The latest research, insights, tools, and resources that make managing a digital shop easier,
NEW SURVEY: The 2024 Digital Services Growth Survey is Live
TL;DR
New Survey Opportunity: 2024 Digital Services Growth Survey Introducing a new mini-series on building valuable agenciesI’m partnering with Productive to do a multi-part series about building great digital agencies and, subsequently, improving valuations. Turns out those two are closely linked. The best part is I didn’t have to do the research this time! At least not all of it. Productive gathered a bunch of agency metrics for almost 800 shops last year. We combined their findings with the research I’ve done over the years to shed some light on the most critical agency components. Each series will focus on the following: Capable leadership This is a broad topic, but it’s hard to overstate its importance. There’s typically some confusion around what capable leadership looks like, how it should be structured, and how to build strong teams. I touched on this in my recent newsletter, but we’ll be diving into it in greater detail. Revgen strategy and systems Next up is all about top-line revgen. A key factor in building a valuable agency is the amount of revenue you generate and how quickly it’s growing. This is directly impacted by the strategy you design and the systems you employ. Here, we’ll run through things like positioning, messaging, channels, pricing methods and levels, funnel health, tactics and their appropriateness. Revenue profile. Beyond your revgen strategy and systems, the makeup of your revenue matters. What’s your recurring vs. project split? How concentrated is your client base? What level of client churn are you experiencing, and what are the main types of clients you work with? All of these will shape your revenue profile and influence the value of your agency. Efficiency and margins How effective is your agency at converting revenue to cash? That’s the big question. The more efficient you are, the higher your valuation. We’ll get into some baseline targets and give you a sense of what’s appropriate. Hint: the old 50% COGS, 20% OpEx, and 30% Net Income ain’t it. We’ll discuss some factors around margins vs. growth and get into the various levers you can pull to improve your efficiency. Innovation and the future of your agency When you have the basics down, what’s the future of your agency look like? What are you building towards that will drive the next 5-7 years of growth? This is where things like new business models, engagement styles, and services are experimented with. We’ll chat through how to think about these and the kinds of resources necessary. Check out the first episode
I’m really looking forward to this series. It’s the first time I’ve done something like this, and it’s great to have a partner like Productive to add some fantastic operational insights. New episodes will be posted in these newsletters and on our LinkedIn page. I’d love to get your feedback on these. Are they helpful? Any other topics you’d like to see covered? Anyone else I should invite to chat? Until next time! -Nick |
Research & Strategy for Digital Agencies
Nicholas Petroski
The latest research, insights, tools, and resources that make managing a digital shop easier,
TL;DR Most revgen strategies exist scattered across a bunch of Google docs with no single source of strategic truth to refer back to. This creates friction, which slows growth and reduces profitability. Creating a doc to house high-level summaries of the components of your revgen strategy allows you to check new ideas (shiny objects) against it effectively. The time your leadership devotes to strategy work will change as your agency grows, with larger shops generally spending more time than...
TL;DR The value of a digital agency is directly related to the quality of its leadership and management. There are three core areas that you need experienced managers to lead: Revgen, Value delivery, and Ops. You can build your management team through acquihires, hiring from bigger agencies (but not too big), and hiring from industry. Don’t be afraid to remove those who don’t fit. As you fill out your management team, level up your agency’s sophistication by setting a solid strategic...
TL;DR There's a massive gap between the top agencies and everyone else. The top agencies tend to share a few common threads: an almost magic ability to close deals, seasoned leadership teams, sophisticated strategies and operations, they operate in the future, and they have a relentless focus on what's truly important. It's definitely possible to become a top agency, but it takes a ton of work and a bit of luck. The good news is there's space to fill, but be careful that you're chasing what...