So you want to make more money.
Last week we talked about the three drivers of value, scale, scope, and uniqueness.
If you want to grow your profitability, you can’t pursue all three – they have different trade-offs and strategies. You’ve got to pick one.
Let’s look at those trade-offs to find out which path is right for you.
Agencies that work on volume have two strategic challenges: they must achieve a low customer acquisition cost and fulfill a high need for low-priced talent.
Traditional agency services are sold through a very collaborative process – but that process is time-consuming and typically involves senior people in the firm. If you were going to go from 3 proposals a month to 30, you couldn’t scale your existing process! If you needed 3000 prospects per year instead of 300, networking, speaking, and referrals aren’t going to cut it.
One of the solutions to making lead generation and sales easier is to lower the price of your services! Things are always easier to sell if they are 10X less than their competitors.
But if you drastically drop the cost in the design world you need to source lower-cost talent. It can be done, but that’s a challenge you are going to have to solve.
Most agencies grow by expanding scope.
The typical creative firm in the US has 15 – 30 clients. When the agency bills $1M, their average client is ~$50,000 in annual billings. When they are $5M, their average client is ~$250,000 in annual billings.
To find those clients willing to spend more, they go from small local businesses to larger regional businesses to big businesses with a nationwide scope. They are doing similar things for each business, but each project’s impact grows as the client sizes grow.
There may be changes in how you deliver those services over time – bigger companies tend to want more hand-holding and project management, and you might find some auxiliary services you can add. Still, the basic offering generally remains the same. Your target market changes.
You don’t have to become a world-class, award-winning, museum-quality designer to be able to improve your margins through uniqueness. You can also do it through specializing.
Small Batch Standard is an accounting firm that focuses on small breweries, Colton Etherton built a financial planning business focused 100% on Tattoo artists. If you were a brewer or tattoo artist, would you pay more to work with a professional who gets you? Of course you would!
By choosing a niche you not only gain the advantage of making more money, but also make winning new clients easier. Your marketing also gets more focused, and you get better at what you do daily. Clients come to you because you are seeing what’s happening across the industry!
So which of these growth paths excites you? Which one would be fun and exciting? What’s one thing you could do this week to move your agency in that direction?