Agency Owners! We’re Blowing Up Your Exit Plan. Want to Watch?

You’ve Set Your Revenue and EBITDA Goals, and (In X Years) You’re Going to Walk Away with Millions. Wrong. 

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Britt Carter, President, Pemberton 

My partner Mark and I are consultants to consultants. Still reading? It gets worse. We spend most days telling our clients about all the mistakes they can avoid and how their hopes and dreams are going to come crashing down. Unless they truly understand the ‘Cost of Inaction.’ 

Let’s back up for a moment. Mark and I are old (sorry, Mark) PR agency guys. We’ve worked for the best and the worst out there. And that includes working for ourselves. There is one consistent truth about the people who own agencies: At some point they want to cash out. They may want to sell it to another, bigger agency. Or do an MBO with their 2nd tier leaders, or maybe leave it to Junior. In any case there is a payday coming. The problem is that most agency owners are wrong about a) when they can exit, and b) how much they’ll walk with.

Check out this real example of a typical independent agency. They’ve been in business 4 years and have grown fast:Current revenue                                               $5,000,0005-year revenue goal                                        $12,000,000New revenue needed                                        $7,000,000So far so good. Surely this amazing hot little shop will continue to be a rocket ship. I mean, they survived the pandemic (even grew) and they’ve cut hard costs like real estate to zero. Let’s do some more math:  Average revenue by client                            $100,000/year (fees)Avg. Annual Attrition                                     20 percentNew clients needed to meet goal                 70New clients needed per YEAR                      14New clients needed per MONTH                 1.17 So, to reach the 5-year goal (and sell for a pretty penny, perhaps), our agency needs to win a new $100,000 client every three weeks-ish for the next five years. First, they must find the opportunities,  and not lose any current clients. Oh, and win 100 percent percent of the pitches. Oh and, one more … all those people that are working on those pitches are also leading accounts, so they have to hope these employees will survive the grind (FYI: They won’t and their staff attrition increases; For agency “buyers” the target range for employee retention rate is 90-95 percent). Can they do it? I’ve never known an agency to win new clients at that clip. So, what do we do? We go back to the “unless.”  Our agency above simply can’t grow at the rate they’ve charted unless they focus heavily on revenue expansion with their current clients, and any future clients they happen to win. Revenue expansion comes from building true partnerships with our clients, and subscribing to the philosophy of “Solve, Don’t Sell™.” If we build collaborative partnerships with our clients (rather than simply being vendors) the growth comes more naturally and more sustainably.We have identified these Nine Principles for Organic Growth: 

• Have empathy for the client.
• LISTEN. 
• Understand you and your agency’s resources and capabilities. 
• Manage for GREAT results. 
• Be present.
• Own the Ecosystem
• Build trust and be able to transfer that trust. 
• Have patience.
• Solve, DON’T SELL.   

By growing organically by 10 percent annually, our agency grosses more than $2,000,000. By growing organically by 25 percent, that number becomes more than $7,000,000. Goal achieved!No agency can grow exclusively on their organic efforts, but too often the focus is on net new business, and organic growth (revenue expansion) is a lower priority.  Agency owners, please take a hard look at your revenue expansion efforts. Chances are you’re leaving a lot on the table, which could leave you chained to your laptop far longer than you expect.  You’re welcome!

Here’s a handy chart to show you what we’re talking about: