I often describe the profitability of agency clients as a bell curve.
At the start of the relationship, you tend to over-service to make a good first impression and you invest time in learning the client. That lowers your profitability.
Then you become efficient at the work that you do as you produce repeatable results. That increases your profitability.
But at some point you accumulate lots of little “just one more thing” scope creep items that never seem to go away. Plus you start to over-service again because you’re afraid of losing the client. That decreases your profitability.
While some of this is normal and unavoidable, you can take steps to flatten the curve and improve your profitability at the beginning and end of each client relationship.
I’ll explain more later in this week’s newsletter, but first let’s look at what Jen has rounded up for us this week.
— Chip Griffin, SAGA Founder
Weekly Roundup
Below are some articles, blog posts, podcasts, and videos that we came across during the past week or so that provide useful perspective and information for PR and marketing agency owners. While we don’t necessarily endorse all of the views expressed in these links, we think they are worth your time.
— Jen Griffin, SAGA Community Manager
Latest from SAGA
- Using AI the right way for agency biz dev (Agency Leadership Podcast)
Articles & Blog Posts
- The Agency Business Development Playbook: Navigating a Competitive and Cost-Sensitive Market (RSW/US)
- Marketing Needs More Sonder (Punctuation)
- Keeping Morale High When Everything Feels Shaky (Bureau of Digital)
- Are we there yet? (Anchor Advisors)
- How This Leading Agency Perfected Podcast Marketing at Scale (AgencyAnalytics)
Podcast Episodes
- What the Future of the PESO Model© Looks Like (Spin Sucks)
- The Process Behind Profit Management, with Kristen Kelly (The Agency Profit Podcast)
- The Strange State of Email Marketing (Working/Broken)
- Who Should Set Prices? (2Bobs)
- User-Generated Content Trends, with Leah Messina (The Innovative Agency)
- Combatting Ghosting In The Professional World (That Solo Life)
- Linkedin Content That Connects and Converts, with Nicole Osborne (Building Your Leader Brand)
- Selling to an Employee: A Unique Approach to an Agency Exit with Eric Holter (Smart Agency Masterclass)
Videos
- Growing our clients (Agency Management Institute)
AI in focus
- Steve Rubel on AI, Media Analytics, and the Future of PR (FIR Interviews)
- Embracing Change and AI in Photography With Stewart Cohen (The Marketing Agency Leadership Podcast)
The bell curve of profitability for agency clients
When we first sign on a new agency client, we get really excited to show them they made the right decision. We want to come out of the gate strong, so we put a lot of resources into making a great first impression.
At the same time, we’re still learning how to work most effectively with the individual client. We need to understand their unique preferences and we might even need to learn about a new market or industry.
That takes even more time.
Since many of us charge a fixed amount each month to our clients, that added time up front lowers our profit margins in the beginning.
But then we learn how to work most efficiently with the client and we need to spend less time learning new messaging and markets.
So our profitability goes up and we’re happy. In many cases, that strong profitability can last for years.
Of course, it doesn’t last forever. We accumulate lots of little bits of scope creep — like an extra monthly report or a collection of recurring 15-minute tasks.
Plus we start to worry that the client be on the verge of leaving. So we invest more time in trying to wow and woo them anew.
So our profitability declines.
I have seen and experienced this bell curve of profitability countless times in my career as an agency owner and now as an agency advisor.
While it is predictable, the profitability dips can be tamed.
To boost early profitability, you can hone your specialization so that you don’t need to do as much learning at the start of an engagement. The more similar your clients, the easier it is to be efficient at what you do.
You can also introduce strategic planning engagements as a starting point rather than jumping straight into monthly retainer work. This “paid discovery” has the dual benefit of de-risking a prospect’s decision to start working with you while also getting you paid for some of the learning and planning that eats into early profit margins.
To recapture profitability on the back end, you need to have a process to monitor for and control scope creep as early as possible.
Use quarterly and annual planning sessions with clients to discard low-value tasks (like extra reports) that erode profitability without really benefiting the client in a meaningful way.
These same forward-looking planning sessions are also a great way to improve retention without feeling compelled to over-service in the later stages of the relationship.
Leverage them to showcase your innovative, creative thinking while reshaping the engagement for the future. That improves client results and agency profitability at the same time.
Finally, you need to recognize that over-servicing might (slightly) prolong the inevitable, but you do so at the expense of profitability and the ability to replace that client with a better fit that produces improved financial results.
While you can’t avoid the bell curve of profitability entirely, you can control the dips for better outcomes for your business.
