Summertime is just around the corner, which means now is the perfect time of year for agency owners like us to take stock of where we’re at now and where we want to be sitting by the end of the year. How can we get a clear picture of how 2022 is stacking up against 2021? By taking a close look at the trends that have, and will continue, to affect our industry as a whole.
On this week’s solocast episode of Build a Better Agency, we’re taking a look at the marketing trends that have shaped the first part of the year so we can mitigate the bad, take advantage of the good, and come into the second half of 2022 stronger than ever. As the title suggests, this discussion is being split into two parts — so be sure to keep an eye out for Part 2 during our next solocast!
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:
- Which marketing trends are in Drew’s crosshairs — and why
- How 2022 stacks up against 2021 so far
- Why so many agencies are feeling the pinch more this year than last
- The metrics agency owners aren’t paying enough attention to
- How those metrics can help you add 5% profit to your bottom line this year
- Business development opportunities that you don’t want to miss out on — and how to make sure you don’t
- How client expectations have changed in the past few years
Ways to contact Drew McLellan:
- Facebook: https://www.facebook.com/agencymanagementinstitute
- Email: [email protected]
- LinkedIn: www.linkedin.com/in/drewmclellan
- Website: https://agencymanagementinstitute.com/
Welcome to the Agency Management Institute community, where you’ll learn how to grow and scale your business, attract and retain the best talent, make more money, and keep more of what you make. The Build a Better Agency Podcast, presented by White Label IQ, is packed with insights on how small to mid-size agencies survive and thrive in today’s market. Bringing his 25 plus years of experience as both an agency owner and agency consultant, please welcome your host, Drew McLellan.
Hey everybody, Drew McLellan here from Agency Management Institute. This week, I am actually coming to you from Richmond, Virginia, home of some of my favorite agency folks and have spent the day with them facilitating traction and had a really productive day. And now I’m back in my hotel room, and it is time to record my solo cast. So as you know if you’re a regular listener, that means no guest. Just you and me talking about something that I think is important for you to be thinking about, or that I’ve been thinking about. And so that’s what we’re going to do today, or tonight, actually, it’s late in the evening here in Virginia.
So let me tell you a little bit about what I want to talk about. But first, I want to remind you, believe it or not … So here’s what’s on my mind right now. So, when you’re listening to this it’s going to be the week of May 16th, and we are literally a week away from the big show. The Build a Better Agency Summit family day is May 23rd, so a week from the 16th. And then the full conference is the 24th and 25th. There’s still time for you to join us, we have a handful of tickets left. So if you want to do that, head over to the website agencymanagementinstitute.com. And up in the upper left corner, it’s BABA Summit, and you can grab a ticket if we still have any left.
We have to hard stop at 300 folks, so have just a couple tickets left. But I have to give a keynote, and I might have shared with you, I think last year, that I was pretty anxious about doing a keynote at the 2021 event. But it went pretty well, people seemed to like it and found some value in it. And apparently because it’s my conference, I have to keep giving a keynote. So, I don’t really think of myself as a keynote speaker, and I have to admit it makes me anxious. I love being on a stage, I love talking to people, but I love teaching. And a keynote is different, there’s no teaching per se, it’s more talking and sharing and inspiration. And I don’t think of myself as that sort of a speaker.
So I will admit, a week and a half out or so the keynote itself is coming along just fine, but I’m anxious about it. And so, that’s what’s on my mind is the worry of wanting to do a good job, and wanting it to be something that’s really valuable for people. And not disappointing anybody. And so I will admit that I am very focused on that right now, as we are, like I said, about a week out from the big show.
So, we’d love to see you there if you’re not already joining us. If you are joining us, be gentle on my keynote. I’m working hard on it, but it’s just not my natural way of communicating. I really do love to teach, and this is a little different. But I am committed to doing it, and I’m committed to doing as good a job as I am capable of doing and bringing as much value as I can. So that’s what I’m thinking about right now.
So the other thing I’m thinking about is that this is the time of year that I usually do a solo cast or two on the trends that we are seeing in the marketplace. We work with hundreds of agencies day in and day out, and there really are some patterns that emerge every year. And so in our live peer groups that meet in the spring between February and early May, I give a trends presentation and teach them the trends that we’re seeing. And we talk about them and discuss whether or not they’re seeing them, and how we might mitigate against the bad trends, and take advantage of the good trends.
And then in the summer, I turn that presentation that I’ve been giving all spring into a solo cast. And this is part one of the trends solo cast, so I’m going to cover half of the trends in this episode. And then I will cover the other back-half of the trends in next month’s solo cast episode. So without any further ado, let’s talk about the trends for 2022.
So, first category of trends I want to talk about are the money trends. Most agencies across the land, all around the world, because we’re fortunate to work with folks all around the world … Oh, speaking of people all around the world, thank you for saying that to myself. I forgot, so every solo cast episode we give away a free seat at either one of our live workshops or one of our on-demand courses. And here’s how you get in the drawing: you just leave a review for the podcast wherever you download the podcast, and then you have to send me a screenshot of your review.
And I don’t care if it’s a good review … Well I do care, but in terms of getting in the drawing, I don’t care if it’s a good review or a bad review. What I care about is that you left it, and I can never tell by the user names … If you’re hotmama22, I have some guesses who you might be, but I don’t know for sure who it is. So you need to send me an email and show me your review so I can put your name in the drawing. Your name stays in the drawing until you win, and so I would suggest that you do that if you haven’t done it because sooner or later you’re going to win a free seat at one of our live workshops or one of our on-demand workshops.
So what prompted me to remember that I forgot to tell you who the winner was this month, is when I was talking about that we get to work with agencies all over the world. Because this month’s winner is John Emerson from the London Agency in Melbourne, Australia. So John’s been a client of ours for a long time, and happy to say that he is the winner. So John I’ll reach out to you as well, you’re welcome to come over for a live workshop or you can take advantage of one of our on-demand workshops. Either way, all good.
All right. I’m sorry, back to the trends. I derailed myself. So, money trends. Most agencies ended 2021 in the black, and this is true of agencies, again, across the board, of all sizes. We work with agencies that have a handful of employees, we work with agencies with a few hundred employees. So all across the board, most agencies ended up in the black. But unlike 2020, it was kind of a struggle. So for many of you, it was kind of an uphill battle to get to profitability in 2021. In 2020, especially here in the States, there was a lot of federal aid like the PPP money and the EIDL money.
And so many agencies rolled into January of 2021, you rolled into that year, A, super-profitable because of the PPP money that had been forgiven. But also you rolled into the year with a lot of cash, and that allowed you to make some pretty good investments in terms of people and resources. And January of 2022 did not look like that for most of you. You squeaked by profitability-wise, but you weren’t flush in cash. And for many of you, you were really sweating the first quarter in terms of payroll and all of that.
We’ve talked about this in the new business series that I did in the beginning of the year, but most of you go pretty dormant from a new business point of view from I’d say Thanksgiving, so mid to late-November, all the way through the holidays and into the new year. And in most agencies and in most businesses, the first week or so of January, pretty dormant. And so, you’ve literally gone almost two months without really putting a lot of activity and effort into your sales pipeline, and so it gets a little dry.
So without the influx of the PPP funds, or other federal funds if you’re from another country, you were feeling really strapped in the first quarter of 2022. Many of you were squeaking out payroll and really feeling the pinch, which is different from 2021. But, when we look at AMI agencies … So remember at AMI one of the things that, I think, makes us pretty unique in the agency consulting business is that in all of our peer groups and other things we do where we gather groups of people, we share financials.
And so, we get to see the financials of 300 agencies every single year. And so I can say with really great confidence that my agencies, the AMI agencies, on average were at about 16% profit for 2020, and they ended up the year in 2021 at about 11% profit. So again, not as profitable. And that 16% in 2020 was inflated by PPP dollars. So it was a tougher year, the margins were thinner. A lot of you through 2021 were really struggling with staffing, which we’ll talk about in a minute.
So biz dev was hampered, and so was profitability. So that’s how you ended the year. As agencies looked at their projections for the first quarter, again, you were all kind of sweating bullets because you had gone dormant with biz dev, and clients were slow coming out of holiday hibernation. They also did not have the influx of cash. So, many of our clients were also kind of fat and happy from a cash perspective as we started 2021 because they too had the PPP funds and the EIDL loans. And so, 2022 looked very different when everybody didn’t have that influx of cash.
And so our clients were slower to get out of the gate, prospects were slower to sign deals. We had gone dormant on a biz dev front, and those things combined to make a really snug and uncomfortable first quarter. The good news is most of you came out of the first quarter in a pretty healthy place, and you were able to sort of pivot into a more productive, more cash-rich environment for the second quarter. And it looks like that’s going to be the case going into the rest of the year.
One of the things that we’ve been noticing as we’ve been doing more and more consulting with agencies and we’ve been scrutinizing financials, is that there’s a couple metrics that you as agency owners and leaders are not paying enough attention to. And it is absolutely hurting your profitability, and these metrics are sort of the ying and yang of each other.
So the first metric is billability. And so what I mean by billability is: how, of all the available hours of all of your team members, billable and non-billable … If you have 10 employees, you take 10 people times about 1,980. So, each person works about 1,980 hours a year when you figure in vacation and holidays. So you take 10 times 1,980, that is your total available hours. That’s your inventory, in essence. And I know you don’t bill by the hour, and it doesn’t matter about that, but it’s how much time you have to invest in client projects.
And even if you don’t bill by the hour, you still build a lot of your estimates based on how many hours something is going to take. So, understanding how many of those hours are spent on billable tasks. So your billability is critical. And for most agencies, the gold standard is 75% of your total number of available hours should be spent on billable tasks. And then you have to look at the ying and yang of billability and utilization.
And what I mean by utilization is: those are the dollars that end up on a client invoice. Again, not necessarily that you bill by the hour, for sure, but the dollar equivalent of those hours translates to a client invoice. So 60% of all of your available hours need to end up on a client invoice. And I’ll tell you, most agencies are sitting at about 40%. If you can adjust and start to improve those two metrics, the billability and utilization of how you use your team’s time, without adding a client, without adding a project without adding anything, you can add about 5% net profit to your bottom line.
So why would those numbers be so low? Well, here are some of the things that we’re seeing as trends of why those numbers are out of whack. Number one, your employees are recording their time wrong, or you’re not recording time. So when I say they’re recording their time wrong, it just really means that … The first week of their employment, you probably showed them how to fill out their time card, or time sheet, or harvest, or whatever you use. And you walked them through it really fast and their brain was already overloaded, and they didn’t remember the nuances of how to determine what an hour spent doing a specific thing how does that translate to the codes that are tied to your time tracking?
So a lot of it is just human error, that they put it in the wrong place, or they misunderstand where they’re supposed to put it. Or they know they’re only supposed to spend two hours on something, but they spent four, so rather than recording their time accurately and putting all four hours against the job, they bury two hours somewhere else. So sometimes it’s human error, sometimes it’s them trying to cover their rear end and not get in trouble. But it’s really important that they understand time sheets have to be done accurately. It doesn’t matter if it’s over time or under time, you can adjust that along the way. But what you need to know is the accuracy of how they spend their time.
Which is related to if you don’t have accurate time sheets, you have no idea if your estimates are accurate or not, if you’re really right about how much time it takes to do X, Y, or Z. So that would be another reason why you have low billability or utilization is because your estimates are lousy. Another one might be that your AEs aren’t controlling clients and you’ve got a ton of change orders that you’re not getting paid for. There’s all kinds of reasons, and it’s usually a combination of several of these that would contribute to low billability or utilization.
And so, that is a metric that you need to measure because, as you all know, what you measure matters. And this is an easy way, as I said, to put 5% down to your bottom line is to improve your billability and utilization. So that’s a trend that we’re seeing quite a bit, that those numbers are too low. And the reasons why are the reasons that I cited.
All right, I got to take a quick break, but I’ll be right back.
Hey there, just a quick interruption. I want to make sure that you are aware that you are cordially invited, not just invited, but cordially invited to join our private Facebook group. All you have to do is go to Facebook and search for Build a Better Agency and you’ll find the Facebook group. You have to answer three quick questions. You have to put in the agency URL. You have to talk about what you want to learn from the group, and you have to promise to behave yourself. And that’s it. And then we’ll let you in, and you can jump into the conversation with over 1,000 other agency owners and leaders. And there’s a robust conversation happening every day. People are sharing resources, and best practices, and discussing everything from work-from-home policies, to maternity and paternity policies, to biz dev strategies. So come join us and jump into the conversation, all right? Speaking of conversations, let’s head back.
Okay, so the next section of trends that I want to talk about are related to clients and biz dev. So as you might imagine, lots to talk about here. One of the most interesting things, one of the most interesting trends of 2021 and 2022, is that lots of biz dev activity. And we’ll talk about that a little more in a minute, but what’s interesting to me is your reaction to the biz dev opportunities. So they’re super strong, but many agencies and many agency owners, what they’re saying to me is, “You know what, I have three RFPs on my desk, but I’m leaving them there because I’m afraid that we’re going win. And if we win, I don’t have the team to actually do the work.”
So you literally are bypassing biz dev opportunities because you don’t have enough bodies to do the work. And I cannot think of the last time that we were in that tight of a situation where we were passing by the opportunity to make money because we couldn’t figure out a way to staff the work. And I’ll tell you in next month’s half of this trends report, we’re going to talk about staff. But I’ll give you a preview to one of the things I want to talk about in that solo cast, which is the hiring is getting easier.
So ever since the first of the year, we’re seeing more qualified applicants with less insane requests for salary, or work environments, or things like that. So I will say it’s getting better. We’re having better applicants, more applicants, and the demands are a little more reasonable. But nonetheless, you are literally leaving money on the table because you don’t have the staff for it. And that is a frightening trend for me.
Another trend on the client and biz dev side is, as you might imagine post-COVID, the pendulum has really swung on the issue of where agencies are located. So clients really don’t care where you are anymore. If you were a specialist and you really had a depth of expertise, they didn’t care pre-COVID. But now, even more so post-COVID, your location is sort of irrelevant. Everyone is so used to working remote, and connecting on Zoom or in other ways like that, that if they really want to work with you, your location, no matter where it is, is not going to be a barrier.
So I was saying that there’s been more biz dev opportunity, and that is true. Not only did we verify this, but we talked to several of our friends in the agency search business and places like that, and everybody agreed that there have been more RFPs and agency searches in the fourth quarter of 2021 and the first two quarters of 2022 than in the last several years. So it is a very robust biz dev activity.
And there are a couple reasons for that. Number one, CMOs are under an incredible pressure to perform, and perform fast. And so if their current agency isn’t knocking it out of the park and isn’t knocking it out of the park pretty quickly, the clients are very quickly moving to, “Fine, then we’ll find another agency.” When COVID first started, the clients that stayed with us, they gave us a lot of grace. They understood that we were trying to figure out how to work from home, and we didn’t have our whole team. And in some cases we had to lay people off. And that grace is gone.
So clients now are saying, “You know what, if you can’t get your act together, if you can’t deliver results … But even more so, I don’t want to hear about your short staffing. I don’t want you making mistakes or sloppy work, and I don’t want you blaming it on whatever you’re blaming it on, my agency friend. I want you to do your work. And I want you to do it well, I want you to do it accurately. I want you to do it on time, and on budget. And if you cannot do that, then we absolutely are going shopping for another agency.”
And so many agencies have lost their biggest clients in the last quarter of 2021 and the first few quarters of 2022. This is a trend that is not ramping down, if anything it’s ramping up. Clients are just … they don’t have the runway. They are under incredible pressure to deliver results, and when we mess it up, or we embarrass them by having a typo or something in a piece, or whatever the mistake is that we made, they have very little patience for that.
Interestingly though, there are some things about COVID that they don’t want to let go of. And one of them is all of the pricing concessions that we made during COVID. Many of you discounted your work because you wanted to keep the client, and now you’re having a heck of a time getting that client to pay what they should be paying for the work. And so, a lot of agencies are struggling with that. Now with new clients you’re not having that trouble, you’re not struggling to get paid what you’re worth. But with old clients that had a rollback in pricing during COVID, they are not particularly enthused about going back to the former pricing.
The other thing that on the client and the new business front, is again, this emphasis on specialization. So this goes back to the fact that clients are under incredible pressure to deliver great results, and to do that in a way that allows them to look great to the C-Suite. To turn things around, to show a profit, to show that they are spending every dollar in a wise way. And if we can’t do that, then that’s a problem. One of the ways they believe we are more likely to be able to do that is because of specialization.
The more specialized you are, the more you understand their industry, their jargon, their politics, the more they believe that you are going to be able to be helpful to them. They don’t want a Swiss Army Knife, they don’t want a MacGyver. They want somebody who has specialized skills and knowledge of their industry, and they are willing to pay for that expertise. They’re willing to pay a premium for that expertise. So that’s another trend in the client’s end sort of biz dev front.
So, I’m going to stop here. In next month’s episode, we’re going to talk about trends tied to owners. We’re going to talk about trends tied to employees. And we are going to talk about some tactics that agencies are selling well and making great money at. So that’s what’s coming up in the next solo cast episode, which you will hear in about a month. So in the meantime, a couple things.
Number one, of course, thanks to our friends at White Label. They are the presenting sponsor of the podcast and we love them, and the work they do for agencies. They do a lot of White Label PPC, and dev, and design. And they are the go-to for many AMI agencies. So check them out at whitelabeliq.com/ami. And if you’re a regular listener you know if you go to that landing page they have a code for some free hours that you can use on your first project with them.
Also want to tell you that I’ve got the Summit in a week, and then I’m actually heading to Scotland for a week of vacation. And so I’m going to be a little hard to reach, I hope. I hope I can unplug. So if you’re trying to track me down, I may be a little harder in the next couple weeks because between the Summit and then a week of vacation, I’m going to be pretty preoccupied. But, of course, you can still reach out to me. It’s [email protected], and I will respond as quickly as I can.
But be patient with me, because I’m going to be … The Summit is all-consuming. That week is just crazy for us. And then I am ready for a little R&R and a whiskey tour all through Scotland. So, I’m sure I’ll be talking about that in a future episode. Hopefully I won’t record one while I’m on a whiskey tour, although that content might be interesting, too. But anyway, I appreciate you guys. I love that you hang out with me every week, that we get to talk to each other. I am grateful for you, I love your emails and your questions. I love meeting you in person.
And I’m just really grateful that we get to spend this time together, and that you make the time to hang out with me. So thank you very much for that. I’ll be back next week with a guest, and in about a month with the back-half of these trends. So don’t go anywhere. Come on back next week, all right? I’ll talk to you soon.
That’s a wrap for this week’s episode of Build a Better Agency. Visit agencymanagementinstitute.com to check out our workshops, coaching packages, and all the other ways we serve agencies just like yours. Thanks for listening.