The top agency trends to be aware of for 2023 with Drew and Danyel McLellan

Speaker 1:

It doesn’t matter what kind of an agency you run. Traditional, digital, media buying, web dev, PR, whatever your focus, you still need to run a profitable business. The Build A Better Agency podcast, presented by White Label IQ, will show you how to make more money and keep more of what you make. Let us help you build an agency that is sustainable, scalable, and if you want down the road, sellable. Bringing his 25 plus years of experience as both an agency owner and agency consultant, please welcome your host, Drew McLellan.

Drew McLellan:

Hey everybody. Drew McClellan here from Agency Management Institute. This is an awesome episode. This is number 400. When I think about it, we have been doing this for almost eight years together, so I am so grateful that you hung around and stuck it out and waited till I could figure out how to do it well. And boy, we’ve had some amazing guests over the last 400 episodes. But as you know, every fifth episode is a solo cast. And so this is no guest. This is just us talking to you about something that we want to get on your radar screen. And as you could tell, if you’re watching the video … You probably can’t tell if you’re just listening to the audio. I have my co-pilot with me for this episode. So my partner in all things including AMI, Danyel Newcom McLellan is at my side.

And we’re going to walk you guys through the trends that we’re seeing that are really impacting 2023 and we think are going to have huge impact over the next 12 to 18 months. We do this every year about this time of year so we’re excited to bring this to you. But first, just a couple housekeeping things. As you know, on the solo cast, we always give away a workshop seat. All we need you to do to be eligible to win a workshop seat … Say that 10 times fast. All you have to do is go wherever you download the podcast. So could be on Google, it could be on Apple, could be iHeartRadio, wherever you grab it, and leave us a rating and review. And then what we need you to do is we need you to take a screenshot of the rating and email it to me at [email protected]. Because you have some sort of login or user ID or handle and ILoveCatsMoreThanDogs22 does not tell me who you are or what your agency is so I can’t award you the seat.

But in this case, Leslie Osborne followed the instructions way back in 2019 and she sent me a screenshot of her review and it’s finally her turn. So Leslie, you have a free seat at one of our workshops or one of our on-demand workshops if you’d rather do that than attend one of the live workshops. So I’ll shoot you an email and we’ll get that squared away. But congratulations and thanks for being a loyal listener. That takes care of all of the paperwork and all of the pre-work so let’s get into the trends because we have quite a few that we want to talk to you about. Danyel, let’s start with the money trends. That seems to be what everybody wants to talk about first, right?

Danyel Newcom McLellan:

Yeah. Absolutely. What’s been going on lately is that 25% of agencies held steady as far as the revenue and AGI, 60% grew revenue and AGI, and then 15 shrunk revenue and AGI.

Drew McLellan:

Yeah. That’s a little different. That’s a shift. Keep in mind, these are the year-end 2022 numbers. So this is how you all wrapped up last year. Typically, what we see is we see more of the agencies showing growth and more of the agencies holding steady. We don’t quite see that double-digit shrink in revenue and AGI.

Danyel Newcom McLellan:

Right. And I think that that’s surprising because there’s been a lot of talk of recession and a lot of unease I think would be the word. So these are promising. Promising.

Drew McLellan:

Yeah. So a couple other things. When we look at where agencies are making money, we’re deeming what we’re about to talk about countable work. So if you’re watching the video, you saw the rabid air quotes, and if not, hopefully you heard them in my voice. But the places where agencies are making the most profit is in things that they can count and prove to their client basically, you give me a dollar and here’s what happens as a result. And as you know, even pre Covid this was a recurring trend that was really growing in terms of the groundswell where clients were really putting a lot of pressure on agencies to be able to prove that the dollars they were spending were having some impact. So regardless of what the client’s goal was, whether they wanted more leads or more web traffic or more sales, whatever that was, clients are being asked by a C-suite or a board of directors to really document and demonstrate that marketing dollars are being spent well. And so some of the most profitable work are PPC and SEO work and media planning and buying. So again, things that you’re doing that is easy for you to say, here’s what we did and here was a accountable result.

Danyel Newcom McLellan:

Yep. ROI is the big term now. So as much as you can prove ROI for the work, that is the buzzword that all of your clients are talking about in their boardrooms.

Drew McLellan:

And the reality is they’re being held accountable for that. And as you know, the tenuous nature of the CMO role or director of marketing role has not gotten better after Covid and so they are naturally anxious to be able to prove that they’re making good decisions, including the agency that they hired and following the recommendations we made. So they’re looking for that. So more profitable work that isn’t quite so accountable, but still as agencies are crushing it in terms of how they are delivering this work and making it profitable. And we’ll talk in a little bit about the average billable rate of this work, and you’ll see the delta between the profitable and not profitable work. But some of the other profitable work is strategy and consulting work. A lot of you are moving away from making stuff and you’re spending more and more of your time really lending your clients the depth of your expertise and your thinking around strategy and consulting. And then PR and happy to say content. For a long time you guys struggled to make content profitable. You really were wrestling with how to help clients understand the amount of time it took to do and to do well and now it seems like clients have caught on to that. And so again, this is more profitable work for many of you.

Danyel Newcom McLellan:

Some of the least profitable work unfortunately are ad campaigns and what would be considered traditional agency work. So people are struggling a little bit more to show ROI of brand. A lot of the, again, more traditional ad campaigns are not what your clients are looking for or are willing to pay a premium price for.

Drew McLellan:

It’s frustrating. I think a lot of agencies were born out of that work and a lot of us, that’s what we went to school to do and what we grew up in our career doing. And so it’s a little disheartening, I think for a lot of agency folks to feel that that work is being devalued. But it’s oftentimes something that clients who sometimes can’t tell the difference … Watch TV and you can see what they put on TV as TV commercials. But I think sometimes clients can’t tell the difference and so the variance in price between letting the TV station do it or letting a local freelancer do it versus having an agency do it is difficult for them to justify because they can’t articulate the difference. So if you do a lot of that work and you want to keep making it profitable, you’re going to have to be able to produce a very viable argument about the value proposition of you doing it versus somebody else.

Danyel Newcom McLellan:

Right. And also tying it to some of the higher, more profitable work in ways that you can through the strategy piece and then having the brand weave into the strategy and help inform the PPC and SEO. So some agencies are doing that really successfully. Using the same vernacular that their clients are using but being able to weave in that brand strategy as opposed to having it lead with the design and concepting of the brand.

Drew McLellan:

Well, and I think that’s using call tracking and all kinds of things like that for sure. So when we look at billable rates … And you’ll see this is what we’re talking about. When agencies are charging for PR on average their billable rate is well over $200 an hour. If they’re doing SEO it’s about $185 an hour. Strategy at 181. Now on the ad campaigns, as we were saying, it’s averaging out at about $130 an hour. So that is a huge delta between the super profitable work and the work that you’re struggling to get done in a profitable way.

Danyel Newcom McLellan:

We’ve been talking a lot about … Or sorry, hourly rates. And I think that most of you have listened to Drew talk about your hourly rate should be at 175 per hour as opposed to what agencies traditionally looked at as 150.

Drew McLellan:

For over a decade we said 150. It really is the increase in some of the internal costs. Our employees are more expensive, the benefits are more expensive, so we just have to make more every hour to be able to cover all of our internal costs.

Danyel Newcom McLellan:

That’s right. And generally though, we don’t like to say that we want … Or we want to do value and not just have our billable rate hour per hour, but that for internally, 175 should be where you’re at.

Drew McLellan:

Right. So very few agencies talk about a billable hour anymore with a client. Some of you if you got hired by procurement probably had to put a billable rate. And in that case you may have had to put a billable rate per team member into a contract, but for many of you, you’re really doing project pricing so it’s a flat fee for a specific set of deliverables. But to Danyel’s point, as you’re doing the math of what are you going to charge the client you really need to be using $175 an hour in your math. And then of course what I want you to do as you’ve heard me say before is I want you to figure out, okay, it’s going to take us 10 hours times 175. But you’re wrong. It’s going to take more than 10 hours. There’s no way around it. We’re terrible at estimating. So we want you to take the 10 hours times 175 times 1.3 and that’s the price you should give clients. At the end of the day when you go back and do your postmortem, that’s actually what it’s going to have taken you to get the work done.

Danyel Newcom McLellan:

Absolutely. Another problem that’s been in our industry for a while, but is really coming to the forefront in this time when we’re having more remote work and some of the biggest threats of our profitability are over servicing the clients and over staffing. So over staffing has been going on for a long time, but I think because of the hiring being such a challenge that we’ve been holding on to employees longer because we think that a warm body is better than nobody at all, and especially having to pay a premium price for a warm body.

Drew McLellan:

Or pay recruiting fees or whatever. So for many of you, you struggle to find decent employees. And I’m happy to say actually one of the things we’re hearing is people are much happier with their teams than they were a couple of years ago. A lot of you are saying, this is one of the best teams I’ve ever had. I love these employees. They’re great. So the good news is, and we’ll talk about this later when we get to the employee section, but the candidate pool is getting better, but you’ve been so burned by the last two years and how long it took you to find a breathing human being that would take a job and anybody who was competent, you were brought to tears with joy that you had them, that some of you are not paying attention to the ratios and you’re justifying to yourself that you should keep more employees than you can actually afford to keep. And so you’ve got to let the numbers tell you how to staff your business.

Danyel Newcom McLellan:

And it’s a hard decision when you think you have the best team ever and all you need is just a little more business. But what’s happening is, again, that new business, and we’ll talk about this later, is taking a little longer to come to fruition. So the numbers are really important even when the decision is very hard. And I think another thing about the over servicing is a key piece. We’re seeing that all the time, especially because we have the people. They’re putting more and more time and energy into the projects that you do have and even with the best of intent aren’t putting in all the time that they’re spending on the client. And so overstaff … Sorry. Excuse me. Over servicing seems like a logical thing to do when people have more time when they’re waiting for more business, but we’re not tracking the time accordingly.

Drew McLellan:

You can’t charge the client.

Danyel Newcom McLellan:

You can’t charge the client. There’s a lot of time ending up in admin and miscellaneous buckets when that’s happening. And so if your admin and miscellaneous buckets are really, really high for time, generally speaking, there’s some over servicing going on. So streamlining processes for efficiency, really encouraging your team to give you accurate time data and not just looking to make a project profitable. Those are ways to help talk through the over servicing of clients.

Drew McLellan:

One of the things we’re seeing quite a bit is that employees who don’t want to get in trouble are only recording on their time sheets the amount of time they’re allotted to do the work, but the reality is they’re spending more time and then as Danyel said, they’re tucking that time somewhere. And so what you’re getting is low bill ability, low utilization numbers, and you can’t figure out why because your people are telling you they’re swamped, they can’t do another project, they freak out when you get a new client. But the reality is, because of the inaccurate time sheets, two things are happening. One, you think they have capacity, and two, they’re spending too much time that you can’t recoup on client work, but they’re not recording it accurately, which means every estimate that you build off of the last estimate is equally wrong and you keep short-changing the agency over and over.

Danyel Newcom McLellan:

And it adds up. The more people that are on a project that are all doing this, it’s a lot of billable time that adds up. So emailing and communication with your clients oftentimes is not recorded. And so all of those emails and communications they don’t want to put onto the job, so that will go into an admin bucket. And I think even prepping for meetings and the things that it takes to actually do the client’s work, they feel that they can’t put against the client project. So retraining your team is a great way to help them refocus on the numbers that matter to you and work to minimize the over servicing.

Drew McLellan:

And I think you have to reassure them that nobody’s going to get fired or in trouble for accurate time sheets. I think this is particularly … Everybody on your team is doing it. All your creatives, all your digital folks. But the ones who really break this rule are the account service people. Because they’re the ones who are being held accountable to delivering on time and on budget and so they sacrifice a lot of their own billable time sometimes to put into those admin buckets. Or some of you have a general client bucket that just is the dumping ground for time that basically they don’t want to claim against a specific job. So having ongoing conversations … And I know you had this issue in your shop.

Danyel Newcom McLellan:

Absolutely.

Drew McLellan:

Having ongoing conversations with your team about the importance. And what you’re doing with the data and why it matters, helps them get over the discomfort and the fear factor.

Danyel Newcom McLellan:

Right. Exactly. And I think creatives, they want to do good work and if it goes outside of what their allotted time is, they’ll add more time to the project to get the work done at a quality that it needs to be. PMs, project managers, are another spot where there’s a lot of lost time. Some agencies feel like their project managers can’t be billable, but that isn’t the truth. It’s a challenge because they touch so many projects, but there’s ways to be able to have them add 15 minutes to every job as they go through the process. And you get much more accurate data on how much of your team is working on that client work.

Drew McLellan:

Yeah. All right. So let’s move to trends that we’re seeing amongst clients and bis dev. One of the trends we talked about last year that is still prevalent today, and if anything is probably a bigger trend in ’23 than it was in ’22, is we went through a season where clients were like, “I need a specialist agency for everything we do.” And they were just parsing out the work in little tiny bits. So they’d have a brand agency, they’d have a PPC agency, they’d have a media shop, they’d have a creative shop. And what we’re seeing now, the trend is that clients are like, this sucks. It’s all these agencies.

Danyel Newcom McLellan:

Exactly.

Drew McLellan:

This is abysmal. A, I don’t want to have to ride herd on all these different agencies. B, trying to get them to work together is painful. And C, my entire day is being sucked up by meetings with each agency and then I have to translate between the agencies.

Danyel Newcom McLellan:

I think also another thing I’d add to that is the data that they’re receiving from each of the agencies that measures the ROI of their work, that they have to take all this different data from all different places and try to translate it in the success of a project. For quite a few years, we wanted to have our agencies have everything in house and that it looked as a value to clients of having all of the parts and pieces in house, which is now, they have an understanding that it takes specialization. And again, they just don’t want to manage all the parts and pieces to get a successful campaign.

Drew McLellan:

So it’s interesting. We went from everything has to be in house and the clients basically calling bull on that. That there’s no way as a 15 person agency you can do all of these things that are so sophisticated and complicated in house. To the pendulum swinging all the other way, which was I want all the agencies to do all the things. And now it’s really in an interesting place, which is they still want specialists, but they’re tired of being in charge of the circus. So what they want is they want a lead agency who’s going to bring them partners who specialize. And so for a lot of you, this is a huge opportunity to align with other agencies that deliver on some of the things you may or may not do. PPC, SEO, PR, web dev, whatever it is that you don’t do.

Or if you are a specialist, if all you do is PPC and SEO, then finding agencies that are more of the agency of record strategy kind of an agency, coming together and creating an alliance where you agree to share partners, you agree how that business is going to be handled, but the lead agency can go in and say, “Here’s our recommendations across the board. We do two thirds of this in house, but the other third, we have three strategic partners that we’re really excited to introduce you to.” And in fact, they might be a part of the pitch or something like that. But when they do that, the key is that they have an alliance. Because in the past, the reason why you haven’t wanted to share clients of course, is because people steal your market share.

Danyel Newcom McLellan:

Right. Again, I think this is great news because a lot of the agencies want to be in that strategic space, and it’s something that clients want. They don’t want to manage it from a strategic standpoint. So if you’re an agency that maybe even specialized in brand and want to build into strategy, having those alliances and partnerships to get the best work done for the clients is really a high desired position to be.

Drew McLellan:

No doubt.

Danyel Newcom McLellan:

And also, to your point, PPC and SEO-

Drew McLellan:

Huge demand.

Danyel Newcom McLellan:

Huge demand. But most agencies, we can’t hire for that. It’s either we’re not large enough that it’s a one position, one man band, and it’s very hard to hire for, to rate success at and then you’re really held hostage to the one person who is the sole one who knows how to do the work in your shop.

Drew McLellan:

And they often get poached or cherry-picked pretty quickly because they’re expensive. They’re in demand everywhere. Not just in agencies but on the brand side and other places. So it’s hard for you to hang onto that one employee. And as we’ve seen many times with our clients, they hire a rockstar PPC or SEO specialist, they’re there with them for maybe a year, they get poached and then that person leaves with all that institutional knowledge and the agency has no idea how to jump back into the work. And if there’s not a good overlap of the new person and the old person, there’s a lot that gets lost in translation.

Danyel Newcom McLellan:

Right. Right. And I think that even is more apparent when the hiring situation that we’ve all been in for so long that there’s a longer lapse than we’d want. So some of the ways to guard yourself if you are in that position when you have a one man band and one man, woman band in your agency that trying to have their processes and how they do their work documented as best as you can so there is some sort of training manual, but also making sure you have those partnerships and do some test projects with other agencies that do that specialization. And the person in-house can help manage that with that other agency. But it allows you to be able to ebb and flow with work and not be held hostage by the one person who’s the specialist.

Drew McLellan:

Well, and I think we’re seeing that too in media where a lot of agencies are deciding if they don’t buy a certain amount of media or if you don’t do a certain amount of PPC and SEO, or you can have a whole department, then oftentimes it’s actually more advantageous to you and more profitable for you to partner with someone rather than to keep it in house.

Danyel Newcom McLellan:

Right. Exactly. Another thing we’re literally seeing a lot of is that sales cycles are longer. What used to be where again, you could pretty much say we have maybe a three-month sales cycle, that’s been extended and doubled. So there’s a lot less influx of new business. A lot of people are not saying no, but they’re not saying yes either. So there’s a larger bucket of these maybe clients. Also current clients that are trying to stretch out or hold or pause projects. What we really need to rely on and push in our agency is having our current client growth be a focus and having the AEs in your account team really be the drivers. I think that there’s been a lot of fear after Covid and we are very much in the mode of over servicing as we talked about earlier.

But we haven’t really given them responsibility. We have always had them be more reactionary and making the client happy as opposed to help guide them and grow their account work. And so having a plan in place and a process in place of how your AEs start to grow their client base and KPIs in their performance that show that they are growing their current clients that you talk about often, quarterly, and then they can see the math that goes along with it. And if they’re making the effort to bring new ideas to strategically grow the client. And this is an all agency sport. Although your AEs will be the ones that take the charge and part of their growth, you have more people in your creatives that can come help with ideas and making it free for your client in the idea generation can really help them get more inspired that you’re a partner that they want to grow with.

Drew McLellan:

So in the AE bootcamps, one of the things we teach is that an AE should be able to grow their book of business by 10%. That’s actually their job. And I’m always a little surprised at how that is news to them. They look at us like we’re crazy that they have to grow their book of business. Most of them don’t know the size of their book of business. They’re not tracking it. So because the sales cycle is slower … And we’ll talk a little more about that in a minute. Because of that, investing more energy and growing our existing clients is really critical for ’23. But your AEs don’t know how to do it. And so you as the agency owner or leader are going to have to come alongside them. You’re going to have to help them really strategize how to grow each client, how to learn more about the client’s business. This is not about just sticking our hand in the client’s pocket.

Danyel Newcom McLellan:

Not at all.

Drew McLellan:

This is about at all figuring out how to actually help them grow their business and be a better partner to them. And your AEs need to learn more about the business so that they can come up with better ideas. So this is going to take some guidance from senior leadership. As Danyel said, you may be pulling people in from other departments to do some ideation. But do not just hand this to your AE and say, “Hey, you have to do this.” Some of them are probably seasoned enough and capable enough that they can do it. But I think what you’re going to find is that most of your folks, it’s not that they’re willing to do it, it’s they don’t know how and they don’t really want to admit they don’t know how. So you’re going to have to come alongside them and help.

Danyel Newcom McLellan:

So I think that putting that focus on instead of the servicing where they can put their energy into growing the client account is going to be very important for them and it’ll take time to switch their mindset. So again, that consistency and that support in doing so is going to be really important. And also talking about it. We put so much of our effort and energy into new business and tracking new business and where is it coming from? And that’s all very, very important. But we really have this big black hole that we don’t put enough energy and focus and we have a team of people that can do it beyond just the people who work on new business. So thinking of it as diversifying the influx of your business. And when you talk about it as a team, when you’re looking at growth KPIs, current client growth and new business growth should be really aligned and looked at the same time so you’re having that influx of growth in your numbers.

Drew McLellan:

Think about how often we go into an agency and we look at their finances. And one of the things we rarely see is an agency hitting the metric of … Which is a best practice. 60 to 70% of their net new revenue should be coming from existing clients, but we don’t see that very often.

Danyel Newcom McLellan:

No, we don’t. And again, celebrating that too. So when you’re talking about new business wins, you should also talk about current client wins. And if you have a layered account team where you have an account director, their responsibility is to get their entire team up to the level of growing their client base. And some of it is going to be in the process too of how do you do that with the time that you have and how do you allocate for that time? So tracking those KPIs as well will help really show the needle moving in the direction that it needs to.

Drew McLellan:

Yeah. One of the areas where agencies are able to have some incremental income with their clients is that clients right now are feeling the same pinch we are in terms of it’s harder to get new clients, it’s harder for them to gain new business and so they too want to invest more time and energy and focus on their existing clients. And so a lot of agencies are helping their clients elevate the customer experience. They’re creating loyalty programs. So that may be some areas where you and your team can think about how you can take some fresh ideas to your clients. Because right now that’s a super sensitive area for them is they know they have to keep their current clients happy and ideally growing because they’re experiencing the same lag on the new new sales that we are.

Danyel Newcom McLellan:

Absolutely. Another thing we’re seeing is that … We talked about a little bit earlier about ROI. That we have to show a connection between our work and the KPIs that our clients have identified. And I think where we go back to the specialists, sometimes we don’t have somebody in-house that can help articulate the data and the importance of what data to look at. And it’s important your account team knows how to look at what success is for their clients and the KPIs that they can continue to talk about and drive for them.

Drew McLellan:

It’s interesting. In this year’s salary survey that just came out in May, for the very first time, we have a couple new positions that agencies are hiring at such a clip that we needed to include them, and one of them is a data analyst. We’ve never seen a lot of agencies have a data analyst on staff and now it’s becoming a much more common position for exactly what you’re saying, which is we need to be able to translate what we’re doing to raw data and then correlate that to the KPIs that we are spending the time … And this is critical. That we’re spending the times with the clients on the front end underscore, underline, defining, hey, when we get done with this project, here’s what success looks like and here’s how we’re going to measure it. If you do not have that conversation on the front end, you are going to be torpedoed on the back end. And so having A, the conversation, but having the team in place and building in measurement where you can is really going to be critical.

Danyel Newcom McLellan:

Really critical. And a lot of times the data analyst position falls into the strategy department. So this aligns really well in driving more of the strategy in your agency and understanding what data drives what decisions, and being able to teach our clients what that means. Because they know and they hear all the KPIs and data and we need to have ROI, but there’s so much that we can use for data that it’s hard to know which pieces of information are going to make the biggest impact on their business problem. And so for the strategy department and the data analyst to work really in tandem and with the AEs that are able to talk about it is a power trio.

Drew McLellan:

We’re going to take a quick break and then when we come back, we’re going to talk about some of the trends that we see affecting you the agency owners. We’re going to talk about employees and all kinds of other things. So don’t go too far. We’ll be right back.

Hey, sorry to interrupt, but I wanted to make sure that you are thinking about how to connect with your clients by figuring out what they love and maybe a few things that they’re not so crazy about with your agency. So at AMI, one of the things we offer are client satisfaction surveys. We do both quantitative and qualitative, so an online survey, but also interviews with some of your key clients. And then we come back to you with trends, recommendations, what they love, what they don’t love, lots of insights around how you can create an even tighter relationship with your clients.

So if you have interest in that, you can go under how we help tab on the AMI website and very bottom choice on the how we help tab is the client satisfaction surveys. You can read more about it. But whether you have us do it or you do it yourself or you hire somebody else, it is really critical that you be talking to your clients about what they love and what they wish was different or better. So do not miss the opportunity to tighten your relationship with your client whether we help you or not. All right? All right. Let’s get back to the show.

All right. We are back. You have Drew and Danyel both here this time for the 400th episode of Build a Better Agency. Super excited to be with you guys. And again, I can’t tell you how grateful we are that you listen every week. And this is fun for us to talk about the trends. So right before the break we were talking about biz dev and clients, now we want to sort of turn our attention to some internal trends we’re seeing.

So if you’ll remember in 2022, one of the trends we were really seeing with agency owners is that you guys were tired. You were tired, you were worn out. We were hearing a lot of, God, I feel like every day I’m walking up the mountain carrying 50 extra pounds of weight on my back and it didn’t used to be this hard. And there was a lot of discouragement. And one of the great things is we’re seeing that shift a little bit. So if you imagine three buckets, last year, it was either a I’m ready to go bucket or I just want to stay in bed bucket. And this year now what we’re seeing is we’re seeing an expanded set of buckets. So there’s still certainly some of you who are still feeling the weight of the world on your shoulders that the work is harder, that it just feels like more of a grind. And so we’re seeing that worn out fatigue in some of you for sure.

Danyel Newcom McLellan:

And I think a lot of that too is driven by the hiring process. A lot of the owners that had been a little bit out of the day-to-day, they feel both from a financial standpoint of a high end, the difficulty of hiring standpoint that they’ve really gotten into the weeds and doing a lot more of the client and day-to-day work that is making them feel really burnt out. I think another thing that’s happening is that coming off of Covid and going into everybody leaving their jobs and all the things that were happening in the market that that bucket seems to be in the very much reactionary position. So a lot of things have changed in your agency that you used to be more proactive in the leading of and have more control of. And naturally so you’ve been worn down. So we see a lot of people that really need a reset in that worn out bucket to reinvigorate them about what kind of agency they want to own and what they want to do, and figuring out better ways of getting there and seeing a light at the end of the tunnel where many haven’t seen a light at the end of the tunnel.

Drew McLellan:

One of the other buckets we’re seeing is that there’s a big group of you that’s energized, re-energized. Whether it’s all the cool things that are happening with AI or biz dev is going well for you, or you finally have this rockstar team that you’re really excited about, but many of you are reinvigorated in the business. You are starting new programs, you are offering new services and you’re feeling really good about it. And so that’s been fun to watch.

And then the third bucket is some of you who were over it have shifted to a bucket that we call free from the day-to-day. And what that means is one of two things. Either you’ve hired a president or a COO or someone like that to really run the day-to-day and you’re focusing on biz dev and mentorship and that legacy work that only an agency owner can do, and you’re loving being in that position or you are free from the day-to-day because you are in mode of selling the agency. So you are getting out of the day-to-day because you are shifting into a transition. And in fact, we’re seeing more M&A interest I think than ever before. We’re doing a lot of valuations, we’re doing a lot of work with internal succession where founder is selling the business to one of their employees and we’re coming alongside them and helping make that happen. But we’re also seeing a lot of external sales and we’re involved in more and more of those than ever before.

Danyel Newcom McLellan:

Right. And I think it really goes back down to those buckets of agency owners where the people who are invigorated and energized are looking at growth and what is going to be the next iteration of my agency. And one of the greatest growth strategies out there is to actually acquire another agency that either has a skillset that you don’t possess, has a industry knowledge that aligns with yours, and it’s a great way to have a bump into the next realm of the next chapter of your agency. So I think that goes back … And there’s a lot of agency owners that are worn out that want to be re-energized, and sometimes that merging is what will take for them to feel more energized and have a shift in their business in the way that they want.

Drew McLellan:

Or a partner to share the burden or whatever they need.

Danyel Newcom McLellan:

So a lot of transition is happening in our agency world right now, which is exciting. I think goes with the buckets of agency owners that are in different sets and parts of their life.

Drew McLellan:

Yep. Another thing that we noticed that was true in 2022, and it’ll be interesting to see how it plays out in ’23, is many of you as owners took less money out of the business in ’22. I think there are a couple of reasons for that. Number one, your employees got a lot more expensive. So some of the money that you might have taken out in W2 income or dividends ended up getting spent on bodies that you needed. And to Danyel’s point, if you were in that exhausted bucket, you were glad to spend that money to get out of the day-to-day again and to get some employees in place to get you to be able to go back and do your own job. For many of you, 2021 was a windfall. You had extra PPP money that you didn’t actually need to use to keep the employees. And so there was this pot of money that was free money to you. And so a lot of you took that out at the end of ’21. And so you just didn’t feel the need to compensate yourself as richly in ’22.

For a lot of agencies, the tail end of ’22 and going into ’23, you were feeling the pressure of the slowdown of new business. Things weren’t turning as quickly and so a lot of you left more money in the business at the end of the year as a safety net because all of this recession talk made you anxious and you were anticipating that sales might slow down and so it was not the year for you to reap as many benefits out of ownership as you have in the past.

Danyel Newcom McLellan:

Right. I think again, we heard this last summer and it’s almost a year of how we’re waiting for the other shoe to drop on recession. And so everyone’s making decisions where we don’t really know what’s going to happen. There’s good data, there’s bad data, but again, just that unease of what do we have to do in case we have to really batten down the hatches?

Drew McLellan:

Yeah. So one of the places, and this is oftentimes at the owner’s impetus, which is why we have it in the owner’s section, is it’s exciting to see a lot of you actually starting to really do what Stephen Woessner and I talked about in the book, Sell With Authority, real thought leadership. Where you are establishing yourself as an expert in something and your content is demonstrating how smart you are at it by giving away all of your smarts. So you’re teaching, you’re sharing, you’re speaking at conferences, you’re writing books, you’re doing research projects, but you really are embracing this idea of being a subject matter expert, owning that position and then as we know if you’re really an expert, you teach and you share what you know. And we’re seeing more and more of that, which is really gratifying.

Danyel Newcom McLellan:

Yeah. It’s really, really exciting. And now starting to see the traction for what that looks like. And knowing that it has to be consistent. Some people want to come out the gate and they’re really focused on it. And so now is about keeping that ball rolling and doing it consistently and often and utilizing that traction that you’re already getting.

Drew McLellan:

For sure. All right. So let’s talk a little bit about your employees and some of the trends we’re seeing with them. A lot of people are asking us, they’re saying, “How are agencies working today?” All of you want to see where you are at in comparison to everybody else. So national data from multiple sources suggests that about 50% of agencies are now working in some sort of hybrid fashion. So it’s two days in the office, three days at home, or vice versa. That’s working best if all of you are in the office on the same days. So it’s a we work in the office Monday, Tuesday, we work from home Wednesday, Thursday, we come back into the office on Friday, and we’re really intentional about how we spend those days. About 30% of you are fully remote and about 20% of you are fully in the office.

So it’s interesting. Those numbers are a little different than our salary survey numbers. So our salary survey showed that of the couple thousand people that live in the AMI ecosystem that participated in the survey, only about 10% of those agencies were fully remote. So the data that we’re drawing from probably takes into account larger agencies as well. So it’ll be interesting to see as the year goes on with the small to mid-sized agencies, which is most of you listening, how you’re falling into place. But the point is however you want your business to be, you have the opportunity and the option to do that. So many of you were really afraid to ask people to come back to the office, especially if you wanted to be back five days a week early on. And what we’re seeing now is the agencies that are doing that are finding employees who also don’t want to work from home, want to work in an office. And for those of you that shed your physical space and said, forget it, we’re going to be 100% remote, you’re finding team members that are making that work. And so the point I think of this trend is you own the business and you should make these decisions based on what you think is best for your business, for your clients, and you will find team members that will follow suit.

Danyel Newcom McLellan:

Right. And the people that are doing it successfully, the fully remote and the hybrid really have put a lot of effort in growing their onboarding of employees to make it a very tight process to really integrate the person. And it’s more extensive than it would be with in office, but it gets people up to speed quicker. Also, culturally, they put a lot of effort in growing and maintaining a sticky culture in a remote and hybrid environment. And agencies are really successful at that, but others are struggling and others feel like they just have had to do what the market indicated they did have to do, and they’re looking for a reset. So I think that there’s a transitionary moment and either you’re doubling down like, all right, now I know that I need to spend more of my overhead to have our team come in more often.

Drew McLellan:

Face time.

Danyel Newcom McLellan:

Face time if were doing it. And that has worked great. And for others who are having a struggle, they are looking to bring their team back. And it is much more about the personal preference and what works for the kind of work you do and the people that you serve you as an agency owner.

Drew McLellan:

So interestingly, when we look at the data, almost all of you are working with some sort of contractors here. It’s a mix of employees and contractors. But for agencies, about 20% of your output now on average is coming from a contractor. So the impact of that for you is that that’s a cost of good expense on your P&L rather than an AGI expense. So again, remember contractors, 1099s, anybody who doesn’t get a W2 from you, if you’re in the US and whatever your country’s version is, if you’re outside of the US, if they’re not an employee who gets a paycheck, then their expense, regardless of what they do, sits above the AGI line. So they’re a cost of goods. And that’s because you only pay them when they do work for you on demand. You’re not paying them when they’re on vacation or when they’re in a team meeting or things like that. So again, what it’s doing is A, it’s changing the way you work. 20% of your work is now coming from contractors and partners and it’s impacting your P&L. So if you’re looking at your P&L, you have to recognize that what that means is it’s going to shrink your AGI a little bit, but it also means that you’re not paying for people when you’re not using them, which in theory should increase your profitability.

Danyel Newcom McLellan:

Exactly. And it’s such a good way to also deal with the influx of new business coming in versus new client work and the ebb and flow of workflow. So it allows you to open the spigot of getting more work done since we never can predict when people will sign off on work. And obviously it’s never set out just as easily as it should be for us. And when it comes in, we can ebb and flow with the workflow and also have experts when we need experts like we talked about before.

Drew McLellan:

That’s one of the ways people are using contractors. I don’t have enough work to keep that person busy full-time, so I’m going to have a contractor that does that work.

Danyel Newcom McLellan:

Yep. Until we have enough consistent work. So making hiring decisions, having a good bench of contractors and freelancers that do high quality work is a great tool to leverage when you are dealing with influx of new business and the uncertainty in the market. Recruiters have been struggling to find folks for us, but-

Drew McLellan:

Another reason why people are using more contractors right?

Danyel Newcom McLellan:

Right. Exactly. Exactly. And as we know, recruiters come with a hefty fee, but because it’s been so hard to find the right people, we’ve been putting a lot more of our focus there and trying to get the right people in the right seats and more people to actually look at and interview. But it has gotten better. So we’re seeing a shift that’s happening with the market going along with there’s been bigger tech layoffs, things of that nature, and the hiring challenges and the salary demands are easing a little bit. So we’re seeing higher quality candidates. We’re-

Drew McLellan:

More candidates for sure.

Danyel Newcom McLellan:

More candidates. More reasonable … Not totally reasonable, but more reasonable in their compensation demands. There’s still the feeling of some people that are they’re either an in-office, they want to be in an in-office position or an out-of-office position. So that’s something that agency owners are still navigating. But as we said before, people are getting their best teams in place right now, which is pretty exciting to hear. And so we’re hoping that that trend and that pendulum continues to right size, but it’s looking good. It’s looking better.

Drew McLellan:

So a couple of things with that. Interestingly, who’s in charge of the hiring? Are there good candidates? How reasonable are the salary demands? That’s a pendulum that for all of us swings back and forth, back and forth. And the good news is the pendulum is swinging back to the agency and the agency owner’s benefit. For the last couple of years, the pendulum has been stuck. Not in the middle, but to the far side to the benefit of employees and we’ve all paid the price for that. Both in not having the right number of bodies, not having the right bodies and having to pay a premium for those bodies.

Danyel Newcom McLellan:

I also say that there seems to be an increase in boomerang employees, which are my favorite kind of employees. A lot of employees that quit during the big when everybody was quitting are now realizing the grass isn’t always greener. And so they’ve been coming back to our agencies and a lot of agencies are opening their arms. If they have the position open, it’s a we understand and come on back. It is a great indication to your current employees that the-

Drew McLellan:

The grass wasn’t greener.

Danyel Newcom McLellan:

The grass wasn’t greener. And so those war stories, when your boomerang employees come back, really gives some added heft in your culture about what a great place that your agency is to work at and it can really encourage teamwork and make people who have known the boomerang employee before feel really positive about the new hire.

Drew McLellan:

And again, in the salary survey we just released, we actually had a couple positions slide backwards. Which in all the years we’ve been doing it, I have never seen that. And the increases in most of the positions was nowhere near as great as it has been over the last several years. So a reminder, if you participated in the salary survey, you should have gotten your free copy by now. If you didn’t participate, you can purchase that for $99 on the website. But the point is that all of the salaries are easing. We’re not at pre Covid numbers and we’re probably not going back to those numbers. Even the ones that slid back didn’t slide back that much. But it does seem to be getting more reasonable and that the candidates are more plentiful. Therefore, if you’re going to pay a premium, you have a better pool of candidates to choose from, pay that premium.

Danyel Newcom McLellan:

Right. And some of the positions that still are giving a high salary, the data strategists, the web devs, specialists, the PPC and SEOs. So those are to continuing to be high paid positions.

Drew McLellan:

Yep. For sure. So speaking of PPC and SEO, again, when you think about the kind of work agencies are doing, one of the places where many of you are struggling, as we said earlier, is it’s hard for you to take on all the PPC and SEO work that your clients would actually love to give you because we can’t deliver on it. We’re struggling to deliver on that work, and we’re struggling on reporting on all things digital. So as Danyel said earlier, many of you have added a team member who can do that better otherwise you’re adding strategic partners who can do it better than you if you don’t have the volume of work. But this continues to be an opportunity for you to sell. Regardless of how you deliver against the sale, your clients want more of that accountable work and you’ve got to figure out a way to give it to them.

Danyel Newcom McLellan:

And they will look to you if you’re their lead agency, to be that, as we said at the beginning and that strategy first position. So it’s important to be able to deliver. Especially if they’re coming to you and they want that from you, finding a way to make that happen is very important.

Drew McLellan:

And again, like we talked about earlier on in the money section, they’re willing to pay a premium for it.

Danyel Newcom McLellan:

Absolutely.

Drew McLellan:

So this is a place for you to be very profitable and be very sticky. Once you get a PPC and SEO campaign in place and it’s working and it’s delivering results on a regular basis, no client wants to walk away from that and have to start over again with another agency. Another place where we’re seeing a lot of agencies making hay and doing really profitable work, and this was a trend last year as well, so it continues to be a trend, was influencer programs. In fact, some of the M&A work we’re seeing, when we talked to an agency that wants to buy another agency and they’re coming to us to ask us to help them match make in that way, one of the common requests is they want an influencer agency or an agency with influencer prowess because there’s so much demand for it. Especially in the micro influencer category.

Danyel Newcom McLellan:

Right. Micro influencers are in high demand. And our clients want that, but they don’t know a lot about it. So it’s important that the people who are in the influencer space are able to educate and create an ROI and expectations that make sense for their client.

Drew McLellan:

Yeah. Well, in fact, I was just on a coaching call the other day with an agency that all they do is influencer and they really struggling to help clients shift their mindset from buying traditional media or even digital media to what they’re buying, even just targeting with influencers. So to your point, A, you have to have a depth of expertise, but not only in doing it, but in teaching your clients how it works and tempering their expectations around it.

Danyel Newcom McLellan:

Exactly. Exactly. Another place that we’re seeing a lot of activity in is creating and curating a brand community. Our clients are realizing the existing clients are really where their bread and butter is. And so they’re focusing a lot on campaigns and just creating a brand community that supports them.

Drew McLellan:

Yeah. We talked about that a little bit earlier in the client trends of they want customer loyalty programs, they want a better customer experience. And one of the deliverables we’re seeing more commonly right now are these curated brand communities, which are typically a mix of online activity and connection between all of your client’s customers and bringing them physically together for an event around a shared cause or a shared focus. And it might be directly related to the product or service of your client, or it might be something tangentially related. A cause or a nonprofit they support or things like that. But usually it’s much more like, hey, we all do the same thing, how can we help and learn from each other? And so not unlike the Build a Better Agency Facebook group where agencies are coming in. I guess I hadn’t really thought about it, but I guess we’ve created a brand community in that space too, where you guys all come together and ask each other questions and share.

And obviously that for your clients, if you can create that energy where people are coming together and they find great value in it, that value gets translated to the brand. And so again, it helps your clients hang on to their customers and create a deeper, more meaningful relationship with them. And we certainly see this too, in the community if you’re helping your client create and curate that part of what you’re helping them track are trends or things that are being talked about inside that community because that may suggest new product offering, new service offerings, other things that they could do to sell to their clients, but also to serve their clients.

Danyel Newcom McLellan:

Right. It’s a wealth of information so it’s a really great relationship. Knowing what your clients need and want is perfect for the product development. And just like we have to think about what we offer our clients in that same way.

Drew McLellan:

Right. Right. Another thing we’re seeing agencies do is that not only are you doing more and deeper and better with your own thought leadership, but you are helping your clients do the same. So we’re seeing a lot of agencies help their clients do research, write books, position themselves as a subject matter expert and grow their business through that so that’s been fun to watch.

All right. Some areas where we think you should focus for this year and going into 2024. This goes without saying, but we’re going to say it anyway. You have got to figure out how to leverage the power of AI and show your clients how and where you’re using it. You need to have a user policy. You need to be experimenting it with your team and you need to be showing your clients how you’re leveraging that for real work, helping them save time and money, but us saying, oh yeah, it’s coming, no longer a thing. It was like all of a sudden no one was talking about it and then everyone on the planet discovered ChatGPT.

Danyel Newcom McLellan:

Yes. Exactly.

Drew McLellan:

All on one day everybody signed up for an account.

Danyel Newcom McLellan:

But I have to say, I’ve been really excited by the agencies that we talked to who have found all sorts of really amazing great ways to integrate it into their workflow, even starting with having a task force that starts to say, how can we use this? How can we align this to our work? How can we use this to serve our clients? There used to be a really big fear, and I think it still exists for employees feeling like, well, is AI going to take over my job? Am I going to be relevant? And it is such a great moment to have your entire staff rally around the idea that AI is a tool that actually allows them to do our work better. Even back in the days where we all started where doing things online, graphic design where it used to just be illustrations in the work.

We’ve gone through these iterations, so pretending that AI isn’t going to be influential is putting our heads in the sand at a moment where we really have an opportunity to be a leader with our clients in that space because they’re reading all the things we are. They understand what’s happening. They see all the articles. I think that having your staff know that it is a powerful tool to actually help them do better work and work more efficiently is huge. It’s a partnership between people and AI. It’s been great seeing creative come out where they’re able to concept … The ideas they’re able to concept at a bit much faster level, but a quality level too quicker. So using that for our RFP spec work and concepting for the clients and the devs are using AI for a lot of different things, but-

Drew McLellan:

Checking code. All kinds of things.

Danyel Newcom McLellan:

And chat boxes. Obviously the copy piece is a huge piece. There’s AI software that does jingles.

Drew McLellan:

Yeah. Crazy.

Danyel Newcom McLellan:

There’s a lot of ways that you can ingrain and it doesn’t have to be an all or nothing thing. You can dip your toe in the water. But being able to experiment where it makes sense the most and understand that it’s a changing landscape that is going to continue to evolve so it’s something that we’ll have to have our finger on the pulse of.

Drew McLellan:

For sure. So hopefully a lot of you get our monthly news … Monthly. Get our weekly newsletter and you know that we’ve been doing monthly webinars where agency owners are just popping on and we’re doing three agency owners per webinar. So these only get 10 or 15 minutes and they’re just showing us one or two things they are currently doing with AI and how they’re leveraging it and then answering some questions. So we’re not having the theoretical discussion. We’re not talking about the ethics of AI. We’re really just like, here’s a tool, here’s how we’re using it. Here’s a tool, here’s how we’re using it. And so if you don’t get the newsletter, which means you don’t know about these monthly webinars, you need to go over to the Agency Management Institute website and down at the footer you can sign up for the newsletter so you can see when the next one is.

We’ve been getting to the point where Zoom will only let us have 500 people at a time in the webinar and so if you don’t get there and you don’t get there on time, a lot of times you can’t get in. We are sharing the replay of all of them. So again, in the newsletter, we’re sharing a link for the replay. But it’s just a way for us to host all of you sharing your experimenting. And we’ve only done a couple so far, but in some cases the agency owners are like, this is crushing it. In other cases it’s like sometimes this is a hit, sometimes this is a miss. Here’s what we’re doing. So no one has it all figured out, but we can figure it out together. And so we would love for you to join us either live for those webinars if that works in your time zone or to watch the replay later, but you can’t not pay attention to this and you can’t not start talking to clients about this. It’s critical that you look like you are embracing it, you are a leader in it, you’re experimenting with it, and you are open to the possibilities of how it can make our work better for clients.

Danyel Newcom McLellan:

Right. And being able to train your AEs as well to how they should be talking to clients. Because I think another fear for agency owners is like, well, our clients are going to say if we can do the work faster than it has less value, which is not the case. And so being able to have a standard way we speak about it with our clients that shows the value of it for their work and for their business problem that you’re trying to solve is really powerful.

Drew McLellan:

Yep. All right. So the last area that we think you should be focusing on for 2023 and beyond is we’ve been talking about zero and first party data for years, but it really is looming upon us now. And so we have to have programs in place that help our clients build out their own data so that they can build their lookalike lists and all of those things that we’re going to have to do on our own. That the privacy laws are just continuing to get tighter and tighter. I did a podcast a couple of weeks ago with a guy, and his company basically has a piece of code you put on a website and it just automatically updates all of the privacy policies all over the world so that your privacy policy on your website is always accurate. And you can use this for clients too. But anyway, the point is on the day I was talking to him, three states inside the US had modified, added to or created new privacy laws in one day. So again, the circle is tightening on us in terms of what we’re going to be able to do with outside data. We have to be able to help our clients with zero and first party data. We can’t wait any longer. Some of you have dillydallied, some of have been right on top of this, but the day is today, so we got to get it done.

Danyel Newcom McLellan:

Absolutely.

Drew McLellan:

So that wraps it up.

Danyel Newcom McLellan:

Yep. A lot of things happening.

Drew McLellan:

I know. It’s a crazy time in the world. That’s right.

Danyel Newcom McLellan:

But again, I think it’s a really exciting time too. I go back to the energized bucket of clients or even people that feel worn out that these are the lights that we are seeing and ways that you can optimize and capitalize on those trends is a place that’s a powerful place for you to be as an agency owner.

Drew McLellan:

Absolutely. All right, so I want to wrap this up. First of all, again, thank you. Thanks for being here. Thanks for hanging with us. Thanks for being on the show with me. It was fun.

Danyel Newcom McLellan:

Yes. Thank you. Happy 400th episode.

Drew McLellan:

Yeah. It’s exciting. We should have cake.

Danyel Newcom McLellan:

We should have cake. Everyone should have cake.

Drew McLellan:

Everyone have some cake.

Danyel Newcom McLellan:

Have some cake today. You deserve it.

Drew McLellan:

Send us pictures of you having cake for the 400th episode. I like that.

Danyel Newcom McLellan:

I like that.

Drew McLellan:

Or a cupcake or a cookie. But anyway, something you can stick a candle in perhaps. Anyway, we are grateful that you continue to listen and we’ll be back next week with another guest who will help you think a little bit differently about your business. Of course, a huge shout-out on this episode and all the episodes to our good friends at White Label IQ. As you know, they are the presenting sponsor of the podcast, and so they partner with agencies all over the world and they do white label design, dev and PPC. Really great people. We’ve known them for 20 some years. They’re born out of an agency and they really get agencies and how you make money, and so they’ve built a business to support you and to help you be profitable. So really, really good folks.

Head over to whitelabeliq.com/ami because if you’ve never worked with them before, you can get some free hours on your first project if you head over to that particular URL. All right. So with that, going to let you go. Please take all of these trends to heart. Some of them may be more closely aligned with what’s going on in your business than others, but hopefully this was insightful and helpful, and we’ll be back next week. All right.

Danyel Newcom McLellan:

Thank you all.

Drew McLellan:

Thanks for listening.

Thanks for spending some time with us. Visit our website to learn about our workshops, owner peer groups, and download our salary and benefits survey. Be sure you also sign up for our free podcast giveaways at agencymanagementinstitute.com/podcastgiveaway.