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Marketing Agencies – Avoid the Boom and Bust

At Stride, we like supporting marketing agencies.  Marketing agencies amplify the “why” of a business and sit at a really cool intersection of creativity and business analytics.  When a company’s marketing plan really works, the energy of the business accelerates. We get energy from those aspects of the businesses.

But sadly, so many marketing agencies find themselves in a boom and bust cycle.  They “make hay when the sun is shining” but when it isn’t, they struggle.  I often hear the excuse that the agency CEO is a creative and would prefer to innovate the next big campaign than worry about the backbone of the business.  That’s self sabotage.  Here are some keys to building the business you want that can give you what you need

Diversification is Stabilization 

A. Concentration: Too many agencies have 80+% of their business concentrated on a single one to two vendors.  That’s risky.  Set a standard that your top 3 customers will not represent more than 50% of your business and make sure to stay under that metric.   Keep this discipline and you will weather the inevitable “rug pulled out from under you”.

B. Revenue Mix: Many agencies are project based which is feast or famine.  What is the recurring service that you can offer that stabilizes revenue.  If you really dig into your customer pain points, is it that they just want more revenue right now or they want to create a consistent engine.  Bring consistency through a MRR (monthly recurring revenue) model of sales and support.

Stabilization is NOT Innovation

Marketing agency entrepreneurs always want to be innovating to stay cutting edge and creative.  Secret:  successful businesses that survive can be kind of boring.  When you have a service that is being accepted by the market, find a steady, stabilizing leader to manage that growth.  That’s not to say you can’t innovate, but don’t sabotage your growth engine.

Obsess over Efficiency

There are parts of your organization that should be really efficient, where you are a machine.  These are usually the back office functions of finance, HR, and operations.  Operate these lean but rigorously.  You do not want  your underlying business foundations variable.

Pursue Effective Experimentation

Now that you have a stabilizing force that is driving the service to scale, you can experiment with new growth opportunities.  Effective experimentation is about relentless customer development where you are reaching out to clients and prospects, asking questions, learning and building a feedback loop back to the organization about where to place your next chip.

Mind Your Metrics

There are some key glanceable metrics that matter in your business and the #1 is UTILIZATION.  That is everything for you and if people aren’t tracking their time for you to see performance at a project level, it will crush you.  Of course you want to manage your revenue and profitability targets but other key metrics (some softer than others) to manage include pipeline conversion, net promoter score, company culture (health).

High Producer to Admin Ratio

Ideally the goal would be that 100% of your employees are producers (revenue generators).  Minimize the fixed administrative overhead and that will give you flexibility.  Fixed overhead is an albatross on an organization’s energy and marketing agencies want to stay nimble.

The principles here are pretty simple but the discipline required to execute takes a leader that wants to build a sustainable and enduring business and acknowledges that when transitioning to scale, that very often another leadership style may be required.

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