Episode 410

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Lately, agency owners and leaders have been hitting their heads against a biz dev brick wall. With increased sales cycles, difficulty getting clients to start projects, tightened budgets, and more, it seems like we’re in a cycle of never-ending struggle.

Even if the future looks bleak, there are always more things that can be done and new strategies to try to help push through a difficult time. That’s why now more than ever, it’s critical for agency owners and leaders to track certain metrics to ensure you’ll end 2023 in the black, even as everyone is seemingly tightening their belts.

This week, I’m sharing five metrics you should be tracking with your teams to ensure you’re making the right strategic decisions during heightened hardship. From taking a closer look at your numbers to ensuring client satisfaction, we have the tools to help you end the year in the black against all odds.

For 30+ years, Drew McLellan has been in the advertising industry. He started his career at Y&R, worked in boutique-sized agencies, and then started his own (which he still owns and runs) agency in 1995. Additionally, Drew owns and leads the Agency Management Institute, which advises hundreds of small to mid-sized agencies on how to grow their agency and its profitability through agency owner peer groups, consulting, coaching, workshops and more.

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.

biz dev

In This Episode:

  • Tracking your 55-25-20 AGI metrics more closely
  • Deciding where to move money around to keep good employees
  • Doubling down on biz dev efforts
  • Getting your existing clients to spend more money on you
  • Why AEs should be helping to grow the existing client base
  • Why client satisfaction scores are more critical than ever
  • Good employee retention sends a positive message to customers

“You may decide to rob from the profit bucket or the overhead bucket to keep your good people because you know this is a season, and you know that the economy will change, and you don't want to lose anybody.” @DrewMcLellan Click To Tweet
“50% of the agency owner's time should be spent growing opportunities for new and better clients.” @DrewMcLellan Click To Tweet
“You need to have business programs in place to grow your existing clients and to get them to give you more money.” @DrewMcLellan Click To Tweet
“We really want you to focus on client satisfaction scores. In an era when it's harder and harder to get new clients, it is mission-critical that we keep the clients that we have.” @DrewMcLellan Click To Tweet
“When a client starts getting unhappy with their agency, and they start getting an inkling that perhaps it's time to make a change, they fire us within two or three weeks.” @DrewMcLellan Click To Tweet

Ways to contact Drew:

Resources:

Speaker 1:

It doesn’t matter what kind of agency you run. Traditional, digital, media buying, web dev, PR, or brand, whatever your focus, you still need to run a profitable business. The Build A Better Agency podcast, presented by White Label IQ, will expose you to the best practices that drive growth, client and employee retention and profitability. 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 McLellan here with another episode of Build a Better Agency. If you are a regular listener, thanks for coming back. It’s always great to have you. If you are just discovering the podcast, welcome. We’ve been doing this for about eight years now, so there are 400 and some past episodes waiting for you if you want to go back and listen to some of those. And if not, you can just follow along from this point on, the goal of the podcast has really not changed. The goal of the podcast is simply to help you, agency owners and leaders run the business of your business better. So we know you’re amazing at all of the things that are client facing, the work you do for clients, but that for many of you, you came into this not necessarily knowing how to run a business. And it’s our job to help you build an agency that is more stable, is more sustainable, that’s more scalable, and if you want down the road, is more sellable. So that’s where we focus is how do you run the business of your business better?

And normally every week we bring on a different guest who has a really unique perspective, who serves agencies as a general rule, and we might be talking about anything from leadership to financial management to project management and getting the work done, to growing young leaders. We really scale the gamut. And then every fifth episode, which happens to be this episode, is what we call a solo cast. A solo cast simply means no guest, it’s just you and me. And I want to talk to you about something that I’ve either been talking to a lot of agency owners about. Danielle and I talk to agency owners pretty much seven days a week. And so we have our finger on the pulse of what you’re worried about, what you’re thinking about, where the opportunities are, and then we decide on a topic for each of these solo casts and talk to you about it.

So this week, this episode, I want to talk about some key metrics that especially right now if you’re listening to this in real time, this is early August of 2023 and many of you are struggling this year. A lot of you are really banging your head, especially against the new business brick wall. But a lot of you are saying things to us like, you know what? We’re having a really down year, we’re holding our head above water. Clients are slow, even existing clients are not doing the kind and the level of work that we’re used to. So for many of you, ’23 has been a challenging year and I want to talk about what we think you should be thinking about for the rest of this year so that you can finish in the black.

All right, so that’s the topic for today. But before we do that, I do want to remind you that one of the things, good times, bad times, whatever’s going on, one of the critical things for you as an agency owner or leader to recognize is when you have great staff members, and many of you are saying, this has been a tough year, but man, do we have a great team? We are really cooking on all the burners in terms of the team we have, it’s best team we’ve ever had. I’m hearing a lot of that. So if that’s the case for you, then you need to remember that you need to keep investing in those people.

When we did some research, we do the Agency Edge research every year and we ask usually clients around a specific topic. For example, the ’23 research was hey clients, what, when and where do you give your agency bigger budgets? So how do we get more money out of our existing clients? And you can go to the website and download the executive summary of that and also watch the webinar where Susan Byer and I walked through those results. But anyway, a few years ago we turned the telescope on agency employees and we said to them, what makes you stay at an agency as opposed to seeking other opportunities? And the number one answer wasn’t money, wasn’t compensation, it was that the agency invests in me and helps me keep growing. So whether that’s lunch and learns that you put on yourself or it is giving them access to online learning or that you’re taking advantage of some of the things that AMI does like our AE bootcamps.

So that’s what I want to remind you about. We’ve got a couple boot camps coming up this fall, that if you’ve got some rockstar AEs or rockstar to be AEs, this may be a really good investment for you. So we have the advanced AE bootcamp is September 14th and 15th. So that’s for people who’ve been in the business four or five years or more. We have a lot of people who come to that workshop that have been in the business 20 years and still have that desire to keep learning and getting better. And then on October 19th and 20th, we have the entry level AE bootcamp. So that’s for people who’ve been in the business less than four years. So project managers, associate account managers, all of the folks who are just breaking into the business and need some basics. That is October 19th and 20th. Both of those workshops are held in Denver. You can learn more about them, you can register for them at the agencymanagementinstitute.com website. Just go to how we help tab and scroll down to workshops and you’ll see them there.

If you are an AMI member, so whether you’re an associate member or a peer group member, remember that you get the member discount pricing. So make sure you take advantage of that as well. And everybody gets a discount if they send two or more people. So if you’re a member, you get both the AMI member discount on top of the multiple attendee discount. All right, so again, September 14th and 15th for the advanced one, October 19th and 20th for the entry level one.

So let’s talk about 2023. For many of you, this has really been a challenging year. Biz dev has been slow. The sales cycle is longer. Even when you win a piece of business, it’s taking the prospects who are now your clients longer to actually get started and to give you work. I’ve had lots of conversations with agency owners who are saying, you know what? We won a piece of business three months ago and we have yet to get started. They just are dragging their feet and we’re seeing this across the board. So this is not something you are doing, it’s not something you’re doing wrong. It just is the effect of the economy right now on our buyers.

And even in the best of times, we have no way to get someone to buy something before they’re ready. We have no way to turn a prospect into a client before they’re ready to do that. There is no buy one get one free coupon, there’s no President’s Day sale, there’s no anything. We basically have to wait until they’re ready to go. And that can be really frustrating and it can also be a financial challenge to an agency.

So as we enter into the last four months, four or five months of the year, there are some specific things that we believe you should be really keeping an eye on so that you make sure you cross the finish line of 2023 in the black. So five metrics that we think are really critical for you and your leadership team to be tracking, talking about and making sure that you try and hit those metrics, try to hit those goals as best you can. Now, I will tell you, for a lot of you, you have made the decision and it is your decision to make, you’ve made the decision that this is not going to be the year you’re going to push for 20% profit. You’re not going to skinny down your expenses or your people to the point that you hit, what for us is the gold standard, 20% net profit.

There’s nothing wrong with making that decision, but what I want you to do is I want to make sure you’re making an informed decision. So you should be tracking the 55, 25, 20. So let me remind those of you who are new to the AMI world, what that means. So gross billings we know are a vanity number. They’re meaningless because until you take the cost of goods out, cost of goods meaning anything you buy for a client that you’re going to turn around and bill the client for. So it could be media, it could be photography, it is all contract labor, all of that is a cost of goods. And so you have gross billings minus cost of goods, and what’s left is adjusted gross income. Adjusted gross income is the money that you have to spend on your agency.

So you’re going to spend it on loaded salaries, you’re going to spend it on overhead, and what’s left is profit. And profit goes in a lot of different directions. It goes to bonuses and taxes and all kinds of other things, but AGI is where it’s at. That’s what we want to focus on. And again, that’s where the 55, 25, 20 comes in. 55% of your AGI ideally is spent on people, 25% on overhead and 20% profit. You can move the numbers around in the first two numbers. So you could be at 65% of your AGI is on people if only 15% is on overhead. And for some of you that’s possible today, depending on your market and your expenses, the goal is you want to protect the 20% profit, but this is a year when you may decide that you’re going to sacrifice some of that profit to keep your team intact and to do all of that. So I’m not suggesting that that’s not a good decision, it’s absolutely your decision, but I want it to be an informed decision. So I want you tracking that.

So let’s talk about the metrics that matter around how you end up in the black at the end of 2023. So the first one is related to that 55, 25, 20. So first metric that is really important for you to measure is that you want to have about $175,000 of AGI per full-time equivalent or per FTE. So for every employee you have that gets a W2 from you, so not contractors, not virtual assistants that you pay an hourly rate to, again, a contractor, these are people who get a paycheck from you. So in the United States, that’s a W2. In other countries, how you designate that’s going to be different. But these are people who are your employees, not contractors.

So you want to have $175,000 of AGI per FTE. And the reason for that is that means that if you choose to, you can stay in ratio of the 55, 25, 20. So you may decide, again, many of you are saying, best team we’ve ever had. There’s just not a lot of fat on the bone anymore. We have all really good people and we are really happy with the team that we have. Great, for many of you, this has been the first time you’ve been able to say that in several years. So you may decide that you want to rob from the profit bucket or even the overhead bucket to keep your good people because you know this is a season and you know that things are going to turn around and you know the economy’s going to change because it always does. And you don’t really want to lose anybody, that’s fine as long as it’s an informed decision.

So metric one, $175,000 of AGI per FTE. And then once you start measuring that, you can decide how you want to vary it based on your circumstance. So again, I’m not saying if you are over that ratio that you have to let everybody go. What I’m saying is, know the ratio and then make a conscious decision. So that’s number one.

The second metric that is really important, especially in this time where biz dev is so much harder than it’s been in the past, is 50% of the agency owner’s time should be spent on biz dev efforts. So again, let me say that loud and clear. 50% of the agency owner’s time should be spent growing opportunities to have new and better clients. Now, if you have a sales team, maybe that is not your ratio, but for most of you, the agency owner is the lead salesperson and is the one driving sales and is certainly the one who is out and about creating relationships and creating opportunities for sale. Also, the business owner is in most cases the subject matter expert. So if you have niched down in one way or another, odds are the agency owner is seen as the face of that area of specialty.

So the agency owner needs to carve out 50% of their time, 20 hours a week minimum, to be doing new business activities. Now, that could be attending a conference and meeting new people. That could be speaking at a conference, that could be writing a book, that could be follow-up calls to prospects. It could be creating relationship or nurturing relationships with past clients who have moved on to new opportunities. So that’s a wide swath of activity, but the point is that 50% of your time should be spent pursuing new business opportunities.

Now there’s a couple of things that go with that metric. Number one, you actually have to track your time. Because I promise you, if you’re not tracking your time, you are not spending it how you think you’re spending it. You are spending way too much time inside client work, doing other things. So until you’re tracking time, you can’t accurately measure this metric. And it’s important that you accurately measure it. It’s also important that you say to your team, “Look, I need to be spending half of the week doing biz dev activities.” And so what that may mean for a lot of you is that you unplug for at least a half a day or a full day a week. And when I say unplug, I mean get out of your email, get out of Slack, stop paying attention to text messages and just heads down, get the work done.

You get interrupted so often, it’s really hard for you to be productive. And what happens then is you, the agency are productive at night and on the weekends when you should be with your friends and your family or relaxing or doing the things you need to do to recharge. And so you’ve got to carve out the time to do the work during the workday. And for many of you, that means being offsite, if you will. And in today’s hybrid world, what that means is not available digitally for three or four hours in a row. And by the way, no one’s going to die if you do that, but you need to do that every week. So ideally it would be a day a week. For most of you it won’t be a one whole day, it’ll be two half days and it probably needs to be in the morning because by the afternoon, your day is toast. It is out of your control and you’re running around putting out fires. You’ll never actually unplug at noon or one, and then take the rest of the afternoon off to do your biz dev activity.

So two days a week from eight to noon, tell your team, look, Tuesdays and Thursdays, I am out of pocket from eight to noon. Don’t schedule me in meetings, don’t reach out to me. If you send me an email, know that I’ll see it after lunch. If you do that, I think you’ll be astonished at how easy it is to hit that 50% mark. And for many of you, because the sales cycle is slower, because the pipeline isn’t as full, because there isn’t as much activity, and even if there is a lot of activity, it’s just taking so much longer to land that new business. You have to devote the time, you really do. So that’s metric number two.

Metric number three is you need to get 65 to 70% of your net new revenue needs to come from existing clients and 30 to 35% from brand new clients. So let me explain that. When you look at the money that you made in January, you were making at the end of 2022, and you compare that to where you’re at at the end of 2023, any new money, any new growth, 65 to 70% of it should come from your existing clients.

You need to have business programs in place to grow your existing clients and to get them to give you more money. And again, I want to remind you, we just did research on how, when and where clients are willing to do that. So go and look at that research and see where you’re missing things, where you’re dropping the ball, where you’re not taking full advantage of opportunities where clients would give you more money. And I’ll give you a little clue. One of the things that the client said to us loud and clear is agencies don’t bring us enough big new ideas. We have money. Almost all of them said, we absolutely have more money than we’re giving our agency now, but we don’t have anything to spend it on because they’re not bringing us new ideas and innovative thoughts and new programs. So you want to look at the research, but back to my metric, 65 to 70% of your net new income should come from existing business.

This is not a 2023 metric, by the way. This is an always metric. And very few agencies have programs in place, have their AEs trained. This is one of the big things that we talk about in those AE boot camps that I mentioned earlier, how your AEs need to understand that it’s their job. It’s why they get paid. Their job is to grow their existing book of business, is to get your clients to do more. One of the key elements of their job, and they don’t understand it. They don’t know that’s their job.

They think their job is to keep the clients happy, and that’s certainly part of their job, but they don’t know, nor do they have the training or the skills in some cases to help you grow the existing client base. So this is something that you as an agency owner or leader need to be spending more time with your AEs, teaching them and coaching them. And we give them some great tools in the bootcamps, but you need to be helping them as well because everybody in the agency needs to be focused on how do we grow our existing book of business.

So super important metric for you to be measuring, probably on a quarterly basis, probably monthly is too soon or too often, but every quarter you should be looking at your net new revenue and how much of it is coming from existing clients versus new clients. This also takes a lot of pressure off of the biz dev people or you the owner in that whatever your growth goal is, it’s not all your go get, right? Some of it is the AE team and it’s not just the AEs, they’re just the point of the spear if you will. But it is your team’s job to delight clients and bring them new ideas and really be thinking about their business and how do we help them grow their business? How do we help them retain the clients that they have or customers they have? And how do we help them? Also, how do we help them grow the book of business they already have with their current clients and customers? How do we create loyalty programs?

There’s all kinds of ways to make more money from our clients when we start really thinking strategically about their business and what they need to grow their business. And when we do that and when we are trained to do that and when we are rewarded for doing that, all of a sudden our net new revenue, the scale of that starts tipping and more and more and more of it comes from existing clients. So again, so far the metrics are $175,000 of AGI per FTE. 50% of the owner’s time should be spent on biz dev activities. And 65 to 70% of our net new revenue should come from existing clients.

All right, we’re going to take a quick break and then we’re going to come back and I’m going to give you the last two metrics that I want you to focus on for the rest of this year. All right? Just a quick reminder that every week we send out a newsletter. We brilliantly call it the weekly newsletter, comes out every Wednesday and it is filled with just some ideas that I have around something that’s important to you. So the lead story is always something that I’ve been talking to a lot of agency owners about or something that I want to put in front of you to get you thinking. A lot of times there’s questions to think about or some resources, and then there’s always a link to the weekly video and then a list of the workshops and whatever else is going on.

We also, we get a lot of promotional offers from friends who are running agency programs like Macon or other folks like that with discounts. And so that’s also where we share all that information. So if you’re not hearing from me every week in your inbox and you want to do that, just go to the AMI website and scroll down to the footer and you’re going to see a link to our newsletter. Just click on that. All you have to do is give us your name and email and we will start putting that in your inbox. We would love to be a resource for you every week. So if that would be helpful, sign up today. Thanks.

All right, we are back. And the last two metrics I think are going to surprise you a little bit, but they’re super important and they often don’t get the attention and the consistency of measurement that they really need. So the fourth metric that we really want you to focus on for the rest of 2023 is client satisfaction scores. In an era when it’s harder and harder to get new clients, it is critical, it is mission-critical that we keep the clients that we have. Yes, as I said to you before the break, it’s mission-critical that we grow the clients we have, we can’t grow them if we don’t keep them. And one of the things that we