Why Most Digital Agencies Are Nuts
Running a growing digital agency is tough. I know, because I have done it.
Cash flow is always up and down in line with the projects you win and you’re never totally sure that you can pay the salaries for the next 6 months.
Sound familiar?
Well, you aren’t alone. Most other digital agencies have the same problems.
And this is why most digital agencies are nuts – they don’t focus on making recurring revenue.
When can we buy new Macs for the designers? Can we afford to take on that amazing account exec/developer/designer we interviewed last week? Should we upgrade our client hosting account? Who knows.
For small agencies without large sums of cash in the bank this can be a real worry. Paying your bills and your staff is completely dependent on landing new projects. Even for large agencies, it doesn’t take long for cash reserves to disappear if you are low on new sales.
But it doesn’t need to be this way. Digital agencies can make their businesses more sustainable by generating recurring revenue streams. Tweet this.
This post looks at how you can put in place those revenue streams with some real life examples of companies that have done just that – to help you stop from going nuts, too!
Why you need to create recurring revenue streams
The main benefits of recurring revenue are as follows:
1) Allows you to sleep at night
Creating recurring streams of income provides you with a financial foundation that not only gives you peace of mind (and saves you having to pull your hair out with worry every month) but it allows you to start planning ahead and thinking about the growth of your business. It not only allows you to generate more income but helps you maintain long term profit. This means that if you ever consider selling your agency in the future, then it’ll put you in a much better position; businesses with recurring incomes have a much higher value than pure project-based businesses.
2) Allows you to be more creative
One of the biggest benefits of course, is time savings. Rather than focusing completely on selling each month, you can get on with producing your most creative work. Recurring revenue gives you so much more freedom to spend time on the projects you really care about rather than spending time worrying about money.
3) Creates loyal customers
Businesses based on recurring revenue models also allow for better customer satisfaction and in return, customer and brand loyalty. Repeat business means you can build long lasting relationships with your customers, get to truly understand what they need, and then ensure your products and services meet those needs. As a result you’ll continue to build better products that will keep them loyal to your business and ensure that revenue keeps coming in.
But….how?
To save you time having to work it out for yourself, here are 14 ways I know of that Smart Digital Agencies build recurring revenue that you can do too:
1. Client Retainers
For both design-led and technically-led digital agencies, retainers are the most common way to create recurring income. A lot of digital agencies talk about them but very few are good at selling them.
A retainer is when a client pays an agreed sum every month for an agreed period of time (say 6 months) in return for an agreed amount of creative or technical services.
The benefit for the client is that they are able to ‘reserve’ the time of an agency every month, ensuring their work is prioritised.
Retainers are usually offered at a discounted rate. For example, If a day rate is normally £1000 per day, then a client could pay £9000 per month for say 6 months in return for 10 days of services. This would equate to a 10% discount.
Whilst you are giving a discount, you know for the next 6 months you’ll be receiving a certain amount from that client. This in turn means you can allocate how much resource you need for that particular client and can actually plan ahead! Now imagine if you had 10 retainers like this, how much easier would life be?
Great – so how do I sell a retainer to a client?
Retainers aren’t just good for you though. They are also incredibly beneficial to your clients. If you, like most digital agencies, struggle to sell retainers then start thinking about how they benefit your clients to help them achieve what they are trying to do.
Patrick McKenzie has written an amazing post covering this topic and outlines the benefits for clients;
Engrave these points into your memory and remember to use them next time you are selling a retainer to a client!
2. Sell your services as products
The biggest issue with selling services based on hourly or daily rates is that you will always be confined by the number of hours in the working day. The most money you can make in a day is: day rate * number of billable staff.
So, how can you use the knowledge that you already have and then scale it infinitely?
Here’s how:
Take one of your most common services and then turn it into paid content that can be downloaded from your website such an ebook, email or video series.
If your current clients are currently paying you for this service then you can be sure that there are people out there that will pay a lower amount for content that will teach them to do it for themselves.
Here’s a simple example:
Let’s say you are a digital agency focusing on UX services;
There must be some common issues that crop up across all your clients when you work with them.
You know that if they fix these issues they could increase their online revenue by several thousand pounds, particularly if they are an ecommerce company or selling high value products on their site.
Create a series of videos that points out these common issues and how to fix them. If done internally, this could be done for less than £1000. (Remember they don’t have to be TV production quality, they just need to help solve the problems for your customers!)
You could compile a bunch of videos and presentations and drip feed the content to your customers over a course of days or weeks. They still get the content, and you don’t even need to be present.
Sell on your website for say £200 each – you don’t have to sell many copies to start making a profit.
Tip – To implement this cheaply, you can you a wordpress membership plugin. Chris Lema has some great posts on choosing WordPress membership plugins.
If this works then you can look at doing the same for your other services.
Remember that this works best when you have selected a NICHE — meaning that you provide great content to a specific audience where there is way less competition. It is also impossible to create content that is useful for everyone. For more details on choosing a niche market see my ebook
For an example of this – see Copyhackers. They originally started out providing copywriting services and now they sell products by offering online training courses.
3. Create your own software products
By far, the best way to create recurring income is to create your own software product, ideally for sales to the customers that you are already delivering services to. This means that you don’t have to go out and find new customers for your product and you should already be an expert in the field.
This is how I started my first company Project Minder which we successfully exited a few years later.
We started as a digital agency delivering projects for clients, and after several comical failed attempts at creating products for various markets (tip: don’t try to sell software to the fashion industry!) we found that Architects had a need for a software product that helped them to ensure they made a profit on their projects.
No one else was doing a good job so we built a great product to help them. The strategy worked amazingly well and we built very strong recurring revenues and a sustainable business around the product pretty quickly.
But don’t just take my word for it. I know of several other agencies who have built recurring revenues around software products. For example;
John and Nick originally started 15below as a digital agency until they found that low cost airlines were struggling to communicate with their clients effectively. The rest is history – now they are one of the airline and travel industry’s major suppliers of messaging solutions.
Andy, Richard and the team at Clearleft are an internationally respected digital agency who now specialise in designing digital experiences. They have cleverly created two products; Silverback 2.0 and Font Deck which help support the services that they are already offering and which of course also provide a recurring income.
4. Hosting services
This is a no brainer for most Digital Agencies as most projects require some level of hosting and it is inherently chargeable on a recurring basis.
Also clients generally would prefer to deal with only one supplier and would be happy to pay a premium to reduce hassle for themselves.
I absolutely wouldn’t recommend that small agencies offer their own hosting solutions (ie set up their own hosting servers etc) as this would require far too much work and specialised staff, but reselling hosting packages from reputable hosting companies such as Rackspace is an excellent solution.
As a Digital Agency reselling hosting services you can apply a fixed markup each month whilst taking up very little of your time and have someone else worry about the technical support.
If you have 20+ clients all paying for this service on a monthly basis, the recurring incomes can soon add up.
That’s not all – along with hosting you can also upsell other recurring services that are not included in a basic hosting package such as:
- Automatic backup services – Daily, weekly, monthly. Gives your clients peace of mind that their data is safe.
- Regular backup / restore tests – weekly, monthly. Gives your clients peace of mind that backups are rock solid
- Automatic upgrades when new versions of WordPress come out. This reduces the chances of clients’ WordPress sites being hacked
- Etc – you get the idea!
5. Monthly Marketing Strategy
How many times have you been asked if you offer marketing services and politely said that you didn’t – but said that you would be happy to refer someone who does?
Clients come to trust the digital agencies they hire – so even if you only provide web design or development, they’ll see you as the all-encompassing digital expert. This is a great opportunity for creating recurring income; rather than turning that work away or referring it elsewhere, why not offer it as a service?
You don’t need to be an expert – find a reputable freelancer to deliver the service first (via recommendations from another agency), then as the service becomes successful you can hire a full time person to take over.
This applies to many of the services below as well.
Marketing services start with a solid marketing strategy which should then be reviewed every month.
Marketing strategy includes:
- Overall plan and marketing goals
- Identifying their target audience
- How to engage their audience ie. type of content to produce
- Where to engage their audience
- How to generate the best return on their marketing budget
- Which marketing campaigns to run
- What to measure to ensure campaigns are successful
The output should be a monthly report that shows the Marketing Return On Investment (ROI) for your client.
6. Monthly Content Strategy
Following on from the Marketing strategy is the content strategy. This is a creative process which ends with a list of imaginative ideas and briefs for creating content that will help meet the goals in the Marketing Strategy.
Content types could include (but not limited to);
- Blog posts
- Videos
- Infographics
- Images
- Podcasts
- Case Studies
- White papers
- More ideas here
This service can be offered on a monthly basis – planning the content ahead for the coming months.
Don’t offer this service yourself already? Start working with a reputable freelancer as mentioned above.
7. Content Production
Once the content has been planned it then has to be created, recorded, designed etc.
Provided the planning is done well this is a fairly straightforward process and lends itself well to a client retainer model.
Don’t offer this service yourself already? Start working with a reputable freelancer as mentioned above.
8. SEO services
Search Engine Optimisation services are another inherently recurring service and these days heavily linked to the marketing and content strategy process. You’ve just built a great site for a client and now you can help them to promote it as well.
The on-going monthly relationship will also mean that you are likely to be the first agency they go to when they have future design or development projects.
In a nutshell, SEO services cover;
- On-page SEO
- Keyword research
- Content strategy (see above)
- Link building strategies
- Blogger outreach campaigns
- Measurement and analytics
As a design and development agency you may say ‘we don’t do SEO’ but it seems a shame for you to give away this revenue to an SEO agency when it is something that you could easily offer yourself with very little effort.
For more on SEO, Moz have fantastic learning resources.
Don’t offer this service yourself already? Start working with a reputable freelancer as mentioned above.
9. Conversion services
Conversion services ensure that your clients’ sites are regularly reviewed and A/B tested to ensure they are doing the job they are supposed to; i.e. turning visitors into customers. Nick Disabato is a freelancer at DRAFT and does an amazing job of selling this service;
What an amazing pitch – pretty much sells itself.
Try it for yourself on your own clients.
Don’t offer this service yourself already? Start working with a reputable freelancer as mentioned above.
10. Social Media Management
Most now realise the importance of being able to engage directly with their customers and their clients via social media. However the key to a successful social media presence is to keep it genuine and to post frequently, but many businesses simply don’t have the time.
This is a great opportunity for you to offer a recurring social media management service, helping to unburden the client and in turn give you more revenue. When combined with content strategy and production services this becomes particularly powerful.
A social media management service could include making posts and managing responses on the following social media platforms;
- Google+
- Quora
- Industry specific forums
Combine the service with a monthly ‘social media impact’ report for maximum effect.
Don’t offer this service yourself already? Start working with a reputable freelancer as mentioned above.
11. Start charging for Technical Support
This is relevant to Agencies that provides software development services to their clients. Technical agencies often find they spend a large proportion of their time providing technical support to their customers; from answering queries such as “why doesn’t this button work?”; change requests such as “can you change the positioning of this button”; to large updates that need to go through a change control process.
I have seen countless examples of where this area is overlooked as a revenue stream – often the costs associated with providing this service can get soaked up within other services or another project.
Granted, a technical agency should provide some level of technical support in your service offering but the exact scope should be clearly outlined in your project Statement of Work and the subsequent maintenance agreement.
If this isn’t done, it’s a slippery slope into giving the client whatever they want. “Can we add this?” “Can you just change this a little bit…” They might seem minor but these types of queries can add up and eat heavily into your profit margins.
How to set up a Maintenance agreement
An alternative to this is setting up a maintenance agreement where you charge your clients an ongoing monthly fee in return for responding to bugs within a set amount of time. For example; If your day rate is usually £1000 per day, then you could charge £2000 per month in return for being available to work on bugs 24 hours from when they are notified. This means that most bugs would be fixed within 48 hours which is a benefit to the client.
For your client, the monthly fee is a type of insurance policy – which can go towards the cost of fixing the bugs if there are any found in a given month.
To sell maintenance agreements you need to have an excellent project management process in place that makes it clear when a project is ‘finished’, so it is clear when the maintenance phase begins.
Put in place a process for change requests
Change requests should go through an official process – rather than just being rolled out immediately. The relevant contacts at both your agency and the client should agree to changes formally so that there is an audit trail if things go wrong.
Don’t forget – Implement a timesheet system
In order to start charging for technical support, your agency needs to become great at timesheeting to ensure that you can charge for all the little bits of support work that are carried out. This means that a good timesheet system such as 10000ft needs to be in place and processes need to be implemented to ensure that everyone in the team fills in their timesheet before the invoices have to go out.
12. Premium technical support
In addition to standard support, for large clients or ‘mission critical’ systems where clients need super fast support you might want to offer a premium support option. For a premium cost you can accommodate these needs within a shorter time frame than your normal support. (For example within 2 hours rather than 24 hours).
13. Customer support
If you build bespoke software applications many of the support enquiries you probably get are basic “how does this work again?” type questions.
Rather than dealing with a developer for this, the client should be speaking with a customer support person. This should be treated as a separate service and as a result can be charged separately.
and finally….
14. Think outside the box
Once you have a good client base and have built strong clients relationships, you will start uncovering opportunities for all types of services.
If you’re careful to not spread yourself too thinly and test all ideas thoroughly then you could uncover some excellent opportunities.
For example, Brighton digital agency SiteVisibility set up a free jobs board specifically for digital jobs in the area and then once the idea had been tested thoroughly they cleverly expanded this idea to create a dedicated digital recruitment agency.
This is the same savvy agency that already has one of the most successful internet marketing podcasts in the world – which is a highly intelligent way to generate new business leads for themselves.
Summary
Creating recurring income for your digital agency is a must. At a simple level it can mitigate the daily worry of where the next sale is coming from but can also have substantial impact on the growth and success of your digital agency.
In this post we’ve looked at just some of the ways you can create additional revenue streams for your digital agency.
Whichever option you take, I hope this post has helped – and that you go away and start planning how you can generate some recurring income of your own…. and to save yourself from going nuts!
This post was originally posted at: http://www.smartdigitalbusiness.com/work-smarter/digital-agencies-nuts/
