Episode 450

podcast photo thumbnail
1x
-15
+60

00:00

00:00

In 2023, about 45% of agencies took an AGI hit — the biggest number we’ve seen for as long as we’ve been tracking agency trends. Last year was tough, but agencies are finally starting to bounce back from growing their AGI.

With some of our profitability struggles finally behind us, many of you are wondering how to get ahead of the curve once again. This week, we’re taking a deeper dive into some of the biggest influencers of agency AGI during this time and what agency owners can learn from the trends.

We have a ton of data on agency biz dev trends, specialization and niching, client ghosting, and much more. So join us to dive into the data and learn what your agency can be looking out for to help prevent a big AGI hit in the future.

A big thank you to our podcast’s presenting sponsor, White Label IQ. They’re an amazing resource for agencies who want to outsource their design, dev, or PPC work at wholesale prices. Check out their special offer (10 free hours!) for podcast listeners here.

agency AGI
agency AGI

What You Will Learn in This Episode:

  • The work that has been super profitable for agencies in the past year or two
  • The biggest hits to agency AGI
  • Proving ROI to clients is more important than ever
  • Why you need to raise your hourly rate if you haven’t already
  • Finding ways to get more work out of your existing clients
  • Overservicing clients is costing you money
  • Why it might be time to cut some of your staff
  • Clients want more from their agencies, and they’re not afraid to ghost
  • Investing in first-party data and data analysts

“They want proof that the $1 they spend will make them $2 after you work with them. Being able to demonstrate that is valuable for clients.” - Danyel McLellan Share on X
“If you haven’t raised your billable hour rate in a while, you need to catch up. It's super challenging to be profitable even at $175 an hour, let alone if it's something less.” @DrewMcLellan Share on X
“Rooting down deeper with existing clients to upsell different ways for them to reach their goals was a savior because that's where they really profited.” - Danyel McLellan Share on X
“Every hour we give away for free costs the agency hard dollars. We can't spend that time in a better place, either servicing another client, chasing after new business, or working on the agency's marketing.” @DrewMcLellan Share on X
“Clients are telling us that the reason they fire their agency is either because we’re too slow or we can't tie efforts to ROI.” - Danyel McLellan Share on X

Ways to contact Drew and Danyel:

Resources:

Hey, everybody. Drew here. You know, we are always looking for more ways to be helpful and meet you wherever you’re at to help you grow your agency. It’s one of the reasons why we’ve produced this podcast for so long, and I’m super grateful that you listen as often as you do. However, there are some topics that are better suited for quick hyper-focused answers in under 10 minutes. That’s where our YouTube channel really comes in. For quick doses of inspiration, best practices, tips and tricks, head over to youtube.com/the at sign Agency Management institute. Again, that’s youtube.com/the at sign or symbol.

And then Agency Management Institute, all one word. Subscribe and search the existing video database for all sorts of actionable topics that you can implement in your shop today. Alright, let’s get to the show.

Running an agency can be a lonely proposition, but it doesn’t have to be. We can learn how to be better faster if we learn together. Welcome to Agency Management Institute’s Build, a Better Agency Podcast, presented by White Label IQ. Tune in every week for insights on how small to mid-size agencies are surviving and thriving in today’s market with 25 plus years of experience. As both an agency owner and agency consultant. Please welcome your host, Drew McLellan.

Hey everybody. Drew McLellan here from Agency Management Institute welcoming you to another episode of Build a Better Agency. Welcome, if this is your first episode, it’s a great one. We’re gonna talk about the trends that are impacting agencies in 2024 and beyond. And if you are a regular, we’re glad to have you back. This is one of our solo cast. So as you know, every fifth episode, no guest, just us talking about something that is on our radar screen. As you know, sometimes I do the solo cast by myself, but today, and actually next month, I am lucky enough to be doing it alongside my business partner and my life partner, Danielle Newcomb McClellan. So, we’re both here to talk you through some of the trends that we’re seeing as we work with agencies throughout the land.

Before we do that, though, every solo cast, we announce a winner of a free workshop or summit seat. Now, as you remember, hopefully you remember the way you get in the drawing to win one of these tickets is super simple. You just go wherever you download the podcast and leave a rating and review. Take a screenshot of that rating and email it to me. So just send it to [email protected]. And the reason why I ask you to do that is because we look at all the reviews and we are super grateful for them. But yes, thank you. Honestly, your screen name doesn’t tell us who you are or where you work. So that your cat lover 73 does not tell me your name or your region.

I

Like Cat Lover 73.

I know she’s one of our favorites. I know. Yeah, yeah. But anyway, this, this month’s winner is Eric Morley from Blue Sea. So Eric, congratulations. We would love to have you join us for one of our live workshops here in Denver, or the 2025 Build a Better Agency Summit if you want to use your free prize for that. So can’t

Wait to see.

Yeah, so here’s the deal. We keep your name in the drawing until you win, so sooner or later you’re gonna win. And the workshops and the conference tickets are about two grand. So not a bad prize for just leaving a rating and review. So we hope that you will do that and it doesn’t even have to

A good one.

Yeah, that’s, I get technically that’s true. I You’re gonna make me cry, that’s fine. Right?

Yeah. And then I’ll have to, you know, come

Console me. Yeah. Yeah.

So you do you though, and you choose however, whatever review you’d like to leave and Yep. Fair enough. Yeah, big winner.

Big winner. So Eric, we will reach out to you by email as well to let you know that you’ve won. So, congratulations. So we have so much content that we are actually gonna break this up into two solo casts. So for the May solo cast, the one you’re listening to right now, we’re gonna talk about trends around money and clients. And then in June we’re gonna talk about the trends that are impacting owners or employees. So settle in lots to cover. Lots to cover for sure. So on the money front, 2023 was brutal for a lot of agencies. Many of you have shared with us your own sort of horror stories of the challenges. And for the first time since we’ve been doing these trend reports, which has, gosh, almost 15, 20 years now, we really saw a lot of agencies struggling to get to the finish line in a way that was profitable.

So about 40% of agencies held steady, meaning their AGI and their profitability sort of stayed the same. About 15% grew their AGI and about 45%, which is the biggest number we’ve seen actually shrunk in size in terms of their AGI. Many of you were struggling to win new business. Many of you told us that you didn’t land one new client in all of 2023. The good news is the first half of 24 is looking much better.

It is. I think that one of the big things we’ve heard is that a, a term that has come out is the clients or prospects have ghosted their agency where either they were given proposals and then they sit on them and they don’t respond, or they don’t give you a no, but they don’t give you a yes. Or they’ve actually pulled RFPs and said, okay, we’ve, everybody’s gone through the process, but now we decided not to do it.

Or worse, they’ve signed a

Contract, signed a contract, and so,

And then don’t start the work.

Which has been problematic because so many of us have, so many of the agencies have kept their team together because they’ve said, oh, the good news is we’ve had the best team that we’ve ever had, but all these,

And, and we won this business,

Need the people, right? We want this. But then they pause it for three months, six months. So you’re keeping a fully loaded team prepared to do these big projects, but the clients have been dragging their feet haven’t started, and you have no, and you haven’t billed, they haven’t paid that bill for what the work they’re running to

Do. So you’re, so you’re carrying an a heavy load in terms of salary and benefits without the AGI to offset that salary. So that’s one of the reasons why everything shrunk. Yeah. So, so it’s been a tough year for a lot of folks. So when we look at the work that has been super profitable for agencies, we look at it in terms of countable work. And what we mean is work that you can really demonstrate an ROI, there’s a direct correlation between the spend and the ROI and Noncountable work on the countable work front. Some of the work that agencies have had really great success with profitability is PPC and SEO work, digital media buying and planning. And for most of those agencies, they’re not just living off the commission, but they’re charging a planning fee and a buying fee, and then a commission on top of that.

And then we’re seeing a lot of really interesting new things coming out with email marketing and lead gen. And so lots of agencies have sort of reinvigorated their ability to drive leads for clients. You know, 2023 wasn’t just a hard year for agencies. It was a hard year for our clients too. And so a lot of agencies had more requests around sales enablement and sales work that is closer tied to actually driving to a sale than brand. And some of the more sort of upper funnel kind of marketing work,

They want proof that the $1 they spend will make them $2 after you work with them. So being able to demonstrate that is, is one of the most valuable things for clients right now. Right?

So in terms of noncountable work, but still super profitable, a lot of agencies are, are really making a shift as, as the work we do together gets more commoditized, right? So anybody can find someone on Fiverr or Upwork to do just about anything, right? So as the, as it gets harder to charge, and I’m not saying that the people you find on Fiverr and Upwork do it as well, but the clients often can’t tell the difference. So as the, as the work we do, the the deliverables, the stuff we make gets more commoditized. A lot of agencies are shifting to spending more of their effort selling strategy and consulting. So a lot of the things that you used to give away for free to get the work to, to get the permission to make the things, now you’re getting more strategic about not giving that away.

’cause honestly, that’s, that’s what can never be commoditized, right? That’s you being super smart, you leveraging your decades of experience, you leveraging your industry knowledge to create a marketing plan or strategy that works for the clients.

And clients want you to, they’re, they’re hiring you to make sure that they’re making the right decision with each of their dollars. So that’s why the strategy, the thinking space, is in such high demand because our clients are hesitant in spending their marketing dollars. So they really want that expertise to tell them how to, to spend their money. Well, so the thinking space has been much more profitable than the, the doing space. So obviously the doing is still part of the bread and butter, but when you start with the, the thinking and you charge for the thinking, then that’s just gravy on top is all the

Bridge pure AGI, right? Yep. So on top of strategy and consulting, we’re seeing a lot of agencies making good money in video, and we’re not talking three day shoots. And, and you know, the, the big beautiful video we used to do on film, we’re talking about kind of run and gun social media video. And you’ll hear as we talk through the trends, that that’s something that clients are planning on spending more and more dollars on, is that idea of that they know that they need to have video in, in their, in their play set. The other place we’re seeing agencies making more money, where that is not really, countable work is in web, but interestingly, it’s not on web builds, it’s on maintenance and update packages.

So agencies are able to leverage that sort of monthly retainer kind of work where you’re constantly helping your clients improve their website. And that’s been super profitable.

One of the great things about that is that web builds tend to be project based. So after they’re done, a lot of agencies have struggled to have that, that ongoing revenue that goes after a website. So this way, at least every single website you build, you’re going to be building out those, those maintenance and strategies of how to use the website after the build, which keeps that ongoing revenue coming to the agency. So

For the agencies that didn’t lose AGI, one of the things that really saved the day was early on, actually probably back in 2022, last half of 2022, we were sort of ringing the alarm bells and saying, look, $150 an hour just isn’t cutting it. Our employees are more expensive, their benefits are more expensive, everything has gotten more expensive. And we as agencies haven’t raised our rates in like a decade, right? And so we really recommended that agencies raise their rate to $175 an hour or higher, and the agencies that demonstrated that they were profitable took that advice, right? And did that.

There’s a lot of fear when people say, well, I have legacy clients that there’s no way they’re gonna spend another, you know, go up to 1 75. And, but the truth is, is that our clients have kind of expected it. I mean, with inflation being what it is, cost of employees more, most agencies have reported that their clients have not batted an eye at the rate increase. And the truth is, is that most of the clients that didn’t agree with a rate increase we’re commoditizing the work anyway. And so, right. So a lot of client, so many of our agencies that we’ve talked to have said that it has really saved the day to have that 1 75 an hour.

And most of you don’t bill by the hour anyway. And so, again, unless the 175 is in your contract somewhere, it’s really just about your project pricing or your flat fee pricing changing a little bit. And most clients don’t notice, right? And so if you haven’t done that yet, you are behind the times and you need to catch up because it’s super challenging, I think it’d be profitable even at, at a buck 75 an hour, let alone it’s something less,

Right? And again, that’s the minimum really, because a lot of agencies are, can charge more depending on what they’re, again, not thinking strategic space tends to demand a higher dollar amount. But another thing that really saved the day was upselling to existing clients. We talk about this often, how important it is for your account team to really be the thinkers and the strategist with the client, and think of different ways to be able to add more value, look at what the client’s marketing objectives are and, and even what business KPIs. And really the business KPIs. So really rooting down deeper with the clients to be able, the existing clients to be able to upsell different ways for them to reach their goals.

That really was a, a savior because the client, the agencies that have kept the clients that they’ve already had, that’s where they really made some of the more profitable, more profit Yep. From those existing clients, for sure.

Another thing that saved the day was those of you that are doing sort of flat fee pricing. If, if you’re doing your estimates well, and you are using a, a tool like the hack that we teach, which is, you know, you figure out what you think your estimate is, and then you multiply it by 1.3. And that’s actually the estimate you serve up to clients, agencies that were able to build good estimates with flat fee pricing so that hopefully there was profit and margin built into that fee that it also helped them sort of stay.

One thing else I wanna say about upselling to clients that I think agencies that were really successful with this thought about new ways to serve their clients as well. So if you have a certain niche or they were really hearing what their, their existing clients were asking for and they found new ways to serve that need tended to even deepen the relationship with the existing clients and keep adding value, which essentially adds to the bottom line for sure.

So one of the challenges, of course, and we’re gonna talk about this in a second, but one of the, one of the demons that bites away at your profit is the way we over service clients. So we’re gonna talk about that in a little more detail in a minute.

Can I just say one thing? Yeah. I hate that term. It’s so interesting to me. We are over servicing. I think we get it in our term. A lot of agencies that talk about this that sometimes feel like over servicing is a good thing. And so we use that term. I think the industry uses that term. And I just want to say that I don’t think that’s a good

Term. What term would you use instead? Mm. Giving crap away for free.

Maybe that’s better.

Okay.

Yeah, that’s better. All right.

Well, many of you give crap away for free.

Yes. Thank you.

Because you aren’t keeping track of time, you aren’t making sure that you’re sticking to your estimate. And so one of the way, one of the cures for that is we talk a lot at a MI about the idea of really understanding how billable your people are, meaning how much of their time is spent on billable tasks and how much of that time is actually translated to an invoice. So again, most of you don’t bill by the hour. So it’s not a, it’s not a, oh, drew worked 10 hours and all 10 hours showed up on the invoice, but it’s really about looking at the project fee and understanding how many hours went into servicing that project and did we line up dollar wise with how much we billed in terms of how much we clocked in our time sheets and how much of our that time showed up inside the bill that actually went to the client.

And here’s the thing about that. I think that it’s most important that you realize when you’ve had less work going through your account team wants to over service or give more crap away for free because they have the time to do it, we’re

Gonna want to trademark that.

So, okay, we should, okay. No, we’ll get that. But I think the most important thing is that it’s become a habit and our clients are starting to expect that, right? Even though the reason that that over servicing is happening for, for a lot of agencies is because they don’t have enough work to actually keep their account team busy on the things that they need to Well,

It’s not just the g it the production team.

Exactly. So we can do more rounds of revisions, we can do, because we have the space and we are, most of us are overstaffed because of all the things that have happened in 2023. So we want you to stop that. ’cause it’s one of those things that you’re, that are always going to chip away at your profitability. And it’s really, really important that the giving crap away for free stops. Stops.

So that’s actually based on Parkinson’s law. And Parkinson’s law says a task will expand to fill the amount of time that we allow for the task. And so for many agencies, to your point, that kept o basically stayed overstaffed because they had an amazing team and kept waiting for the work to come in. They had capacity. And so people wanna be busy and they wanna feel busy and they would rather feel busy doing billable work, right? Even if it’s not work that contributes, you can

Invoice billable, right?

So that, you’re right that, so when you start to track billability and utilization, and not just, you track it as the agency owner, but you track it and you talk about it as an entire team that actually solves a lot of the over-servicing or the, as we’ve now trademarked, giving crap for free issue. Because now your team’s sort of paying attention and when you help them understand what it costs you, every dot every hour that we give away for free costs, the agency hard dollars salary and overhead expense. And we can’t spend that time in a better place either servicing another client or chasing after new business or working on the agency’s marketing.

So there’s, there’s a huge cost in using those, do those hours inappropriately when we can’t sort of recoup dollars for that.

I’m really passionate about this, so I’m only gonna add one thing. I think that, again, as we’re saying, we want you to stop giving away things for free. We also want you to think about, again, to Drew’s point that that you pay for both the billable and non-billable hours of your team. So if you don’t have enough billable work and you’re keeping a team that’s too big for strategic reasons, they really, you need to be optimizing those non-billable hours to serve the agency. Those is, that’s your time. So although we focus a lot on billable time, there’s also the things that each position in your agency, each position, your agency might be lighter or more full during the waxes and wanes of your business.

And to be able to use that non-billable time to serve what the agency needs, right? Is really important. Then your people will feel that they don’t have to overserve clients, they can serve them in the way that they need to, but they can still add value to your agency because you’ve directed where those non-billable hours should go and given the the bumpers to be able to allow your team to really bring back more value. Right?

You know what, before we go into the trends that impact clients and biz dev, why don’t we take a quick break and then we’ll come right back.

Sounds good. All right. See you soon.