Why the dip?

- Hey everybody! Drew McLellan here from Agency Management Institute, this week coming to you from Orlando, Florida, on site at the Yacht Resort where I will be teaching a workshop. So, in last week's video, I talked to you about the cycle that most agencies go through with their AGI. It's three to four years up, one to two years down, and then another three to four years up. The dip down never takes you back down to the bottom where you were before the three to five or three to four year up, but it does dip you down a significant amount, a noticeable amount, a painful amount, and then you go back up. I think there are three or four reasons why this is the pattern for most agencies. First of all, I think that most agencies aren't as efficient and proficient at biz dev as they should be. Most agencies still practice a feast or famine type of business, which means that when you're busy, you don't spend as much time on biz dev and when you get a signal that a client is going to go away or a client does go away, all of a sudden you gear up all the new business machine tools and out you go. You land a couple of clients and then you get a little lazy again. So, I think in the three- to four-year uptick, you're getting lazier and lazier about biz dev because things are going well, you're making money, clients are happy, you're on a growth pattern, maybe you're getting some good referrals but you're not actually out looking for right-fit clients. So, all of a sudden, your biz dev activity has sort of tapered off and a lot of times at about the time you dip down in AGI is when all of a sudden you wake up and go, "Uh oh, we better gear up the biz dev machine." In concert with that, most clients stick around at an agency anywhere from two to five years on average. Now, some of you probably have clients that have been around a lot longer but for the most part, clients have a 2- to 5-year sort of window with an agency. So, that absolutely corresponds with that- you're growing, you're growing their business with you, their spend is getting higher and higher, and at a certain point in time, their spend plateaus and all of a sudden, they're not doing as much and next thing you know, they're either leaving you or they've gone dormant. So those two things: the biz dev activity slowing down and the client departure getting closer and closer to the tipping point, those two things contribute to why that growth cycle is three or four years up, one or two years down. Another thing that happens, I think, in most agencies is when you are doing well, when you're making money, when everything is going well, we get a little lazy in terms of managing our expenses. So, oftentimes when an agency has a big client go away and they start tightening their belt, they discover a lot of expenses that no one was being very judicious about in the happy cycle, in the we're-making-money cycle. So, it might be subscriptions to things you're not using anymore. It might be buying the really expensive coffee instead of another coffee. It might be that your team is getting less careful about how they book hotels or planes and not worried about the spend as much. But what you're going to find is as you're climbing up to that peak at about the time you dip down, at the very top of the peak, there's a lot of lazy and unintentional spending going on. Another thing that happens that as you're kind of climbing up the AGI peak is that agency owners get a little slack about managing their employee count to the work. So, when everybody's making money and everybody's happy, it's easy when somebody says, "Hey, we need another fill-in-the-blank," to say, "Okay, you bet. We'll hire that person," and hire them. But in many cases, you're not really keeping an eye on that $150,000 of AGI per FTE and pretty soon, you're getting over that and you're getting overstaffed and you're getting a little fat and happy in the staffing department. And so, that too becomes a huge expense against the AGI. So, what happens is you get to the peak, client leaves, two clients leave, whatever happens, you start to plummet down in AGI, and here's what you do to fix it. You gear up the biz dev machine, you invest more in the client relationships and making sure that those are rock solid and that they are feeling loved from you, you tighten the belt on expenses, you really start to think about who you need on the team and what are the ratios of work to the number of people that you have on the team. All of those things happen but it takes you a year to two years to kind of dive out of the dip. So, depending on how deep the dip goes, it can take you a couple of years to make all of those corrections because you know firing up the biz dev machine doesn't mean you have a new client tomorrow. So, what you could do, just a thought, what you could do is to start making sure that in your leadership team meetings, in your own accountability as an owner, you're doing the things that you would do during the dip before the dip. So again, a sustainable, ongoing, consistent biz dev program, a client love and growth program, a client love and growth program, a watchful eye on expenses, and a watchful eye on that $150,000 of AGI per FTE. and a watchful eye on that $150,000 of AGI per FTE. Maybe you can be the exception, maybe you can avoid the dip. All right? I'll see you next week.