Stop Losing Money: Track & Grow Your Agency

0:28All right, so we have a little treat for you. you guys are in the acquisition marketplace, you know, looking to roll up agencies, you know, as, as a agent, you know, you're adding to your agency. There's a lot of people out there doing that. You know, it's, we learned yesterday from Marcel, there was, you know, some really insightful things that I probably wasn't aware of from a financial perspective, because my accountant's looking more, and he said it, more from a tax perspective. And he's looking more from a management perspective, you know, about, you know, average, or what was it called, like, average dollars per hour, like trying to roll things up that you can manage.

1:12I was just curious if, if you guys do that in house, you know, in your agencies to be able to track your efficiency, your billable hours even though you might not bill like what it what was interesting is you might not bill on an hourly basis but it's still good to know your billable hour and profitability that way so i'm just curious and then do you look for that from agencies that you're buying for that sophistication because he was saying about 70 80 percent of agencies are not doing this so it's it's we definitely do track um our hours that we're putting on projects, the time people are spending, even how much time they spend in meetings.

1:57And we do it just to make sure that we're running profitably per campaign. And it allows us to see where there's wastage. And doing this allows you to operate a solid P &L and adjust based on gaining of clients or losses of clients or figuring out. The team always will say, we need more people. That's very common in the agency world. We're overworked. Are you really overworked? Do you really need more people? And doing this gives you a lot of visibility into things. But going back to buying corporations, most agencies, as you mentioned, don't do it. And almost every company we buy does not do it.

2:37And we're happy with that. Because adding that brings in efficiencies and it helps us make more money. Right? So for example, I'm looking at an agency right now. They have quite a bit of revenue, very little profit. And the reason we believe the profit is so low is because the company is just mismanaged, right? So we like these kinds of things. It creates opportunities for us as a buyer. Now, one thing you have to keep in mind, though, is when you're buying corporations, and I'm going to make up some numbers, but let's say you're buying a company that's doing$4 million in revenue and$400 ,000 in profit.

3:1610 % is really low, right? And let's say they have a lot of employees, like 150 employees because they're in a country where labor is cheap. Well, for us to put our systems onto that corporation, it may end up costing$150 ,000 because software is not discounted because something's in Mexico or Brazil or India. So in reality, it may be doing 400 in profit, but the moment we integrate it, your 450 becomes 250. So then you got to climb back up to that 400 number and hopefully get to beyond that. And you have to take all those things into the equation. But yes, companies, ideally, if you want to operate at the best levels, you got into tracking efficiencies, but it costs more to do that.

4:04So just keep that in mind as well. Amazing. Thank you. Eric, did you have any thoughts on that from your, I know you're more a US based or you might be expanding globally. I have nothing to add much there. I mean, we're kind of an LOI with an email marketing company right now, but the way we do it, it's, it's not too different than Neil's. We do time tracking, but the other thing we do that I don't, I don't think you guys do Neil is we do these daily standups. Right. And so I'll give you an example here. Here's one of our people. So let's, let's, let me share my screen. So it's interesting that I look at this like, okay, last seven days or so this guy on our team over here, and it's like reporting, reporting, updates, reporting, you know, it's like, man, you spend a lot of time in meetings and reporting.

4:49Right. And it's me. I'm just like, man, you know, how do we optimize this for the future? And so there's the qualitative piece where we have the time tracking, but sometimes you can just see like the top, what are your top three for today? What's the top three you did yesterday. And we can see historically what people focus on. And then also we can see if people are becoming disengaged or not, or we can see if people are really driving value. So, you know, this is also, this is like a checks and balances for us, but it serves pretty well as like a pairing to the time tracking. Got it. Is that like a Coda is like a Notion?

5:20Yeah, it's like a Notion. We don't like Notion. Sorry, Notion. I do not like Notion. And Notion, you paid us for advertising. We would like you. Right. Awesome. Thank you. if you're an agency owner and you want to grow faster check out the agency owners association that's hosted by my podcast co-host neil patel and myself and we have other agency owners that are doing eight figures a year they were doing nine figures a year they sold their business for hundreds of millions of dollars and they're going to share their experiences with you there's a whole host of other benefits and the cool thing is that there's a seven-day free trial and you should check it out now because we're going to take the prices up so just go to marketing school.io slash agency to learn more and we'll see you inside yeah i have a quick question um what percentage of revenue do you think is optimal to spend on marketing for agencies you want the chat gpt answer no more than 10 percent you don't look at it as just agencies just in businesses in general around 10 of your you know turnover should be spelled marketing yeah unless it's a bull market again then if you raise a bunch of money you can spend 30 percent if you want but i yeah ideally to be conservative around 10 and if you're spending too little then you're not investing in growth if you're spending too much just not being financially responsible yeah i think in my case maybe it's too little but if you drew a a pie chart you know you have labor overhead sort of marketing profit i guess where would you like put the other pieces uh it depends on what kind of marketing agency but labor is going to be the biggest one of course um i would end up saying generally speaking if your agency you're doing 20 profit you're doing a good job that's just general rule of thumb yeah i think in my case you know maybe the profit is is higher and then the marketing expenditure is lower so it's a great feedback i just wanted to going to validate that you don't want to be you could be higher than 20 but if you start getting too much higher you're you'll find that your growth isn't going to be as good because you're not reinvesting enough yeah and by the way that's most smaller agency tend to say they have 40 50 profit margins but then the problem with it is it's mostly founder run and and they're keeping a lot of the profit for themselves which is fine it's great for a great business for them but it's not an attractive target for someone else to buy because there's too much risk there and at that point you haven't built out a management team you know eric and i have a mutual friend from canada He deals with private equity and he does their marketing for a lot of private equity firms when they buy these portfolio companies.

7:55This guy's operating, call it 50 % margins and he wants to sell. And I was like, your biggest problem is you don't have a built out management team and it's too reliant on you and that would decrease your profits. And that's what a buyer is going to look for because they want sustainability. And when you have high margins, like 40, 50%, it's hard to get sustainability. Thank you guys. By the way, that's a pro tip too. Like if you guys are looking to sell at some point, you don't want to go to somebody else and say, well, we have 50 % profit margins. And then, you know, because there's a lot of people that do that and it actually ends up being a pain for the other agency owner.

8:28And they just don't want to talk to you anymore at that point. So. Although there is one brokerage, what is it called? They changed their name. They used to be called we are Barney. They're called. God, what are they called? They sell a lot of Palmer. No, not Palmer. Palmer is another broker. We are Barney. They emailed me recently. They changed the name though. Okay.

8:53Yeah, they changed the name from WeAreBronny to... Does it GoMerge? Just search for... Oh, Merge. It's called Merge. Yeah. Yeah, GoMerge.com. But yeah, I tend not to... I don't like some of the... They have a lot of companies in there that have like the 50 plus percent margins and they're able to do well for some of these companies. We don't believe in that. We just know it's not sustainable. But they're sometimes able to convince entrepreneurs that it's great, which I, of course, think it's a huge mistake. But, you know, they're able to convince certain people that, hey, you should buy some of these companies.

9:36And then I think some people buy them and they're left with a can of worms. Yeah. By the way, there's a good guy. His name is Todd Tasky, and he's worked with Power Digital. He's talked to like acceleration partners and a lot. So a lot of them, he's helped put together or helped broker some of these big platform deals. And a platform is where what agency decides to, you know, private equity invests in, and then this agency decides to roll up other agencies. And usually the platform agency is doing, you know, let's say four or$5 million in EBITDA. A good example of this would be like a Tenuity, right?

10:10And then Neil, I think there's a couple others, but this guy's name is Todd Tasky. And so if you do, I spoke to him like two months ago or so, and he's like, look, even if you get to 3 million EBITDA, you could build a platform, but usually it's around five or so. But Neil, feel free to add anything to this. No, I think you're spot on. I want to take a second to tell you about my podcast co-host agency. So NP Digital. So Neil Patel Digital, what they do is they do a whole host of marketing services and they are global. They're worldwide. They have SMB services as well. They have mid-market to enterprise services as well.

10:44They cover the entire gamut. So you can just go to mpdigital.com to learn more about it. And now back to the episode. Amber asked, do you disclose in contract if agencies using AI creating content? Yeah, we do disclose that on our end. I don't know about you guys, Neil. Yeah. And some business will even require you to sign a contract saying you won't use AI to create content. So they all have different requirements. Can I ask why that is? Why? it's because some people are worried about lawsuits cool i see that growing AI laws are different for every country so you just gotta some companies are just really particular and careful because of that scott did you have something yeah you guys seeing a growing trend among those enterprise clients the larger clients basically putting it into contracts that no AI allowed it's just increasing more and more we're seeing that yes yeah but i i think it you know really varies um per company and what's the risk appetite we don't really see it with smbs we really typically see it with large corporations yeah and large corporations just want to de-risk so easier thing to do as we uh as we approach the end of the year i know anita was looking or she had just had a meeting with her team about projecting for 2025 and recapping everything from 2024.

12:11Do you guys have like a process that you go through for the end of the year, as far as like a reflection process and then like a year ahead planning process? Neil will never answer this. I'll answer this. So, so I can share a template that I've used for the last couple of years or so. I just write this, I do use notion for it because my templates in there. um and so you know it it is just like what went well what didn't go well what i'm looking forward to next year and then you know how am i trending towards our our three because i like to plan in three years i think you get too much done in one like a year goes by too quickly right this is what jeff bezos said as well so but in three years you know you can really move the needle um and i i do it for i do it for personal and i do it for business as well um it takes a couple hours to do but it's fun, right?

12:58So Neil and I, we have a mutual friend, Syed. And let me see if I can pull this. Here, let me share my screen real quick. Okay, cool. Syed has a good template. You guys should just copy Syed over here. So this happened to me in 2023, year in review. So can't believe it's 2024. Days have been flying fast. Personal highlights, business highlights, acquisitions and investments, lessons learned, favorite reads, my goals. Let's just go to like business highlights, see what he's got going on here. you know it's outstanding year full of great accomplishments we completed 12 business acquisitions for growth fund blah blah blah and the cool thing is he saves a lot of the pictures um and so like this is one of the the tools that he bought or plugins that he invested in so you guys can decide how you want to play i would just type in syed year in review um and you'll find it so yeah any questions on this oh yeah look my goals for 2024 when i first started my business the overwhelm was real.

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15:31No issues with versions or miscommunication. Whether you're starting from scratch or using one of their templates, Framer lets you focus on design while handling the technical side for you. Animations, responsive layouts, search optimization, and all the things that matter. Ready to build a site that looks hand-coded without hiring a developer? launch your site for free at framer.com and use code ms to get your first month of pro on the house that's framer.com promo code ms framer.com promo code ms rules and restrictions may apply i wonder if i'm in any of these pictures nope i'm not but anyway um hope that was helpful i was just going to mention we we do every year we um go through all our services and we see what we can throw away.

16:21Because sometimes you just start adding things on and it's not monetized correctly. It's like, do we throw it away? Do we fix it? Do we charge more? We also look at our pricing every year. I know last year we raised it by about 25%. This year we're probably gonna, and it just comes with more confidence. As you know, this last year, we've nailed some bigger clients. We're increasing our pricing to weed out maybe some of the smaller clients that we were bringing in for our like our sales team. We're bringing in not that I have a big I have one guy, but, you know, like just to clarify kind of what we're trying to shoot for.

17:04um and then we also look at um what are our growth goals for the year from uh not just revenue but more about hr and stuff because that's we run a very flat organization trying not to get too many managers uh or too much senior management involved um so that we're kind of growing out of that now like we went from five employees last year to 15 right now and we're probably gonna bring on three more by the end of the year. So, um, that's, we blew past our goals and, uh, you know, it's, it's good, but it, I'm, I'm the only one really putting the check in place on make sure we're profitable. So, cause we're very flat, you know, kind of thing.

17:52So anyways, those are some things that we, we analyze, um, you know, year to year, but I like the three-year idea. Um, Eric. yeah kevin you bring up a good point on the price increase piece so um i have a friend david rodnitsky and he sold his agency called 3q digital i think he's so he sold it for 65 million the first time he collected 30 up front um and then he was able to buy it back and then sell it again and so he got a second bite of the apple um because private equity couldn't pay him the second time um but yeah we'll come back to neil in a second but the whole thing is um he actually worked with the agency coach and I know Neil loves coaches, but he worked with the agency coach at the time.

18:33And the coach was like, Hey, you need to increase your prices. And so at the time he was charging, he's doing paid media for a lot of tech companies. He was charging like$1 ,500 a month or a percentage of ad spend. Right. And he's like, okay, double it to 3000. Okay. Made it 3000. Okay. Now, now make it 5 ,000. Now make it 7 ,500. Now make it 10 ,000. Now make it 25 ,000 or so. Right. And every time he did it, the whole objective here is that you want to, out of 10 customers you bring this to maybe three are going to complain and maybe they'll churn but the seven will probably take you up on it and you're going to make more money that way right um so neil i'm curious from your guys and over the years how you guys have price increased if at all you're muted i don't know the answer i honestly don't know if we have ever done price increases or not um i'm assuming we have i could be wrong though uh i just have never been involved in those conversations or decisions.

19:24Austin wants to know why Neil won't share his end of year reviews and planning. I don't, I don't, I'm not involved in any of those. So Eric knows this, but if I shared it with you, I'd be making it up literally at a minute. No, it's more so he doesn't do it. So that's why. But yeah, that's not his jam.

19:53Thank you.