The difference between an ad agency that does $1M, $10M, $100M, & $1B+ in annual revenue, How each thinks about marketing, and Why MrBeast is getting even more views today

0:00So Eric, do you know the difference between an ad agency that does a million dollars, 10 million, 101 plus billion in annual revenue? I can speak to 1 million, 10 million. You can speak to nine figures and you can speak to 10 figures. All right, let's do it. Yeah. So basically Neil wrote this tweet and it's a pretty good one. So Neil's tweet over here says, typically million dollar shops work with small mom and pop clients. Really what you have to do when you're trying to, when you're a million or trying to go above that, you're trying to put food on the table. And so you're willing to take any type of deal that's there and you can't be as selective as you'd like to be.

0:35And you're trying to figure out your niche. You're trying to figure out where your sweet spot is. And keep in mind, just because you're an agency doesn't mean you can serve every client, doesn't mean you can do every service on their own son. You're trying to figure things out. You're trying to get the product market fit, so to speak. You're going to have high churning clients that typically leave as quickly as they come in. They might be super high maintenance. They might be a pain in the butt. And you have a limited amount of services because you have so little resources in the beginning. That's at a million.

1:00Okay. Now, 10 million is 10 million. Usually you've been around for maybe a couple of years or so, usually maybe four or five years or so, because it takes time to start to build sales scale to eight figures. And then at this point, maybe you have a little bit of a mini brand. There's a lot of referrals that are going on. In fact, a lot of agencies grow through referrals. Networking, right? A lot of people are at conferences all the time. Maybe they do their own events. For referrals, what percentage of your revenue comes from referrals? 10%, 15%. By the way, when we say referrals, so it used to be much higher.

1:34When we say referrals, it also means client referrals too, that refer you to other businesses. That used to be a lot higher, I should say. And then when I say referrals in this context, I mean you referring something to me, me referring something to you. Oh, I thought you meant both. I'm talking about referrals, whether it's from an employee, a client, a friend, just a referral in general. Yeah, I mean, I think you're probably blending it. I'm thinking of them separately a little bit. But in this case, you can probably offer a little more services now. And the more services you offer, the lower your churn should be in theory.

2:07And then a client typically here, they might last for one, two, three years or so. If you're pretty good, two or three years or so, but you're still focused on mid-sized businesses. And when I say mid-sized, I'm saying it could be a couple hundred employees or so. It could be even like a thousand. But when I say enterprise, I mean like a couple thousand, 10 ,000 plus employees or so. This message is brought to you by Leveling Up Founders. And Leveling Up Founders is an invite-only event for founders. It happens once a year, usually during August. And past attendees include people such as Ali Abdaal, Cody Sanchez, Neil Patel, Vanessa Lau, and the list goes on and on.

2:40And ultimately, it comes down to the quality of the group of the people. We try to keep the group high caliber. That's why it's invite-only. So if you are a founder at the top of your game, you can go to levelingup.com slash founders to learn more about it. And then you can apply. And we'll see you on the other side. By the way, Neil and I have an agency owners group called the Agency Owners Association. All you have to do, just go to marketingschool.io slash agency. Once again, it's marketingschool.io slash agency to learn more. And now back to the show. So speaking of an agency, a hundred million plus in size, typically you start generating your revenue from client referrals, employee referrals, and RFPs.

3:22Client referrals are you do really good work and then they refer you to other companies or other divisions. Employee referrals is typically it's not like employees saying, oh, I know this company. Let's reach out to them. It's usually the employee you have on your team worked at an agency and people like working with them. They come to your agency. Their old clients hit them up being like, hey, I want to work with you again. I had a really good experience. Where are you at? Right. RFPs are request for proposals. You tend to get included in them when you're at a scale. Isn't that counterintuitive?

3:56You never thought that would be the case, right? No. What's funny is, dude, I always thought that majority of my revenue would come from paid ads and SEO. It's really backwards for us. We looked at year-to-date so far in 2024, which isn't much. It's a few months. It's not 70%. It's like 60-something. I think it was 66 % or so were either RFPs, client referrals, or employee referrals. That's a lot. Yeah. Um, clients tend to be larger corporations. Like we do global accounts. Like for example, you know, uh, we work with just today. I got a text that a company that's publicly traded in America is doubling their spend in our India division for marketing in India.

4:42They're also doubling for the quarter in Australia. Uh, another corporation that we do work with that's, uh, based out of, I think is it Europe, their main location. Uh, I don't know where their headquarter, but they're global. When I say global, like these are big companies, not with like 10 ,000 employees. I'm talking about like 30, 40, 50 plus thousand employees, really large corporations. They just gave us some accounts in Germany and they're reaching out to us for what we can do in Brazil. But you know, you end up getting clients who want not just full service. They want multiple services.

5:17they last with you a lot longer, like four or five years, sometimes even longer than that. But the way you really grow is you cross all services, you cross all the divisions, and you help them on a global level. The big difference between a$100 million agency and a billion dollar agency - The last part on acquisitions too. Yes, oh, growth for$100 million agencies. A lot of them also grow through acquisitions. Like we closed one in November, although we, I think, announced it in February. we'll close one maybe at the end of next month and probably announce it a few months after that we'll close another one in june that's also an loi maybe june at the latest maybe we'll announce that in like august or something like that uh we're working on another one that we hope to have an loi in a few months uh and that one probably will close that one's probably easy one to close but still that may close like let's say july we'll announce it maybe later part of the year but you start growing by acquisition because you spit off all this EBITDA and cash flow.

6:18What are you going to do with it? Oh, you just start buying more. And if you look at the billion plus dollar agencies, some of them have organic growth. I saw a chart of Dentsu, WPP, Omnicom, Publicis, et cetera, Havas. Dentsu declined in organic growth by 6%. Most of the other ones are barely growing organically. Who's growing the best there? Is it WPP or Omnicom? I feel like it's one of those two. No, I think it is publicists. I think you're right. You're right. It is publicists. You're right. I should have a chart somewhere here. Anyway, as Neil talks about this or looks for the chart. Here I have it.

6:54Okay. Publicist group organically grew in Q4, 2023. And I have a chart. So it doesn't, it goes from zero to 8%, but no one's even above the 6 % line. It looks like Publicist Group got close to 6%, but they didn't grow 6%. Omnicom is a bit more than 4%. Kvass is a bit more than 3%. Interpublic Group is a bit under 2%. WPP is sub 1%. Densu was more than negative 6 % organic growth. But here's a funny thing that no one really talks about growth from organic perspective with these big billion-dollar companies. Dude, they're buying a ton of agencies. The moment you grow from that acquisition, let's say WPP buys you and you're growing at 30 % and they buy another 10 agencies like yours.

7:43Well, the moment they buy your revenue, that revenue that they bought, that was all inorganic, that was bought. But if you're still growing at 30 % and they own you, that 30 % future growth that you get is considered their organic growth when in reality it came from the acquisition. And they're buying you for a multiple arbitrage too, but we could talk about that in a future episode. Yes. They generate most of revenue from RFPs. They focus on large enterprise accounts. Even us, we're a nine-figure agency, but when I say we focus on enterprise accounts, it's different than the global ad agencies because their version of enterprise is someone paying a minimum of$10 million in fees, and they ideally want much more than that.

8:23The majority of their clients are global companies that need help in multiple regions for multiple services. They only want to deal with one ad agency. It takes a long time to win these customers, but your goal is to have churn that's less than 15 % a year. These ad agencies, like we talked about, they mainly grow through acquisition and they'll buy into a lot of stuff. Look, I think this is a really good tweet. Don't think the call out here, because most people think agencies don't have a moat. I would say the one thing that agencies do have, especially as you get bigger, you have to think about switching costs.

8:54And switching costs mean the more services you're embedded in and the more locations or regions you're embedded in, the less likely they are to churn, right? Because there's relationships there, like it's harder to have to switch out because you're entangled in so many different things. That's how you want to think about if you want to continue to grow, how do you layer in switching costs where it becomes a pain in the butt? If even someone better comes along, like you make it hard for them to switch. That's what it is. By the way, everyone here, before we move on to the next topic, this is why Neil and I have the Agency Owners Association.

9:22It's to help agency owners like you grow. Go to marketingschool.io slash agency to apply because we're doing live stuff. We're doing online stuff. We're doing all the stuff in the world. So what's your next one? Well, before I go to the next one, one thing to keep in mind is even if you're like a nine figure agency or you want to get there, most of them start off as a$1 million agency or zero. And you do the stuff that $1 million agencies do. And then you eventually transition into what the agencies are. Yeah, but they transition. It's not like, you know, they start off serving enterprise from day one.

9:51And a lot of them serve mom and pop clients and work their way up. Now, the next topic, it's a similar one, but this is fun. Do you know what the difference is between a$1 million, a$10 million, and$100 million? Or the difference in how a$1 million, a$10 million, and a$100 million company thinks about marketing? Yeah, they're willing to spend more money and they have a longer time horizon when it comes to getting their payback. Bingo, Eric hit the nail on the head. So I put out a post about this online. And it's funny because I get asked about this a lot. And when you look at smaller companies that are less than a million bucks, you don't have the capital.

10:28If you spend a dollar on marketing, it needs to be profitable right then and there. And you need that cash in your bank account. A$10 million company, you have enough cash flow. You're trying to scale up more. You're willing to spend a dollar and break even and then make your money on the back end. A$100 million company, they usually know, and I say usually because not all of them do, but they usually know the lifetime value of their customer. And they're willing to spend something like more money, whatever percentage, on the front end to get that customer to lose money like Amazon. But they know the customer will be with them for so many years.

11:03They'll make that money back on year two, three, four, five, et cetera. And it's a really good model. That's how companies like Snowflake lose money. Their customers in the long run, of course, are very profitable, but they'll spend a lot to get them because they know over time they just continually spend more and more money with them. Yeah, makes sense. Look, new levels, new devils. You have a different game to conquer at each stage. Dude, I've never heard that before. You haven't? No, I've heard that from someone else. It's been said, but I don't know who said it. By the way, do you want to know why Mr.

11:31Bish is getting even more views now than ever? Because he's posting on X? No. Well, actually, this X post I'm looking at has 18 million views on it. So pretty good. No, take another guess. He's posting more videos frequently? No, he's actually posting less videos now. It's because he's built up a brand so people just watch his old stuff. Evergreen content? No, I'm sure once I say it, you're gonna be like, okay, duh. So basically here's his tweet. So by the way, like the fact that I keep calling it Twitter and tweet, like the brand is so strong or the brand recall is so strong. Anyway, so Mr. Beast, this past year I've slowed down our videos, focused on storytelling, Let scenes breathe, yelled less, more personality, longer videos, et cetera.

12:15And our views have skyrocketed. My fellow YouTubers, let's get rid of the ultra fast paced over stim era of content. It doesn't even work. So he's doing less transitions and he's getting away. He's going in the opposite direction of shorts. Yeah. I mean, he, he kind of used to have like long shorts, if it makes any sense. It's like thing after thing. It's overstimulation to his point. Now it's like, okay, there's character development and there's storytelling. But by the way, when you think about this podcast, the reason why this gets more views now is because you and I are spending more time telling stories and those stories actually do well on shorts and reels.

12:52I don't know if you know it, but they do it. I don't check. I'm going to go to your Instagram account right now. Go look at my Instagram. There's one where I told a story. It's like 122 ,000 views. There's another one that I think has 100 ,000 or so. If we just tell more stories, you get more views that way. All right, so let's check out Eric's Instagram account as this recording. Eric O. You have to look for the ones that have the orange. Those are marketing school ones. When I first started my business, the overwhelm was real. I didn't have the tools to help me scale. If only I had Shopify from the start to handle all the behind the scenes work.

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15:27618 1004 this is good 2000 33 ,000 go to the real section I'm looking at it 5 ,000 2 ,000 your ones in orange are doing really good 12 ,000 do you see the one that I pinned up top the one that you pinned on top is doing this result in 16 million yeah yeah doing this resulted in 60 million views so that's 122 000 on that one i think you want to know what the best part about the video is what it's not that you're repurposing you didn't even edit or anything like there's editing in there but you didn't go crazy or fancy or anything like that and it still did extremely well the point i'm getting at is Mr.

16:17Beast just said, storytelling, more personal. And it does well. You don't need to have people on crack all the time, switching up the screens every five seconds. That's what I'm saying. If you have your team edit your stories and post them, I bet you they'll do better than your well-produced reels. I will bet you a lot of money they will do better. You know what I was thinking about? What? Not even doing fancy recording and just straight up. Yeah. Just take my camera and just record. We do so much here. Just take from that. Yeah. Well, that might hurt the provider that's doing it for you, but I'm sorry.

16:51That's true. Yeah. So wait, by the way, there's one more thing over here. I have this one on, what do you think the one, this was like obvious one. What do you think is the one thing that influencers care about the most? How cool they look. Close. How many followers they have. Also close. Definitely not how much money they make. Yes, it is that. No. Yeah, it is. It is. So Kevin is free to plant daddy. So he owns Epic Gardening. And it's been quoted that his gardening blog, they do like$30 million a year or something. So he said this, the dirty secret of influencer marketing, 80 % plus of influencers do not care about anything but money.

17:32I see this happen 24-7 in MySpace. They don't care about product quality, brand, theirs or the brands that they're repping, their audience, et cetera. They just want money. The reasons why are simple. They don't make a lot of money, even large accounts Two, this is usually their first business venture Three, they suffer from extreme short-term thinking, high time preference Four, they don't understand how brand is built And five, they can be quite entitled And I've actually seen this with a lot of these financial YouTubers They all just focus on brand deals And when it comes to talking about business, you can tell there's not a lot of thought that goes into it And six, they don't want a nine-to-five job Yes, that too, which relates to they can be quite entitled Do you remember my old ex post when I did the survey on how much influencers make based on their follower count?

18:16No. It was really terrible. The average influencer isn't even making$1 ,000 a month. Do you know Carrot? Actually, this can be the last piece, but Carrot. Rude awakening. Here, I actually tell you the revenue stats for influencer marketing. I got one over here first, and then you go. So Carrot posts page transparency for influencers. So Carrot's like the financial credit card for influencers. So basically, oh, wow, I got scammed by this article. It's not even here. Okay, you go. All right, average income, monthly income for social media influencers. Average overall was$323.19. This is data. We surveyed 5 ,920 influencers.

19:04We tried to survey over 15 ,000, but not everyone responded. followers with 100 ,000 to 999 ,000, they generate on average$1 ,727.29 per month. People with over a million followers on average generated$6 ,109.83. A month, right? A month. It's a tough living. So this is pretty close. Okay, so Carrot, again, they work with a lot of influencers, right? Or creators because they're cards for creators. So it says, how much do full-time creators make on average with 1 million followers? YouTube, this is for the year. platform earnings from YouTube only$90 ,000. So pretty close to your$72 ,000, right?

19:43Overall income is about$314 ,000, which is insane because when I asked Humphrey Yang, the financial YouTuber, he's really smart with money and I would say with business too. I asked him how much he makes exactly$300 ,000. Yeah. Okay. Now Twitch, if you have a million followers on Twitch, you make 80 ,000 from the platform for the year, but you actually, your overall income is$542 ,000. Instagram, if you have a million followers, it really doesn't mean much. You make 20 ,000 for the year and then 287 ,000 total. TikTok, you got a million followers,$473 for the year. So yeah. Yeah, it depends on the platform.

20:21I've always found that YouTube is one of the better monetizing platforms for influencers. Same with LinkedIn. It is really hard to have that many followers on LinkedIn compared to some of the other platforms. But still, LinkedIn, YouTube do well. The Twitch one was shocking to me. That's a lot of money. That's a lot of money playing video games. That's not even a job. You're just playing video games and making money from it. Back in the day when people didn't really watch basketball, it's like, that's not even a job. It became a job. Wherever the eyeballs are. Now it's a really amazing job that gets paid, arm and a leg.

20:55It's a great job. Anyway, I think this is a good place for us to end. Please don't forget to rate, view, and subscribe. Also, marketingschool.io slash agency. If you're an agency owner and you want to grow faster, please give us some reviews. We spend a lot of time. We have Brad from WeEdit, recordeditpodcast.com, and we do this live. So whether you like it or not, give us some reviews. Goodbye.