Episode 245

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The past three months have felt like a bad sci-fi movie. As agency leaders, most of us have navigated the economic struggles right after 9/11 and the great recession of 07-08’. But nothing has come close to the economic, health, and social impacts that we’ve experienced recently. But we need to stay smart and fight our way out of this economic slowdown. I want to share some trends that will help you do just that.

COVID continues to be a major topic of discussion throughout the world. It is still a hot button issue as many agency leaders work to stabilize their operations. However, the pandemic has had to share the spotlight with the global conversation about racism and it’s reasonable to assume these are both conversations and realities we’re going to be wrestling with for the foreseeable future.

In this episode of Build a Better Agency, as I have every summer, I want to look at the trends that are impacting our industry. A couple of them have been altered by COVID but most of these are trends I was talking about in early 2020 and they’re as relevant today as they were in January.

With everything going on right now, it is hard to dedicate the necessary time and mental space to focus on running your agency. The health of your agency is more important than ever before. We have to carve out of the time to protect our businesses and I am hoping that taking a look at these trends will help you do that.

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: https://www.whitelabeliq.com/ami/

Agency Leaders | State of the Agency 2020 Pt. I

What You Will Learn in This Episode:

  • Why the health of our agency is so important in the big picture
  • How to tee up your agency for a great 2021
  • What you can to start thriving right now
  • Trends that agency leaders should be watching for in 2020-2021
  • Why AMI agencies have been so much more profitable than average privately held agencies
  • How our clients’ needs have changed this past year
  • What we can do to map out our sales funnels and increase efficiency
  • How to take control of the sales cycle by being direct
  • Why agency leaders have become a bottleneck for strategy
  • Why we are seeing more employees buy minority stakes in their agencies

The Golden Nuggets:

“The average privately held agency in the U.S. makes a 6-8% profit. The average AMI agency is doing 16%.” @DrewMclellan Click To Tweet “Even if you’ve been diligent about managing your numbers in the past, you have to double down on your diligence to stay in the black during 2020.” @DrewMcLellan Click To Tweet “Big-box agencies are now chasing after clients and projects that would have previously not been worth the effort. COVID is just exasperating that.” @DrewMcLellan Click To Tweet “Now is the time to map out your sales funnel and plug the leaks so you can ramp up your biz dev efforts.” @DrewMcLellan Click To Tweet “I don’t think the storm is over, but we are navigating our ships through to the other side.” @DrewMcLellan Click To Tweet

AMI works with agency owners by:

  • Leading agency owner peer groups
  • Offering workshops for agency owners and their leadership teams
  • Offering AE Bootcamps
  • Conducting individual agency owner coaching
  • Doing on-site consulting
  • Offering online courses in agency new business and account service

Because he works with over 250+ agencies every year, Drew has the unique opportunity to see the patterns and the habits (both good and bad) that happen over and over again. He has also written several books, including Sell With Authority (2020) and been featured in The New York Times, Forbes, Entrepreneur Magazine, and Fortune Small Business. The Wall Street Journal called his blog “One of 10 blogs every entrepreneur should read.”

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Speaker 1:

If you’re going to the risk of running an agency, shouldn’t you get the benefits too? 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-sized agencies are surviving and thriving in today’s markets. We’ll show you how to make more money and keep more of what you make. We want to help you build an agency that is sustainable, scalable, and if you want, down the road sellable. With 25-plus years of experience as both an agency owner and agency consultant, please welcome your host, Drew McLellan.

Drew McLellan:

Hey, everybody. Drew McLellan here with another episode of Build a Better Agency. Welcome back, thanks for joining us. This week is one of my solo cast. So, no guest with me this week, just you and me chatting about something that I think needs to get on your radar screen. I want to make a couple comments about what’s happening in our world today before I get into the content, and I’ll tell you a little bit about what we’re going to talk about today.

I’m recording this on June 7th, and it will air a week from tomorrow. So it’ll first hit the airwaves on June 15th, 2020. If you’re listening to this in real time, then you know that this has been probably the most bizarre three months that we have ever experienced as human beings. I’m sure human beings prior to us have experienced equally bizarre times, but in our lifetime, this has been really a doozy. When you think about some of the things that if you are over 30 that you have lived through, 9/11, the big recession, all of that, and to think that all of this seems so much bigger and so much more impactful than either of those events, it’s hard to even phantom.

We thought COVID was a big deal, and all of a sudden COVID has been pushed out of the headlines and out of the discussion. Certainly here in the US, but in many places all over the world, the conversation around racism and the racial divide has really heated up, that people are talking about it non-stop. And hopefully, all of that talk and all of the protests and all of the other things that are on the front end of this will open doors for real discussions, real change. But in the meantime, many cities in the US are just coming out of a curfew. For the last week or so we’ve been under, basically, not a COVID curfew but a violence curfew because so many of the protests… that there were the faction of people at some of the protests who took to looting and violent behavior, and it was really deemed unsafe for the average citizen to be out and about past 8:00 or 9:00 at night.

Again, just such a weird time. On top of COVID, because we needed something different to think about. Beyond my concern though about those actual events, one of the concerns is that is it’s so hard to focus on running your business, and it’s difficult to even think about how relevant that is in the state of other things going on. Is it wrong, is it selfish, is it capitalistic to care about your businesses? Before we talk a little bit about today’s topic, what I wanted to say to you is, of course you need to be thinking about your business. Absolutely. One of the things I’m hoping that we can do together today is just for a little bit of time tune out everything else that’s happening in the world and focus and think about our business.

All of you, whether you own the joint or you help run the joint or you’re a brand new account coordinator, the survival and thriving of the agency that you work at matters. And it doesn’t just matter because everybody wants to get a paycheck, although there’s nothing wrong with that. It matters because we create jobs. It matters because we help brands and businesses tell their story. We are part of the fabric of what allows our country, and this is true no matter what country you’re in, we are part of the fabric of what allows our country to function. It’s not about getting people to buy stuff they don’t need, it’s really about helping people find exactly what they need and to create a relationship with that brand, and we’re a part of that.

On top of that, I think about the work we do and the fact that we educate and inform and persuade every single day. That’s what we do. I’d like to think that we could use those talents, as many of us do now for other non-profits, we can use those talents to begin to create conversation and change and dialogue and an evolution to a better world for everybody. I believe that we are uniquely qualified to play a role in that. So, please don’t feel bad about caring about your business. Don’t feel bad about fighting to survive and to thrive through all of these other things, these big important things. It doesn’t make what you do any less important. And so, for just a little bit just stay with me and let’s talk about the business and let’s talk about what you need to know, what you need to be doing to really get through 2020 and to tee yourself up for a great 2021.

Many of you are already having a great 2020. I don’t want to paint the picture that agencies are all in trouble because that’s just not the case. Many of you are busier than you’ve ever been before. Almost all of you have landed new clients or new projects. And so, there’s a lot of good news for agencies. Right now, in June of 2020, there’s a lot of good news. We’re not talking about it very much, and we’re certainly not celebrating it and the media is certainly isn’t celebrating it, but do not lose perspective that odds are you are okay and your businesses in the black and you’ve navigated your way through this so far. I don’t think the storm is over, but I think we are navigating our ships through the storm and you guys are getting closer and closer to the calm of the other side. So that’s what I really want to focus on today.

So, a couple of quick announcements before I tell you what we’re going to talk about today. Number one, if you are still looking for resources all around our agencies and COVID, if you’re in the US, whether it’s about the PPP loan, whether you’re anyway in the world and you’re wondering, “How do we manage going back to work? What does that look like? What are the expectations of our employees. What are the expectations of our governments?” We’ve got all kinds of resources on that COVID page. So if you just go over to agencymanagementinstitute.com/covid, you will find all kinds of resources. And they’re organized by the date I first shared them. You certainly can drill back all the way down to March, although obviously some of those documents are going to be less relevant today. But the most current and critical documents are going to be at the very top of the page. So, please avail yourself of any of those resources. There’s no need to give me an email address or do anything like that. Just go and take the information that’s helpful for you and put it to good use.

I also want to remind you that because we know that some of you are a little light on work and you’re looking for useful practical productive things for your team to do, we’ve discounted all of our on-demand workshops 50%. Through the end of June, you can access any of those workshops for 50% off. The cart is set up to automatically take the 50% off, so you don’t need a coupon or a code or anything like that. Just go buy what will be useful to you, and you’ll get the discount when you check out. Okay?

All right, let me tell you what we’re going to talk about today. Every year in the spring when I get together with any of my peer groups, so the agency owners who come together like a Visage group or an EO group, only it’s on the agency owners around the table, when I come to them in the spring, I give them a presentation that I call State of the Agency and then fill in the year. What I’ve done is I’ve looked at the trends over the last six months or so, and I’ve been tracking this now for four or five years, so I’m still tracking the old trends to see if they’re building steam or if they’re wiping down, but I’m presenting to these agency owners what I think are current trends that they need to be on the watch for as we go into the back half of the year and then into the next year.

And so what I’ve done for the last couple of years is I’ve taken that presentation and I’ve broken it up, because it’s a long conversation, I’ve broken it up into two solo casts, typically June and July. So that’s what I’m going to do today, is I’m going to walk you through part of my State of the Agency 2020 and the trends that I’m seeing. Now, I started giving this presentation in Feb, so before COVID hit the US and hit most of the world other than Asia. So what I’ve found interesting was, and I will point this out where it makes sense, what I’ve found interesting is that most of these trends haven’t changed. These are trends that have held true through COVID. There are a couple of things that have been altered, and I will tell you what those are, and we’ll chat about why I think they’re different than they were in February. But for the most part, these are deep enough trends that even COVID didn’t shake them loose.

So, with that, let’s talk a little bit about the State of the Agency 2020. The first subtopic inside this presentation, it’s all about money. The average privately-owned agency in the US… I couldn’t find data for other countries. So if you have it, I would love it if you sent it to me, if you are from outside the US and you can fill in this blank. The average privately-owned agency in the US makes on average 6-8% profit, when all things are said and done. That is before taxes, before anything else, right? Which ultimately means that in many cases the agency owner is taking very little profit out of the business because most of what they take out goes to pay taxes. My agencies on average made 16% profit in the last year. I believe the reason for that is a couple of things. First of all, I want to point out that it’s doable. And this the average, so some of our AMI agencies are in the low 30s of profitability.

But the reason why I think this is possible is two things. Number one, because AMI agencies understand agency math. They understand the metrics and the levers and the trigger points that very quickly at a glance will tell them whether or not their agency is healthy or not and what to do about it to get it back in a good health range if they are not there. So that’s number one. Number two, because they have to report on this data twice a year to me and their peer group, they keep a much closer eye on this number throughout the year. They’ve got some resources and tools that come with membership that allow them to really track and monitor and manage their profitability all throughout the year. My point with this is that 2019 was a pretty profitable year overall for agencies. Interestingly, many of you were having a great first quarter of 2020.

But the reason why I’m sharing this data with you is, if you’re in the 6-8%, I’m not saying you have to join an AMI peer group, although you’re welcome to do that too, but what I am saying is getting better educated about specifically what I call agency math and understanding those metrics, and then really monitoring them on a monthly and quarterly basis, and that means no new clients, now new anything, just being better about the numbers, which allows you to make smarter better decisions, can double or triple, if we got it from the 6 to 18%, your profitability for the next year. So, don’t lose sight of what’s possible without any new clients or any new business.

Now, my COVID update on this is if there was ever a year where you needed to understand agency math, where you need to manage the agency super tight against those numbers, it’s now. So my COVID update to this report is, even if you have been diligent about managing your agency to the numbers in the past, you’ve got to double that diligence in 2020. Every one of you can and should stay in the black. Does it mean that you may have to make some tough decisions? Absolutely. But there’s no reason for you to go in the red if you manage the agency to the numbers, and you need to manage that as if you didn’t have the aid dollars. Whatever country you’re in, your country is giving you some sort of financial aid to get through the COVID crisis. The smart agencies are really being mindful of watching their numbers as though the support funds aren’t in play. I’m not saying don’t take the money, and I’m not saying don’t use the money. What I’m saying is you need to be looking at your numbers and your performance as though that money didn’t come in, because that money’s going to go away. What I want you to be doing is tracking the trend of your agency’s performance so that when the money goes away you’re already ready to make the right decisions, okay?

Another trend that I’m noticing on the money front and on the biz dev front is that agencies of all size, and this starts with the big consulting firms, the Accentures and all of those sort of folks, the McGladareys, all of those guys, McKinsey, everybody, everyone is reaching down a level. What I mean by that is that the McKinseys and all of those folks are going after clients and projects that they would have deemed too small. The big box agencies, the large big brand agencies are chasing after prospects and clients that normally they would have deemed were not worth the effort. What I’m suspecting is that you’re seeing it in two ways. Number one, you’re reaching down a level and starting to reduce the dollar amount that a project or a client is worth before you’ll consider them. So, A, you’re doing it, and B, it’s been done to you. So when you’re in a pitch or something like that, then what you’re seeing is that bigger agencies than you are showing up all of a sudden. It’s sort of like a heavyweight fighter showing up for a lightweight battle, right?

Everyone is reaching down a level. So you may be having greater success when you reach down and your competitors are smaller than you or less maybe specialized than you, but you’re also seeing that agencies that normally you wouldn’t run up against are all of a sudden showing up. This is a trend that has been going on for probably the last year or so. I think COVID is just going to exacerbate it. I mean, right now everyone’s scrambling for every dollar they can make. So you’re absolutely going to see people still fishing in your pond when normally they would do that. So be mindful of that and also be mindful that there may be opportunity in a pond that normally you don’t fish in. You can use this trend to your advantage, but you also need to know it’s going to make some of your pitches or some of your efforts to get their business more challenging, because of the competition.

One of the other things that we’ve been seeing over the last, I’d say a year, but it’s really been ramping up since last summer, since the summer of 2019, is that as clients were taking more work in-house and as they were divvying up work amongst agencies, one of the things that a lot of the agencies we work were seeing, and were actually pretty excited about, is that the work they were getting from clients was more interesting and more challenging. And part of what made it interesting was the fact that it was challenging. So, clients were asking for fewer tactics and more thinking and ideas. They were really looking for somebody to help them with solving some thorny problems. And so agencies were excited about this, because this is the kind of the work that most of us love to do, we love to solve those big hairy problems for clients. So this was a great trend, everybody was excited about it. And we’ll talk a little bit about some of the consequences of this trend in a little bit.

Most agencies in terms of biz dev want more [inaudible 00:18:46], but one of the trends that I’m seeing, and it’s a troubling trend for me to see, is that many, many agencies, and I would say most agencies, if you were to map out their sales funnel, there are leaks. Typically, the leak is you guys are great at the top of the funnel stuff, the general content, the getting somebody who’s never heard of you before to notice you. I’m certainly seeing you all step this up during COVID with free webinars and other things that you’re doing. But somewhere in the middle of the funnel it starts to leak. It’s difficult then to keep the prospects moving through the funnel, because at some point in time they leech off. That typically is in the middle of the funnel, and the reason why you have a leak is because you don’t have the volume of content and reasons to talk to those prospects. You’ve probably heard me say before that someone stays in the middle of a sales funnel anywhere from a day to a decade. It’s our job to keep them entertained and engaged even if they do stick around for a decade.

For most of you, you have enough stuff, enough reasons to talk to each other, enough pieces of content, enough newsletter, whatever it is, to keep them engaged for a few months, maybe even 12 months. But beyond that the well runs dry. And now all of a sudden, those prospects basically just fade away because you’re not really engaging them the way that you should or could. So one of the things that I’m suggesting is now, as many of you are ramping up your biz dev efforts to combat the fact that some of your clients have hit the pause button or gone away, now is the time for you to really think through mapping out that sales funnel and finding those leaks or those deficiencies and plugging them or flooding that area with more resources, if that’s the problem.

Either you’re leaking like there’s just a hole then and there’s nothing, so they’re just washing out. Or, there’s something there but it’s just not enough to sustain them, so they go away. Either way, it’s important for you to be looking at sales funnel because even if you get more [inaudible 00:21:08], even if you put more people into the top of the funnel, if you don’t have something to keep them engaged, then all you’re doing is wasting energy. One of the other trends that we’ve been tracking is the duration of time it takes to go from an initial conversation with a client to a signed project authorization. Pre COVID, pre COVID, it was taking anywhere from nine to 24 months. Now granted, some clients were like, “It’s nice to meet you. Show me what you do. I will sign a proposal today.” But they were the oddity, they were not the normal clients.

Clients seem to be either not in a hurry at all, or they’re in a huge hurry, but there wasn’t very much in between. So back to my earlier trend comment about the sales funnel, if someone’s going to take 24 months, and now you’ve actually talked to them, so they’re further down the funnel, but they’re going to take 24 months to decide whether or not to work with you, if the only thing you have to engage them is to call them and say, “Hey, did you sign the project authorization? Hey, are we ready to get going? Hey, our production team is getting busy, so I want to make sure we get in line, otherwise we may have some delays,” if we don’t have anything other than nagging them to sign the document, we’re going to turn them off pretty quickly, and they’re going to go away.

This is where the sales funnel being robust and kind of meaty in the middle is really critical, because these two trends together, this leaky sales funnel and this elongated sales cycle really don’t work well together. So you’ve got to fix one to deal with two, right? One of the challenges that’s coming out of this low sales cycle that I know all of you find incredibly frustrating, so I guess the good news is you’re not alone, but it’s the whole issue of ghosting, where somebody chases after you, they want you to write a proposal, and then they just go dark on you. There’s no communication, there’s no response, there’s no answer. For many of you, that ghosting can last for months, and then all of the sudden, three months, six months, nine months, 12 months later you’ll either get a “Yeah, we’re not doing it,” or, “Okay, let’s go tomorrow. Let’s start tomorrow.R