Season 21 | Ep 238 | Why Most Agencies Misdiagnose Their Growth Problem

Speaker A: Before we get started today, a quick word, and this one's only relevant to a handful of you. I'm working on something new, an AI product I'm launching with just five agencies. Not 10, not six.

Speaker B: Five.

Speaker A: These are creative agencies that are doing a million or more in profit a year. They are in growth mode and are seriously planning an exit in the next five years. If that's you, I want to talk about where I see the market is heading and what I'm building. There's a hard limit to five, so go to creativeagencysuccess.com AI okay, now let's jump into today's episode.

Speaker B: Hey, agency owners. It's time for a new episode of the Agency Blueprint, the number one podcast for agency owners looking to build systems to simplify and gain reliable profit growth while also reducing stress and getting their personal life back. I'm your host, Robert Patton, international bestselling author, agency scale partner, and founder of Creative Agency Success. If you enjoy this episode, do me a favor and hit that subscribe button to make sure that you never miss an episode and help keep the show at the top of the charts so it can be found by more agency owners like you. And now for the show.

Speaker A: So most agencies think that they have a growth problem. They look at their pipeline, they look at the revenue, and the immediate reaction that they tend to have is, we need more leads. So they end up pushing harder, more outreach, more content, more ads, and all in an effort to be able to drive more demand. And sometimes it even works. And for a moment, they close more deals, revenue starts to move, things feel like they're finally starting to click and then kind of everything just falls apart. Delivery ends up getting strained, the team ends up getting overwhelmed. Clients start to feel more cracks, quality dips, stress goes up, and before long, growth slows or just completely stops entirely, or worse, your revenue and growth retracts. And now, you know, you're right back where you started thinking that you need more leads again. And that actually wasn't really the core problem. Most agencies are not struggling with a lack of opportunity. They're struggling because they haven't built the infrastructure to support the growth as it actually shows up. So in this episode, I want to break down why agencies are pretty consistently misdiagnosing their growth problem and how it starts to create a cycle that keeps you stuck and what you can actually do to look out for and able to create more of a sustainable, consistent growth in your agency. So let's start with the top of the funnel component, right so you have your full, let's go all the way down from lead generation sales process, onboarding, delivery, retention, expansion. And the reality is, is that M, what most people are ultimately doing is they're focusing entirely at the beginning this, the very, very top of that funnel. It's lead generation sales. They're not looking at what happens so much after that timeline. Right. As much as it even impacts you quite negatively and you feel quite negative when you end up losing a. You don't actually respond appropriately to that. And so we need to look around systems for each one of these different components in the business that allows for us to have greater impact. And so let's talk about the core problem truly. And the reality of it is that there's not enough infrastructure across each one of those different components. And I'm just going to rename them again just to make sure that you're thinking about them fully across each piece. You've got lead generation, you've got your sales system, you have onboarding of your clients delivery, the method by which you're retaining them, and then the expansion system that you have to be able to upsell clients into that next stage of growth, that they have their next journey in their own business evolution. And there's a point in which they have a natural attrition where they should move on to somewhere else or to someone else that focuses on that next stage of growth for them. But what happens a lot is that they end up leaving before that that ends up happening. And whether that's actually, uh, it shouldn't have happened quite yet. And so we want to talk about the reality of where we currently are and we want to understand the true capacity that your team has based on your pricing model. What exactly and how much are we billing of our team? How much utilization do we expect? What does that actually look like for us to be able to generate profitability? How many hours is it actually taking for us to execute on the work so we have the meaningful understanding of how much work can we handle and handle well. That allows for our clients to be happy with the work that we are producing. And then we end up having issues around clarity handoffs. So, and there's different stages of this happening. You have from sales to delivery, or sales to onboarding, delivery to retention to account management. You have the reporting. And where I even see just one of the biggest gaps that is incredibly frustrating for me is seeing that you're delivering incredible results, but the client doesn't, isn't even aware of the fact that you're doing this. And so you're not going from, from delivery to the retention component, which is the education side of it for the client, so that they understand what have they been able to buy with the money that they've invested with you? What exactly has it produced for them? And so then we then ultimately, in a lot of instances, do not have consistency in delivery. So each project feels different. Each client experiences your agency differently, and it creates for this tumultuousness for clients. So some of them are incredibly happy and they become brand advocates for your agency. They're referring people all the time, and, and then others don't. And so you don't really have a meaningful retention strategy. So you have clients just coming and going. So as you're trying to funnel them in the front door, they're leaving out of the back door just as fast or sometimes even faster, which becomes. It's just like this constant cyclical place that you're in as an agency owner. And so let's look at what we need to look at across each one of these different pieces. That allows for us to understand what do we need to double down on? How do we actually look at which pieces? And here's the things that I want you to be paying really close attention to is that. So what exactly is our conversion rate in sales? What exactly is the number of leads that we're generating? How many people are we onboarding? What exactly is our retention? How much are we upselling? So you want to be looking at these categories across the business. And so when you see this, like, massive spike, really to lead generation, is that you may close more sales, you may not. But the reality is, is that your team ends up absorbing a lot of the shock, or you do that ends up creating for you to have to be sucked back in to save. Save the day, save the relationship, save the. Because the quality did drop. And so now you're wondering, well, I can't ever get out of the work, so I'm, um, going to be always in this place. But actually, we created this reality for ourselves and then becomes a problem. Because client churn is that every single time you exit, uh, an account, then you end up in a place where the client is no longer there. Because we've also created for the reality of our team that every single time one of these things happen, that we are going to come in and save the day. And when we're not in the room, the client is then frustrated because they feel like there's a value loss and they end up getting accustomed to you being there and. And they're gone. And then the other piece is that the team is burning out because they consistently feel like they're not doing a good job. It's not actually working m incredibly well that they're working really hard to always feel like they're failing. And so they burn out themselves because there's not a good balance to how they're feeling. And so it creates this where it does feel like the agency's falling apart, but it is predominantly because we didn't look at what exactly is the infrastructure that we need and where truly is the problem in our entire cycle of business, not just how much revenue I'm bringing in, which obviously is an important component of business. Right. It's a foundational component to having a successful business, is you do have to have the revenue to afford the expenses that you have. But the problem is that I see so often is that we end up in this place where we don't. We end up in this, like, dangerous cycle, really, where we're consistently pushing for more leads. We end up winning more work. The delivery strain happens, quality ends up dropping. This team stress increases, your stress increases, the client ends up feeling it, so they end up being unhappy. Growth slows or reverses and then repeats. And it's just this constant place of turmoil. And this is why in this industry, why growth often feels so hard. And it's not because growth has to be hard. It's because the system that has been built around it wasn't there to support it. And you are breaking in one specific component. And I find it very useful to understand where that break is ultimately happening, because once you actually understand where the break is, the solve to it becomes a whole lot more simple. Let me interrupt myself for a second, because what I'm seeing in the market right now is too important to bury. The agencies that are going to win in the next exit cycle aren't the ones with the most clients or even the most revenue. They're the ones with the cleanest structure, the strongest margins, and a business that runs without the founder in the middle of everything. Buyers are paying for that and they're paying less for everything else. That's why I'm launching a new AI product and I'm doing it with only five agencies to start. This is highly curated. It's for owners doing a million or more in profit a year, actively growing, and who genuinely intend to sell in the next five years. If you're not planning on an exit, this isn't for you. And that's Fine. But if you are, I want to have a real conversation about what I'm seeing in the market today, where the value is moving and how this product fits in to getting you there. Five spots, that's it. Go to creativeagency.com AI to start a conversation. Now back to the show. So let's, let's hit again all the way down the pipeline. And what exactly how would we know that we're having a problem? So lead generation, do we have enough leads to be able to sell through if we were able to close at a reasonable rate? What is our current sales closure rate? So if we have cold leads in, that 25ish percent would be a, uh, give or take 5% in a good threshold for you to be in. If the warm leads are referral oriented, which is great, but you should be in the 70, maybe 80%. And then looking at onboarding is what exactly is the attrition point that you have with your clients? Are you retainer? Are you project based? And if you are a retainer, at what point do they leave? Are they leaving three months in, six months in? What's going on? It allows for you to understand the satisfaction score in your onboarding system and maybe even having the client have some kind of survey that allows for them to understand, allows for you to understand how they're feeling throughout that different stage. And then looking at where the attrition point is, what's actually going on in delivery, how is the client feeling? How are we checking in with them? What exactly is it that we are doing? Are they actually really happy? Are they starting to overly control what it is that you're doing in delivery because they're getting anxious and that we haven't been communicating very well. So these pieces in both onboarding and delivery create for this tension in the client relationship. And then measuring what exactly is your logo retention? So how many clients are you bringing in the front door that six or 12 months later that you actually do continue to have, what exactly is that percentage? And allowing yourself to understand reasonably, right. If you're very project heavy, you're going to be ideally being in that 60% ish range. But if you're a retainer, you really should be in that 80 to 85% retention on an annual basis. And exactly where are we falling short? When does it actually happen? Is it the attrition typically 18 months in, 24 months in, 3 months in, 6 months in what is actually going on that's causing that retention? What can we do to improve it? And allows for you based on the time that it happens, it allows for us to better understand and then from an expansion perspective, which clients, how many clients, what percentage of them are if you're project oriented or buying another project within a 90 day period after the last project came to an end. And for that, those of you that are retainer, how many of them are actually upselling into a larger package or increasing the amount of work that they're doing with you? So understanding each one of those different components and the reality is, is that as you start on this journey, your numbers are going to be so what is your baseline and then continuing to make improvements and which number has the greatest leverage point? If I change this, I make a 3% improvement here. How much money does that actually mean to me? Is it actually lead generation? Is it actually I need to close more of those leads? Is it that I need to keep more of those clients? Is it that I need to grow them more? And which piece of it is going to be the greatest leverage point for you to allow for you to be able to sustain that growth? And so understanding that the reality is, the symptom often is we need more leads because revenue's down. But the actual cause can be so many different pieces. The low close rate, poor onboarding, delivery inefficiencies, delivery, uh, ineffectiveness in communication, lack of upsell cross sell, and a weak positioning when actually having conversations with clients. Like, one of the biggest things that just really bothers me in a big way is especially those that have like just really truly exquisite creative that spend a lot of time thinking through the nuance for a client. But then when it comes to actually delivering what they do is they bring up the creative on a, on a screen and then ask the client what they think. And that's just not the way to be going about it because it actually creates a lot of tension for the client. Especially for those that are not used to giving critique on art. They're not understanding exactly how they should be going about it and never actually really understanding the actual constraint and problem here. And you're creating for a negative experience for the client because of course they're anxious, they're not used to doing it, and they're now needing to become an expert in creative to allow for them to achieve the outcome. And the reality is, is that you did a ton of work that allowed for you to get to this place in the work, but you're not communicating it to the client. So they don't really understand. And so here's the practical way That I want you to be thinking about it. If instead of asking how do we get more leads, I want you to ask where exactly within that structure of the step by step funnel of the agency? Where are we actually losing momentum and what is the primary constraint right now? What exactly is it that I want to do? So if we were to go down them, here's the types of questions that you're going to want to ask. Leads, Are they qualified sales? Are they converting delivery? Are we consistent and profitable retention? Are clients staying and growing the relationship that they currently have right now, allowing for us to really understand the right way to approach growth and treating your agency like a montage of different systems and a series of these systems that do not actually, they should actually truly connect to each other and not a series of disconnected functions that ultimately live in these silos. And I want you to understand and identify what that constraint is. What is the one thing that we need to be solving for right now that is going to increase that momentum and then fix that before you start to grow again? Because the reality is that if you have a lead generation mechanism, that if you were to double down in your lead generation today to be able to allow for you to have a greater amount of pipeline, are you actually going to be able to service that revenue or is it just going to break? Or is it going to break you in order to service it? Which actually doesn't sound like fun either way. But if you were able to set up a system around how delivery is being done, how it is that you're onboarding, then you can actually funnel them in, have great experiences for clients, while also being able to maintain that work that you're ultimately like. It's, it's not easy work to be able to double down this amount of growth. It really isn't. It does take a lot of time, it takes a lot of effort, it takes a lot out of you as the agency owner. But I want you to make sure that that work, that labor, that effort that you're putting in actually allows for you to be able to have the output that you're looking for. So if delivery is unsustainable, fix your delivery before you continue down that growth and looking to scale your leads. If your close rate is low, we need to look at how exactly we're communicating, allowing for clients to understand the utility of what it is that we do and how it's going to have impact. And if our retention is weak, how are we communicating with clients in key pivotal stages of the actual work that we are producing them, Understanding the strategy and the way that we're going about it, the utility of how it is that we are actually providing value to them, and then the way by which they actually measure the impact that it's having and making sure that you understand the reality is that growth doesn't really tend to break agencies. And those plateaus are often related. Or the cyclical, up and down constant place that so many live in is that we go through these periods of, uh, unprepared growth and it ends up breaking us. And it's just incredibly frustrating for you as a business owner to feel like you're constantly in this place. And so if you don't understand where your constraint is and every decision makes you feel like you're reacting, I want to offer for you to have a bit of a conversation so we can talk about your specific position and what is your number one constraint that you should be doing so that you can focus on the right point in your business that allows for you to be able to grow more sustainably. And agencies that are able to grow more consistently are not just doing more. They're aligning their systems in a connected ecosystem of systems and processes that allow for each one of them to support each other so that it actually allows for them to get to the next cycle. And I'm not saying that there's not pivotal moments that you have to revitalize the systems as you get to these different stages of growth that of course that does happen and it will continue to happen. But the reality is that at each different stage of growth, there's a constraint that you need to be unlocking. And what is that constraint? And in certain instances today maybe delivery, and then tomorrow it may be leads, and then six months from now maybe delivery again. And that's perfectly fine. That's just getting to a place that allows for you to understand how it is that you need to be working through these different systems that allow for you to be able to grow over time. Looking forward to seeing you guys being able to grow from understanding your constraint and being able to solve for that problem.

Speaker B: Hey everyone, thank you so much for listening in today. With all of the shifts in the industry, it is easy to feel overwhelmed or unsure of your next move. So I'm not here to try to sell you anything. I just want to give back and

Speaker A: guide you through the uncertainty.

Speaker B: Whether you're navigating new trends or just need some clarity, we're here to listen and offer advice. Head to creativeagencysuccess.com chat to book a free 15 minute chat with an agency mentor who can provide you with a fresh perspective. Let's figure out the best steps for your agency's growth together.