Want to Build an 8-Figure Agency?
If you want to grow your agency like some of the big guys but you’re not sure how to get there, you’ll want to check out this episode. Our guest has grown four (almost five!) 8-figure businesses. He shares ways to increase your profitability so you can grow and scale too.
In this episode, we’ll cover:
- 2 tips to building an 8-figure agency.
- The right way to model your growth after the big agencies.
- 2 ways to increase profitability and eliminate scope creep.
Today’s guest is on in the process of building his 5th eight-figure business. Vinnie Fisher is the authority on profitability and growth. He’s an attorney by trade but left his law career to fulfill his dreams as an entrepreneur. Currently, he is the founder and CEO of Fully Accountable, a back office accounting and HR solution for service-based businesses. Vinnie shares the two big secrets he attributes to his 8-figure success, plus how an agency can become more profitable.
2 Tips to Building an 8-Figure Agency
Vinnie says through out growing five different businesses he’s come to notice that the company flourishes when he doesn’t trap himself in a primary role. He spends time nurturing his team and trusts them to take the company to the next level.
2. Understand the marketplace.
We have an innate desire to be all things to everybody. However, defining an area expertise is imperative to growing your business. When you dive deeper into a specific target market, you can really zero in and get a comprehensive understanding of it. There is often resistance to specialize because owners are afraid of trapping themselves in their business. But those who don’t specialize end up wasting time and money.
How to Model Bigger Agencies
Naturally, if you’ve got a growth mindset you want to model what the big agencies are doing. And that’s a great idea, but you have to make sure you’re looking at the right season of that business. The big agencies didn’t always start with a broad business. Look at their early years and notice how they grew.
With his law background, Vinnie compared it law practices. He says all the successful law offices have specialize in a particular type of law: Family Law, Class Actions, Mergers & Acquisitions, etc. He says general practitioners can build a nice business but the big, well-known firms are the ones with an expertise.
[HOMEWORK] When you’re looking at a bigger agency to model, I challenge you to do this exercise as homework:
- Select a couple big agencies you’d like to replicate and check them out on The Wayback Machine. Notice the evolution of their site and note the changes.
- Create a timeline of changes to their site and what might have been going on in the industry, technology, financial market, politics. See if you can draw connections between their online presence, their business growth and the outside influences.
- Don’t actually replicate what they’ve done — remember, they made mistakes along the way, too. Instead, use this exercise as your inspiration and an agent of change.
Target Profitability Rate for Agencies
In the debate over growth vs. profitability, Vinnie and I agree. Growth doesn’t mean sh*t if you’re not profitable. As a general rule for businesses that operate strictly with a service model (for example, agencies without any productized business), the magic target is 33% profit. Vinnie quoted this statistic from US Census data. Generally, agencies should see their revenue equally split in these three buckets: ⅓ Overhead, ⅓ Expenses and ⅓ Profit.
Remember, 33% is just a target for service businesses. You can micro-analyze your profit margin based on your agency’s uniqueness. However, Vinnie says no agency in a growth phase should be at less than 20% profitability.
How to Increase Profitability
Believe it or not, there’s a good chance you’re guilty of sabotaging your own profitability. If you are under charging, over delivering or doing too many “quick little favors” for free that is scope creep. It is absolutely the #1 agency profit killer.
Vinnie advises us to understand fair market value for the services we provide. Sometimes that means raising your prices. However, you may be priced just right but giving away work or doing extra work that goes unnoticed or unappreciated.
One of the best ways to prevent scope creep, is to understand why it’s happening in the first place. Sometimes the client asks for “favors” to get more value than what they’re paying for. The agency complies because they are trying to create goodwill and build the relationship. Other times, agencies are going above and beyond on technical components of a project, which goes unnoticed and unappreciated.
2 Ways to Minimize Profit Leaks
1- The $0 Change Order.
Document all changes you make on a Change Order Form. This is especially helpful for those “favors” and out of scope requests that you do for free. Make sure the form indicates the value of the work, then zero out the amount and have the client sign it. This shows the client what their “favor” is worth and serves as a reminder later when they ask for more. Once you assign a value to it, the client will be reluctant to ask for many more changes or favors in the future.
2- Communicate with the client.
If you’re going above and beyond, make sure you explain it them. Clients don’t know exactly what their agencies are doing behind the scenes. However, when you involve them they’re able to appreciate the extra energy you’re putting into their projects.
Originally published at jasonswenk.com on February 15, 2017.