TL;DR

• Many agencies go through a kind of boom-and-bust cadence where leaders need to periodically jump in and reignite leadgen and sales.
• The boom-bust cycle many agencies endure makes it challenging to forecast, wreaks havoc on morale, and forces shops to hold a bigger cash/credit buffer than they’d otherwise need.
• There are multiple paths to stability, and they can include things like: consistent leadgen, account management expertise, increasing revgen velocity, growing your agency, shifting your pricing method mix, and employing partnerships.
• Keep in mind that some of these stability improvements can come at the cost of growth rates and/or margins.
• I help agency leaders learn what’s missing from their revgen strategies and give them research-backed recommendations to fix it in a two-week sprint. LMK if you’d like to start a conversation about a Digital Agency Revgen Review.
• The Agency Web Dev/Design Survey closes this Friday! This week is your team's last chance to share their insights.

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Booming & Busting

Many agencies go through a kind of boom-and-bust cadence when they’re small (and some even when they're big). It’s easily the least fun roller coaster you can be on. It’s also incredibly unstable.

This cycle happens for a few reasons, but the main one is an underdeveloped revgen strategy/system.

Here’s how it typically unfolds:

1. Sales are coming in somewhat regularly. Most are from referrals. So, the agency doesn’t spend a ton of resources on generating new deals.
2. Something happens. A recession, a global pandemic, a shift in an industry, whatever. This event causes those referrals to dry up.
3. The agency’s pipeline dries up. That lack of referrals continues, and eventually, most of the leads who were at the top of the funnel three months ago have exited the funnel, and the pipeline is dry.
4. Panic. All-hands meetings are had, contingency layoff plans are drawn, and it’s once again “everyone’s job to bring in business.”
5. Agency leaders tap their networks, attend industry events, send cold emails, pivot their positioning, and generally spend a ton of energy generating leads.
6. Most of the time, this works.
7. The pipeline refills, leadership shifts most of their focus to closing deals vs. leadgen, and the agency slowly reverts to normal operations. These new normal operations now come with a moderate degree of additional stress for everyone.
8. If this works for long enough, the agency will hire for some leadgen roles (sales and marketing) to make sure this never happens again.
9. Leaders then turn their attention to other areas of the business.
10. Sales are coming in somewhat regularly. The lead gen roles are doing ok, but most leads are from referrals.
11. …Something happens. Go back to #3.

Unfortunate Effects

The boom-bust cycle many agencies endure makes it challenging to forecast, wreaks havoc on morale, and forces shops to hold a bigger cash/credit buffer than they’d otherwise need. This ties up resources that could be reinvested in growth, innovation (AI anyone?), or team development. It’s essentially an unconsciously chosen conservative financial posture that limits the agency's ability to take risks, pursue opportunities, or grow as effectively as it otherwise could.

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Finding Stability

There are several paths to stability. They mostly boil down to repeatable revgen and some stability-focused strategic decisions. You don’t need to implement everything here, but some of them are intertwined. Keep in mind that some of these stability improvements can come at the cost of growth rates and/or margins. That's why it's key to understand what you're optimizing for before you begin this journey.

Leadgen

Remember, leadgen is the answer to it all! Design and implement an effective, repeatable revgen system that continuously delivers high-quality leads every month. Filling the top of your funnel, or flywheel entry point, gives you options. Ideally, you want at least 2x what you can handle. Use a combination of waitlists, bizdev partnerships, and a robust freelancer bench to manage the overflow.

Managing Accounts

Significant stability is possible through simple account management. Maintaining strong client relationships can create a buffer against the boom-bust cycle. This can be as simple as having regular check-ins, expanding beyond your point of contact, offering value-added services, and ensuring clients see the value in your agency’s work. There’s a ton of churn in who agencies sell into and proactively managing it can help immensely.

Revgen Velocity

This has a few components, but they all revolve around doing more work with a similarly-sized team.

Streamline the sales process

As we saw in How Digital Agencies Grow, sales complexity significantly impacted growth rates. Sales complexity is a simple combination of the sales cycle in months X the number of meetings required to close a sale. Fast agencies had sales complexity scores that were 37% lower than Slow agencies. While we’re optimizing for stable growth, not fast growth, a streamlined sales process allows for more “at-bats.” This leads to more chances to refine and improve the process. It’s also imperative for what comes next, decreasing your average project size.

Decrease average project size

This sounds like sacrilege, but again, we’re shooting for stability, not speed. Adjust your target service scope to something slightly smaller than average. Remember, the goal is to increase the number of projects you do in a year with a similar team size. The easiest way to do this is to offer more narrowly defined scopes.

Productize services

When you productize your services, you’re essentially trading margin for simplicity. Simplicity in both reduced sales friction and in value delivery. Improving those can dramatically mute the boom-bust cycle.

Agency Size

It’s incredibly difficult to both effectively increase the number of leads you bring in and improve your revgen velocity without a small revgen team. Most shops can’t (and shouldn’t) dedicate headcount to this until they’re about 20 FTEs. So, if you’re in the sub-20FTE space, growing above that can give you the resources necessary to staff a small revgen team.

Mixed Pricing Methods

If we were optimizing for fast growth, we would lean towards a more project-heavy split. If our goal is stability rather than growth, we want to invert that. Leaning on retainers more will come with some diminished growth, but it’ll make up for it with more stability. Keep in mind that retainers aren’t foolproof. In mid-2020, they barely delayed budget cuts (before everyone realized, “Oh shoot, we NEED digital!”) rather than stopping them.

Business Development

Partnerships, both ones to send overflow work to and ones to receive leads from, can help significantly. These take effort to nurture and maintain which is why they’re really only effective at larger (maybe 20+ FTE) sized agencies.

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A Common but Avoidable Challenge

The boom-and-bust cycle many agencies experience is a drain on resources and morale. While it’s a common challenge, it’s not inevitable. By building a robust lead generation system, optimizing account management, increasing revenue generation velocity, and making strategic decisions around team size and pricing methods, agencies can shift from an incredibly frustrating boom-bust roller coaster to something a bit more stable. You don’t have to sacrifice all your growth to the altar of stability, but it does come with some tradeoffs.

I help agency leaders learn what’s missing from their revgen strategies and give them research-backed recommendations to fix it in a two-week sprint. LMK if you’d like to start a conversation about a Digital Agency Revgen Review.

Feel free to reach out if you have any questions. I’m always happy to dive deeper into this stuff.

Until next time!

-Nick

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