As we celebrate the most anticipated New Year’s Day in any of our lifetimes, we also find ourselves planning, goal settings, and making resolutions for the new year. Whenever I ask an agency owner what goals they’ve set for their shop, without exception, the first goal (and often the only goal) they can come up with is a revenue goal. I absolutely want you to set revenue goals for this year but you shouldn’t limit your thinking to that one metric. There are other growth goals that are as important, if not more so, than what your gross revenue is for the year.
One of the fallacies that plagues agencies is that the only way to have a successful year is to get bigger (gross billings) but that’s a short-sighted and incorrect notion. There are many ways you can build and expand your agency that have nothing to do with your revenue. And depending on your agency – several of them could be even more fruitful and put more money in your pocket.
In this solocast episode of Build A Better Agency, I’m going to walk you through ten metrics worthy of consideration as you think about your agency’s growth. I’m not suggesting you try to tackle them all, but two or three might be the right number to consider as you plan your way to a good dose of growth for 2021.
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.
What You Will Learn in This Episode:
- Reasonable expectations for AGI (Adjusted Gross Income) growth goals in 2021
- The right way to think about growing your team
- How to think about client growth in a different way
- How certain employees block growth
- The power of focused goals
- The growth potential in specialization
- How a gorilla client impacts your ability to grow
- Taking care of the clients who got you this far
- The powerful satisfaction metric that can impede or fuel growth
- Why you need to take some time to think about your life goals, and not just your agency goals, and an AMI mini course to get you started
Ways to contact Drew McLellan:
- Email: [email protected]
- LinkedIn: www.linkedin.com/in/drewmclellan
- Website: https://agencymanagementinstitute.com/
Tools & Resources:
- My Future Self Mini-Course
- Sell with Authority (buy Drew’s book)
- Facebook Group for the Build a Better Agency Podcast
About the Author: Drew McLellan
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.
- 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.”
Speaker 1 (00:01):
If you’re going to take the risk of running an agency, shouldn’t you get the benefits too. Welcome to agency management institutes build a better agency podcast presented by white label IQ tune in every week for insights on how small to midsize agencies are surviving and thriving in today’s market. 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 Rue, McClellan. Hey, everybody
Speaker 2 (00:39):
McClellan here with another episode of build a better agency, super glad you’re with me today. And I’m excited to talk to you. This episode is one of my solo cast. So unlike a typical episode of build a better agency, I have no guests with me to dance just you and me. And I just want to talk to you about something that is top of mind for me that I think is super relevant for you as well. Before I tell you what we’re going to talk about today, I have a little housekeeping to take care of. So as you all know, uh, one of the things we do here at, uh, the podcast is we invite, uh, in fact, we can Joel and ask and maybe maybe bad gun occasion. We, uh, gently encourage you to leave us a rating and review on whatever site you use to download the podcast.
Speaker 2 (01:35):
And we ask you to take a screenshot of that review so that we know it to you, because a lot of times your username does not match who you are, uh, does match your name and, um, and then send it to me. And when you do that, when you send me the screenshot of your rating and review, uh, and it doesn’t even have to be a nice review or a high rating, although obviously, um, that would be lovely. Uh, and I hope if you’re listening regularly, you would think that we’re doing a pretty good job, but anyway, send me the email with the review attached and we will put your name in a drawing and every solo cast. So an episode like this one, every solo cast, we will announce the name of one of you, lucky, uh, reviewers, who will then win a seat at either one of our live workshops or, uh, access to one of our on demand courses.
Speaker 2 (02:31):
So this month’s winner is Alex Osterley, Alex, I hope I’m not butchering your last name, uh, from blue bear, creative Alex. I will also shoot you an email. So in case you’re not listening to this real time, uh, I will make sure that you know, that you are welcome to join us for a live workshop or, uh, grab a seat, uh, of virtual seat in one of our on demand video courses. So there you go, Alex, all yours, thank you for the review and thank you for being a listener. All right. So let’s talk about, uh, what I would like to chat with you about. So if you were listening to this in real time, it is early January. We have just celebrated, uh, the turning of the clock to a new year. Uh, probably the most anticipated, uh, change of year in any of our lifetimes.
Speaker 2 (03:26):
I think, um, I think everybody has been eager and ready for 2021, but as always, uh, with the beginning of a year that tends to lead to planning and goal setting, uh, and resolutions. So not going to chat with you about resolutions. I am sure you all have done that on your own personally, and I, I wish you the best of luck in accomplishing whatever’s important to you on the personal side of your world today. What I want to talk to you about are the goals that you’re setting for the agency for 2021. So when I say to an agency owner, Hey, tell me about, uh, what is your goals? What are your goals for 2021? Here’s what I always hear, Oh, we’re going to double in size or we’re, we’re going to take our revenue from a million to a million and a half, or we’re going to take our, whatever it is, but it’s always about growth.
Speaker 2 (04:23):
And it’s always about revenue growth, almost always. And you know what? I absolutely want you to set growth goals for 2021. Absolutely. But I want to suggest to you that we might broaden our definition of growth goals. It’s not always about the revenue. And in fact, if you’ve been to any of our workshops or you’ve talked to me, uh, in other settings, you know, that sometimes what I will say is growth is awesome, but it’s also really dangerous. And especially if you grow too fast, it is very hard on the infrastructure of the agency. So I’m not saying don’t set a revenue growth goal. What I am saying is I want you to set other growth goals that are as important, if not more important than the revenue growth goal. First of all, as you know, in the agency world, at least in the us privately held agency world in the big box, holding company agency, world, they talk about revenue because it’s a vanity number and they love that.
Speaker 2 (05:28):
They like to say that there are 3 billion or $90 million agency when you, and I know that most of those millions or billions are simply pass through, uh, media expenses. So that’s not really how big the agency is. That’s not really how significant they are. It doesn’t mean anything. And I do want to remind you if the only goal you’ve set is a vanity goal, which is a revenue growth goal. I would like you to set some more meaty and meaningful goals. And so I want to suggest to you, uh, throughout the, throughout the show that, um, there are other goals we can set. So let’s talk about what some of those other goals are. So we’ve already talked about a growth goal tied to revenue. I would much rather see you talk about a growth goal if it’s going to be about billings in AGI.
Speaker 2 (06:16):
So just refresher, gross revenue is everything. We bill a client. We have to take out our cost of goods, which include contractors. And what’s left is our adjusted gross income. And that’s the money that we get to spend on running the agency so that the adjusted gross income gets spent in three ways, loaded salaries. So we spend it on our people, our W2 income, if you’re here in the States, but our Sal, our employees, not our contractors, we spend it on overhead and then we spend it. Hopefully we have some profit leftover. So it’s people, employees, people overhead, and then profit. So I think a very worthy growth goal is an AGI growth goal. And for most of you, you know, if you can, if you can grow your AGI by 20 or 25%, that’s a significant growth goal. And it’s more significant than you think because you have forgotten in many cases to include attrition.
Speaker 2 (07:17):
Most agencies lose about 10 to 15% of their adjusted gross income every year, uh, clients, shrinking budgets, clients going away, murders, losing business, whatever it may be. But you can assume that whenever you finished 2020 with, in terms of adjusted gross income, if you gain no new clients, which of course is not going to be the case, but if you gain no new clients in 2021, at the end of 2021, you’re going to be 10 to 15% lighter, have less AGI than you did in 2020. So obviously now I’m saying is if you have a growth goal in AGI of 20 to 25%, you need to add 10 to 15% to that number. So on the small end, we’re talking 30% growth and on the high end, we’re talking 40% growth, right? So be mindful when you set those goals that you make sure you factor in attrition.
Speaker 2 (08:16):
It is, uh, it is a healthy pace for an agency to grow by 10 or 20%. Now, if you’re, if you’re a super young agency or you’re a super small agency, like under a million dollars, then doubling your AGI in a year or two is certainly doable. But that, that pace of growth is not sustainable. Once you get past the million dollar Mark, uh, for, for very long, you just can’t keep doubling is not possible at that rate of speed because you have to reinvent the agency, everything, everything breaks, and you have to rebuild it again. And so again, 20 20% growth I think is a really aggressive cause. Remember, that’s a minimum of 30 to 35% really with the attrition. I think that’s a very reasonable but aggressive growth goal for your adjusted gross income. You also can look at, um, I think sometimes we think of growing as I have to grow the top line or I have to grow AGI because the only, the only growth that actually matters is if I grow in the number of bodies, but I am hoping that all of you are beginning to realize that the number of employees you have is not necessarily a sign of how profitable you are or how well run an agency you are.
Speaker 2 (09:40):
I have had a lot of agencies that have actually shrunk in size in terms of the number of full-time equivalents. The number of employees they’ve had over the last year or two, but other key metrics have grown so growth. Doesn’t have to be, I have to grow a top line number so I can grow the number of employees because there’s lots of other ways to grow that actually may benefit you even better. So for example, uh, another growth goal that you might set is it might be a percentage of profit goals. So let’s say right now, your agency at the end of 2020, your AGI yielded you a 7% profit. There’s nothing wrong. And in fact, I’m, I’m a wholeheartedly encouraging you to think about setting a growth goal tied to that percentage of profit. So I would like you to get more, more, a larger percentage of profit out of the AGI.
Speaker 2 (10:36):
So ideally the sort of the gold standard is that the way EGI gets divided up is 55% of your AGI is spent on loaded salaries. So salaries and benefits, 25% is spent on overhead, which leaves you 20% for profit. So if you’re at 7%, there’s lots of room for growth. So I would love to see you look at your year, end profit at the end of 2020, and set a goal for increasing that percentage of profit for 2021. And I assume it goes without saying, but setting these goals without then putting a plan in place to accomplish the goals is a complete waste of time. So I’m not gonna, I’m not gonna fill this podcast up with all of the ways you could increase all of these different growth areas, which I’m going to keep going through, but do not misunderstand me to say that setting the goal is what I’m actually suggesting you stop at.
Speaker 2 (11:37):
I’m saying set the goal and then get your leadership team together and say, if this is our goal, if our goal is we want to move from 7% profit to 15% profit, then how do I do that? How do I, how do I, how do we move the needle that way? So that’s another place that growth can be very important is in profitability. Another place where I would like you to consider growing is the quality of your clients. I am a huge advocate of grading your clients on a quarterly basis. So putting together a report card, uh, which we teach in several of our workshops, putting together a report card and then grading every client on a quarterly basis and clients to get an a or a B they’re fine clients to get a C, have to have a improvement plan to move them up to a B same with clients that are a D they need an improvement plan within a quarter to move them up to a C and then ultimately you’d have another improvement plan to move them up to a B.
Speaker 2 (12:35):
And if somebody gets in half, you need to have a long conversation about why they’re still at the agency, why they have not been fired as a client. But one of the growth goals you can have is if you start, if you begin this, uh, grading of your clients, one of the growth goals that I think could be really significant for you is more a client. So more clients that sit that routinely, get the letter grade of an, a based on your own criteria to trade up and get better clients. Clients who appreciate you, who pay you on time, who are giving you meaty projects that are fun to do that. Don’t micromanage the entire process. All the things that we know, make a client, a great client, having more of them makes life a whole lot easier and more profitable for the entire agency.
Speaker 2 (13:28):
So that’s a, that’s a worthy growth goal. Another goal I’d like you to think about is having more a level employees. So just like you should grade your clients, you should also be grading your employees. How are they showing up? What are the, what have they learned in the last month or two months that they didn’t know before? How do they, how calm are they in a crisis? How do they deal with clients? Uh, how willing are they to pick up the ball and run with it, whether it’s their job or not all of those sorts of things. So if you have a bunch of client or employees that are C-level employees, they’re fine, but they’re sort of mediocre, or, you know what there’ll be, there’ll be employed. Like they have flashes of brilliance now, and then, but mostly they’re just a steady Eddie and they’re never going to go above and beyond.
Speaker 2 (14:19):
They’re not really pushing to learn and get better at their job. Um, you know, after a while, having a lot of sort of that BC, and hopefully you don’t tolerate D and F clients or employees, but having a lot of B and C employees, employees who are always complaining, who are always talking about how stressed they are, employees who can’t seem to rise to the occasion, employees who are not interested in helping you delight a client, having a lot of employees that are like that is a weight on the agency. You want employees who behave like you do, who are in excited about serving the client, who understand that, making the clients happy and helping them be successful and having success metrics that demonstrate to the client, how you’re moving the needle for them, how you’re giving them a return on their investment with you, having employees that care about that sort of stuff.
Speaker 2 (15:21):
That’s what makes owning an agency fund. That’s also what makes owning an agency profitable. All of your employees take up a certain amount of space, a certain amount of salary. And so the more A-player employees you could have the better. And one of the things that happens when you have more a players is that they feed off of each other and they all keep getting better and better. But when you mix a bunch of employees with a bunch of B and C employees, rather than them being motivated and pushing to get even better, they look at these mediocre employees all around them and they go, well, if my boss is willing to tolerate that, then why am I busting a hump? Maybe I don’t have, maybe I should yabba dabba do out of here right at five Oh five. Maybe I should, uh, complain every time a client asks for a change.
Speaker 2 (16:13):
Maybe I should be ungrateful for the opportunities that working in a small agency gives me in terms of being able to try lots of different things. So surrounding your A-players with a bunch of mediocre players just diminishes the entire team, but surrounding a bunch of a players with other A-players makes everybody want to get better. So I’d absolutely worthy growth goal for you is to level up your employees so that they show up as leaders, they show up as engaged. They show up committed to the clients and to the agency. So that’s another, a worthy growth goal to consider. And by the way, I’m going to be walking through a bunch of growth goals. I am not suggesting. In fact, I am not suggesting that you set all of these for, uh, 2021, because if you scatter your attention amongst all the possible growth goals, I’m going to give you today.
Speaker 2 (17:14):
You’re not going to actually get any traction on any of them. So pick two or three that are most important to your business and let those be the drivers for your efforts in 2021. So another place where I would love to see you grow is in your position of authority. As you know, if you are a regular listener of the podcast, if you’ve read the book that Steven Western I wrote called cell of authority, you know, that I believe that the way agencies sell the way agencies grow, the way agencies attract right-fit clients is for them to step into a position of authority or expertise, a thought leadership, call it whatever you want, but that you really are known as an expert in your area of specialty. And for some of you, it’s going to be an industry niche for others. It might be an audience for some of you.
Speaker 2 (18:10):
It might be around a methodology, whatever it may be, but I want you, Oh, another worthy growth goal would be for you to grow in your position of authority. So what that might look like is that you get invited to speak at more conferences that you get published in more articles that you create some cornerstone content, like a book or a podcast or a video series, or you do some research, but that you are really stepping into and becoming better known as an authority in your area of expertise. So that would be another great growth goal for you is to become known as an authority and to increase your position of authority, uh, tied to that would be, uh, another, uh, worthy goal for consideration is that more of your clients are actually in the niche that you specialize in. So many of you are embarking on a goal of getting to be more of a specialist rather than a generalist.
Speaker 2 (19:15):
And as I have told you many times that is an evolution, not a revolution. So it’s not like you decide, Hey, we’re going to be the agency that is an expert in pharma products for women over 50, that’s going to be our whole specialization. And so we’re going to fire today. We’ve made that decision today. So we’re going to fire all the clients that don’t fit that in that category. And we’re just going to go out and find a bunch of new clients, or, you know what? We already have one or two clients in that space. So we’re going to fire everybody else who doesn’t fit. That’s not how that works, but a, a good goal to have, if you have defined a specialty or a niche is then a larger percentage of your clients fit inside that niche. Meaning they’re going to be great for case studies.
Speaker 2 (20:02):
They’re going to be great referrals. They begin to further enhance and prove that you truly are an expert in that space. So going from 25% of our clients are companies that have deal with pharma products for women over 50 to 35% or 40%. That would be a