The Reasons Why Most Agencies Struggle to Reach $1 Million in Revenue
Jon Morris
I turned $10k into one of the largest independent digital agencies. Now I have founded Fiscal Advocate, a tech-enabled finance & strategic planning company for professional service firms to efficiently make more money.
Did you know that less than 5% of the 120,000 agencies in the US make over $1 million in revenue, and only 1% make it over $10 million? It's a daunting statistic, and many agency owners struggle to take their businesses to the next level. But what sets the growth agencies apart? In this article, we'll explore the key decisions that separate the successful agencies from the rest.
The first reason why most companies are not able to reach these milestones is that many agency owners don't actually want to be larger. Success means different things to different people, and some entrepreneurs are content with a smaller operation. In fact, I recently met with a successful entrepreneur who built a large company but now only does advisory work by himself. He loves his job because he has zero direct reports. It's important to remember that there is no one-size-fits-all approach to business ownership, and growth may not be the right choice for every agency.
The second reason some agencies struggle is due to decision making. The choices made by agency owners can make or break a company's growth potential. The most successful agencies know when to make tough decisions, recognizing that 80% of all agency costs are people. While it can be difficult to part ways with valued employees, sometimes it's necessary to take costs out of the business in order to grow.
Another key to success is the ability to evolve as the agency grows. At 20 employees, 100 employees, and 250 employees, the way an agency is managed changes drastically. The same management style that worked at 20 employees won't necessarily work as the agency grows. Founders must be willing to adapt and evolve their management style to meet the needs of a growing team.
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Finally, many agencies struggle because they don't have a standard scorecard to use when making decisions. Decision-making should always be based on specific KPIs, including revenue growth, profit as a percentage of revenue, and cash compared to monthly overhead. Having a clear scorecard in place ensures that decisions are made based on data and not just gut feelings.
The world of agency ownership can be challenging, but understanding the key decisions that set successful agencies apart can help you take your business to the next level. Whether you aspire to reach the elusive million-dollar mark or prefer to keep your agency smaller, remember that different decisions can lead to different outcomes. Making tough choices, evolving management styles, and establishing clear KPIs are all critical to running a successful agency. Keep these principles in mind, and you'll be on your way to building a thriving business.