thought out risks, getting over $1 million in annual revenue almost always comes down to having the right team structure and the right people to push past this.
Doing over $100,000 in revenue a month generally requires a team that can service between 10 and 20 accounts a month. You should see the challenge right there in that statement.
You can do $100,000 a month in revenue and have 10 accounts and the team to service 10 accounts or you can do $100,000 a month in revenue and have 20 accounts and the team to service 20 accounts. Which do you think is easier to build, manage and grow? Which do you think is more profitable?
Correct, 10 accounts—which is why for the past five years I’ve been advising agencies to NOT charge $5,000 a month but to charge $10,000 a month. Less clients, more revenue, smaller teams, more profit.
Struggling to get over $1 million in annual revenue. This is the first move you need to make. Get rid of small accounts and focus on getting, keeping and growing a smaller number of bigger accounts.
Once you make this mental move, building the team to support less but bigger accounts get easier.
Getting Over The $2 Million Mark
Now that you have less clients who pay you more monthly, you need the team to service them and a team structure that is scalable as you grow. This is the biggest challenge as you go from $1 million to $2 million. From $100,000 a month to $200,000 a month.
The key pieces missing from agencies struggling to scale over $2 million is the team structure. You have people doing too many jobs, doing them inefficiently, you’re missing key roles and you don’t have a scalable model.
We created the Hive Model to help us scale the client services and production/delivery team as we grew. Client teams were formed, client teams broke off, taking clients with them, allowing new clients coming on board to back fill old teams and slip into the new teams.
It was very effective at this size and while the risk of hiring at or slightly ahead of revenue was there, we mitigated this risk with strong sales and marketing execution.
The other scaling challenge that typically shows up at this level is having people in more than one role. You have your Account Manager/Project Manager. You have your Marketing Consultant/Writer. You have your Designer/Interactive Developer.
This works well at lower revenue levels, but as you get bigger, you should be looking to split these roles out and you might realise you don't always have the right people at the right time.
The way you mitigate this is to have a long range organizational plan and structure. So as you’re hiring your Account Manager/Project Manager you have plans to have this person be your full time, 100% allocated Project Manager in 12 months. Your planning for growth instead of responding to it.
Getting Over The $4 Million Mark
Things definitely get interesting as you get to this mark and above. Now you can afford what I call “luxury items” like an HR person, someone to run your own marketing, and or leadership positions to oversee departments.
One of the keys for agencies of this size is bringing in the right people and nurturing your best people so they stay and work hard to help your company grow.
Having someone responsible and accountable for hiring, for actively recruiting, for nurturing your culture, for internal communication, for managing all the HR administrative tasks associated with a 40-person company means you get to be the CEO and someone with extensive HR experience gets to do what they're great at doing.
As you get bigger you’re going to need the support like you typically see in a bigger company. For example, people are going to want to know about career paths. As you get bigger, you can actually offer people a career path but what does that mean?
It means they’ll need what we call proficiency checklists to see if they qualify for that step up. Someone has to create these, manage these, share these, communicate to the team members how to use them and how to work with team members to get them proficient.
The other key is an active drive towards efficiencies around delivery. You can have a $4 million agency that is unprofitable because your inefficient in the way you deliver. This means you won’t be around for very long, even if you do $400,000 a month in revenue.
If everyone is working on client stuff, then who’s watching for efficiencies, who’s responsibility is it to drive the company’s profitability? As you get bigger, this is a legitimate role. At our shop, it’s the Director of Client Services. She has to keep our clients happy, build her team of consultants and make sure delivery is profitable at the levels we’ve agreed to.
Now you can afford this type of person and you need this type of person to keep the trains running and the company growing profitably.
Keeping The Upward Trajectory Going
I was recently at a meeting of HubSpot partners and one of the agency owners summed up his take on what's required to grow an agency. His keyword was “stamina”. I couldn’t agree more.
If you want a lifestyle agency that pays your bills and gives you a place to call home—no problem.
But if you want grow an agency then you better hunker down for a long and hard road ahead. What you have to do to grow is hard work and requires you to remain committed every day, every month and every year for the foreseeable future.
$1 million or $10 million it doesn’t get easier, its just different.
You should be thinking with a growth methodology—meaning who is responsible for coming up with the ideas that help you grow? If its you, and it probably is, what does that system look like?
Do you work on it for an hour a week, two hours? Do you go on a retreat for one day a month to come back with new ideas for the agency?
Do you work with outside advisors in an EO or Vistage style group? Do you join a Mastermind or Agency Cohort where you can get ideas from other agency owners?
The answer is as unique as you are as an individual. What works for the owner down the street might not work for you. But you need to do something.
As an example, Square 2 has been working for 9 months on ways to differentiate our agency and the culmination of that work will be released at Inbound18 this year.
Growing your agency is the hardest task you’ll take on and you have to be up for the challenge, you need people to help you and you need the stamina to see it through.
Start Today Tip – Growing an agency is very hard work and takes discipline. One way to gain that discipline is to consider using one of the business operating systems like Traction or Rockefeller Habits. One of the common factors among agencies who are growing and those that are stagnant is a commitment to business growth habits and systems. The other commonality is CEOs who work ON the business and not IN the business. You have to find time to strategically work to proactively grow the agency, it won’t happen organically. These are both practices that anyone can add to their agency operations if growth is a key part of your plan.
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