The idea of agency ownership might seem like the "promised land" for many marketers, but that's not always the reality.
I'll get to the point: Running an agency is hard slog. It demands risk-taking, requires long hours, and in reality, makes less time for yourself, friends, and family than you’d perhaps like.
Even with the heartache, headache, long hours, and tough decisions, I can tell you one thing with frank honesty -- I love my job. I love my business. I enjoy working with my team. I relish the reward of it all, and quite frankly, I’d never look back.
And the sacrifice has been worth it. I’ve doubled agency revenue every year. Our client retention rate is around 90%, with an average client sticking with us for well over two years. We're in the business of building relationships, not balance sheets.
But there is a lot I've learned in the past four years running Midas Media. And there are a few lessons for those who are just starting out -- what to focus on, what really matters, and why you might reconsider this whole agency owner dream. Because running an agency is more about operations and business than it is about marketing.
Here's what you need to know before you set out on your own.
11 Things That Really Matter When You Start an Agency
1) Ignore the work-life balance line.
You see this kind of messaging plastered around the web -- often from already highly successful people. You don’t get very far by taking your foot off the accelerator, and they didn’t in their early days either.
I’m not condoning 20-hour work days, but in your early days, don’t expect to be swanning off on holidays all year-round.
Hard work pays, especially at the start. And by "start," I mean years, not mere months!
2) Be prudent. Cash flow is king
Honestly, you need to watch every single penny -- even when you’re making money.
This isn’t just in the first few years. You need to do it forever. Becoming rich isn't just about the money you make; it's also about what you spend.
You don’t need fancy and expensive finance software for the top-level view. I’ve several simple spreadsheets that help preserve my personal sanity: a master spreadsheet that covers every penny in and out each month for projections, and another spreadsheet for burn rate and expenses.
3) Project management is key, even with a small team.
Invest in decent software that offers at the very least milestone, task allocation, client interaction, and time recording -- both billable and non-billable. (If you’re interested, we use a self-hosted version of ActiveCollab. No affiliation here whatsoever. It’s just solid software.)
If you manage your projects even "half well," you’ll be a step ahead of most agencies out there.
Being able to tap into your project data to find the true cost of doing business is incredibly powerful.
Remember that project you allocated 25 hours per month for? Turns out it required more like 50 hours. At least with a solid project management tool, you can know your failings.
Learn from your resource allocation mishaps. Knowing where you underestimated is vitally important for growth and long-term survival.
4) Know your profit margin.
I have another spreadsheet that has helped my personal sanity. It factors average billable working hours and overhead per role, giving me a baseline cost per hour.
I use this formula:
Total working hours - holidays - 3 sick days X 70% efficiency per person = Cost per hour
Here's a quick example of what that table might look like:
I account for that person’s wage, the business cost (office, equipment, software tools, etc.), and any advertising budget.
Do it. These numbers will surprise you -- as in a "plus 30% to 40% of base salary per head" surprise.
I then add in projected hours per service, and that gives me a realistic baseline. The spreadsheet then calculates a 20% creep/slack with a 35% profit margin. The end result is a true price for the service.
Here's an example:
This process (in tandem with tight project management) has enabled us to propose retainers to the nearest hour billable. Often our prices look "funny" because of this. We don’t round up or down to get a job. We give exact figures, without a discount.
Not just plucking numbers from the air instills immediate trust and transparency with a client.
5) Get administrative help.
You need an accountant. You need a bookkeeper. And you’ll absolutely need a credit controller.
At what cost? Less than your time trying to juggle them.
My accountant, bookkeepers, and credit controller are all "freelance" and worth their weight in gold.
They free up countless hours of my time and do some of the dirtier work that quite frankly, I do not want. This isn't meant to sound arrogant. It's about priorities. You need to be working on $1,000 per hour tasks, not $10 tasks. The business, your wage, and everyone else's relies on it.
6) Talented people are your lifeblood.
They also cost a lot of money, but that’s OK.
If you’re the most skilled person in your business, you’re not hiring the right people.
As cliche as it may sound, you need people better than you. You might be good, but you can’t do everything, no matter how many hours you try to squeeze out of your day.
Honestly, I used to whimper when I looked at my overhead number, but now I cherish it. I know that under that number is a solid team of experts who save me from mental overload. These are experts who I can rely on and who clients enjoy working with.
Good people are worth finding and looking after.
7) Look after the clients that look after you
Don’t chase work for the sake of cash. If you’re doing your job right, a better opportunity will be just around the corner.
Hold onto your good clients as best you can. Consider over-delivering on a specific project. These clients won’t take advantage of you.
If a client does take advantage, they’re no longer a good client. Look to phase them out and replace them.
This is business, and business is built on mutually beneficial relationships and financial transactions -- not bullying and desperation.
8) Aim for the stars. Work with the big brands!
Now, back to reality ...
Seriously, don’t over-inflate your ego. Don’t focus only on capturing the big clients.
There are literally tens of thousands of great small- and medium-size businesses out there that need you and would like to work with you.
Stars in your eyes? Slap yourself. Find terra firma.
9) Scale low retainers before anything else
Running hand-in-hand with the above, don’t constantly “push for the plush”.
High-end technical or creative work takes high-end minds and skill sets. Those minds cost a lot of money. In the early days of your agency, this can be a dangerous game to play.
Remember this important rule: Growth needs to be controlled by you and not by your projects.
You need to service the right clients. You need to promote the right services that fall in line with your strategy, your growth plans, and your risk/reward comfort zone.
Ask yourself this: What thing do you do that enables the best outcome and offers the lowest investment for your clients? Find it, and scale it.
10) Your salary expectations should be low.
Don’t be fooled. For most people, launching an agency doesn’t equate to instant riches.
As per #6, a solid team is how you will sustain clients and grow the agency, but it will also cost you money -- at the expense of your own earnings.
Do you want to grow and build a team, or do you want to make a quick buck?
If the latter, forget launching an agency. Just sell cheap impersonal services that you field out to freelancers. Rinse and repeat until you’ve got yourself that sports car.
The agency model needs to be built on relationships. If you like the idea of building a rapport with clients and being in it for the long-haul, then go ahead. Launch your own firm.
11) Don’t be negative. Don’t moan. Don’t complain.
Don’t be rude about your clients to your team.
You and you alone are the foundation; you need to remain firm but personable.
Clients will respect it, and your team will support you because of it.
You should -- of course -- have fun. But remember to always be professional.
At this point, it’s customary to wish you good luck, but I know you'll make your own.
This post originally appeared on inbound.org and is reprinted here with permission.