I’ve often referred to my experiences running an agency with my business partner, Kevin Springer in this blog. We were small, and I kind of wore it as a badge of honour. I thought being a small agency made us more nimble, able to provide better service, and it was easier to manage. We operated on referrals and local business, and it was tough. I make no claims on being a successful agency owner.
Looking back now, I realize it’s not that I wanted to be small, it’s that I didn’t know how to be big. I didn’t understand that for an agency to be super profitable, you must scale. You have to put aside your fears of hiring more people, of carrying a bigger payroll, of delegating control to others.
At best, agencies run on 20% profit margins. So for simple math, if you are a 5-10 person agency and you do $1M/year in revenue, at best you can hope for a $200K profit, IF the agency is super well run. But $200K may not be worth all the effort and risks associated.
If you want to be a millionaire from your agency, you'd need to be doing more like $10M/year in revenue with a lot more employees, and hopefully then you'd pull in $2M profit at the end of the year.
But you can't do $10M/year with only 5-10 employees.
The idea for this blog post came from a reader question, and while I wanted to write about scaling an agency, I had to admit I’d never done it, or at least not completely. I grew my agency but not anywhere near its full potential.
So I decided for this post I’d bring in the big guns; someone who successfully scaled his agency from little guy to BIG GUY, and who now shares what he learned to help other agency owners do the same: the great Jason Swenk.
You can check out some of my conversation about scaling an agency with Jason Swenk in the video, or you can read on to discover the key steps to growing your business.
So, let’s say you have a five-person agency right now, how do you grow to 100?
1. Clarity
You need to have a clear vision of where you want to go, whether that’s ten employees or 110. Contrary to what many people think, it really does get easier the more employees you have. But the key is to have the right leadership, the right org charts, and the right systems in place.
Once you figure out where you want to go, what you want to do, and who you want to go after, it’s important to get specific. You need to specialize, forget full service.
No one can be a full-service marketing agency - there are too many marketing tactics out there now, you can’t do them all. You have to specialize if you want to win business outside of your local area and get the attention of clients in other places.
You need clarity around clients. You need to drill down far enough to understand what their challenges are and what they want so you can focus on creating solutions for them.
2. Core Values
It is critical to define your core values and what you believe in beyond just making money. What’s important to you on the inside, what’s your culture, what kind of energy do you want both from your team and from clients.
Hire people based on matching your core values first, and then figure out whether they can do their job from there. The old adage about one bad apple spoiling the barrel is true, so whether it’s sour employees or asshole clients, it can be brutally detrimental to your growth.
“If you have employees or clients who don’t share your beliefs, you’re going to have friction,” says Jason.
3. Positioning
When you’re a small agency looking to get big, it can be tempting to look at the large agencies to see how they’re marketing themselves so maybe you can mimic them. But if you visit a lot of big agency websites, most of them are terrible.
They talk about the awards they’ve won, how great they are, and all the focus of the website on themselves. “Me, me, me”.
“If we’re supposed to be storytellers, we need to tell the right story,” says Jason. “If you start positioning yourself as the star, then that delegates the client to the sidekick or damsel in distress. And no one wants to be Robin in the Batman story.”
They key is to position yourself as Alfred, the trusted advisor who will guide your clients to success. Positioning is critical and your position as agency should never be ahead of your client’s position.
4. Pricing
Most agencies don’t charge enough, nor do they have any idea whether they are profitable or how much it costs to service a client. You need to know how much value you can deliver to your client so you can figure out what your agency fee should be.
One way to figure out your pricing is to take the successes or revenue you’ve generated for clients in the past six months, average it out and divide by 10.
It takes time to change your profitability - there is no silver bullet. You need to be patient but consistent and remember that little things can make a big impact.
Jason shares that before he started tracking time, his agency was losing money on 60% of their projects due to scope creep and other issues. It was a huge wake-up call. “The first challenge is knowing - track your time even if you’re not charging to time,” he recommends.
Make sure your business model is correct. Are you charging hourly when you should be charging by fixed project? Or agile sprints? Or value-based retainers? You need that stuff figured out in order to scale.
5. The anatomy of your agency:
Hiring more people to expand your services to grow your business means managing those people, those services, and the business. Here are the five departments every growing agency needs:
Human Resources
They recruit talented designers, developers, marketers, everyone you need; they keep them happy and manage their expectations, and they help maintain the culture.Operations
This department oversees your team, ensures projects are delivered on time and budget, and empowers the team to always be improving.Client Relations
The client relations team is pretty self-explanatory. They maintain and nurture relationships with your clients, they understand and anticipate client needs, and make sure the agency exceeds their expectations (without venturing into scope creep territory, of course).Business Development
This department is a hungry, insightful, networking champ who finds the right new companies your agency can help and sells them on the value of your services.Finance
You need some skilled pencil sharpeners to make sure your costs are under control, your clients are invoiced (and paid up!), and results are tracked and reported.
6. Build a management team
One of the biggest challenges a lot of agency owners encounter when scaling is around delegation. You can’t scale unless you relinquish control. You can’t do everything, which is why you hired super smart, talented people. Let them do what you hired them to do so you can focus on what you love. Appoint a manager responsible for the activities of each department and hold them accountable for their metrics (note: make sure you clearly articulate what those metrics are!)
7. Track these KPIs and metrics
Understanding and knowing these key metrics will allow you to spend more time enjoying your life, less time worrying about having enough cash to make payroll, and give you the intel you need to scale your agency:
Team Utilization: Do your people have enough work right now?
30/60/90 Day Team Utilization: Do you have enough work coming up?
Client Net Promoter Score: Are your clients happy with your work and the results?
Team Net Promoter Score: Is your team happy?
New Business Pipeline: How much potential new work do you have in the pipeline? Are they quality leads that fit your criteria?
Cash in Bank: How many months can you run the agency without additional cash flow?
Accounts Receivable: How much do clients owe you that’s outstanding?
Accounts Payable: How much do you owe other people like service providers?
Collection Effectiveness: Are people paying you on time?
Profit Margin: Are you making money and running efficiently?
8. Implement systems and processes
You need to empower your department managers and in turn, the people in their departments, to succeed. Systems and processes provide leadership, set expectations, and ensure consistency without you micromanaging every action.
They’re like recipes. If you’re building a fast food chain, you don’t just leave it up to each cook at each location to cook things the way they want to. There is a strict recipe to follow so the customer gets what they expect every time.
You and your department heads need to set up systems and processes that cover the following agency activities:
- Generating leads
- Qualifying leads
- The process for scoping, bidding, and proposals
- Pricing projects
- Client payment structures
- Onboarding a new client and kicking off new projects
- Structuring project teams
- Presenting work to clients
- Responding to and implementing feedback
- Tools to help organize and streamline projects
- Dealing with unhappy clients
- Ensuring happy, long-term client relationships
- Managing scope creep
- Attracting new talent and retaining your existing talent of designers, developers, writers, strategists, etc.
9. Understand your role
Once you’ve got everyone in your agency set, happy, and focused on what they need to be doing, here are the five things you as agency owner should be doing:
Set the vision and direction of the agency and communicate it to the team often. If you don’t communicate where you want to go, your people are going to make decisions based on what’s best for them rather than what’s best for the agency.
Be the face of agency. You’re the one out front, representing your agency’s niche, culture, and results.
Know the financials. You don’t have to be an accountant but you need one to explain it all to you.
Coach and mentor your leadership team. You just need to do this one level deep, like your senior management team, and then let those people do the same to the next level. It’s the trickle down effect.
Have fun! You don’t necessarily have to work on client relationships or client projects - you can assist but you’re not doing all of it. That’s why you hire people so you can focus on doing what you love, whatever that is.
Don’t be scared to scale
The idea of growing your agency may seem overwhelming at times, but it’s really the direct path to a happier existence. Scaling your business can allow you to focus on what you love (inside and outside the office), service better clients better, and be more profitable. You don’t have to do a quantum leap from 5 - 100 employees in a month, or ever, but deciding where you do want to go and following these steps will help you achieve your goals over time.
Swenk it!
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