What Do We Do Next? Your Rapid-Response Guide to Your Agency’s Next Client Contract Negotiation
New business feels like a game of “hurry up and wait” for agencies. Until you’ve landed the client or the account—when it’s all hurry, no wait. Your team is excited to start work, and your accountant is eager to see revenue. All as soon as possible. What nobody wants? A drawn-out contract negotiation that slows down progress. So, in the spirit of closing agreements promptly, without sacrificing your agency’s leverage in the process, here are some suggested “rapid responses” to a few of the common deal points most agencies encounter frequently in new business. The Challenge: Payment Terms That Aren’t Reasonable for Your Agency Agencies are generally protective of their payment terms in client contracts. The challenge usually arises when you are onboarding a new client whose payment policies don’t align with the agency’s needs. One part of the problem is lengthy pay terms. The other, less-noticed part of the problem is contingencies that can draw a payment term out even longer than it looks on its face—terms like invoice approval rights, charge dispute provisions, or unreasonable pass-through cost reimbursement rules. Your Agency’s Rapid Response: Long payment terms are a business problem, not necessarily a legal issue. Know your agency’s benchmarks and its capacity to financially tolerate payment terms that don’t accommodate your overhead cycles and profitability targets. Beyond that, consider some of the following responses: Ensure that the payment term clock begins to run on the date of invoicing. Not on the date of “approval” of the invoice. Require that any objections or errors in agency billing be raised promptly by the client, or waived if not prompt. Bill in advance for all third-party expenses, such as media or production. If you bill in arrears for agency services, consider “split billing” for expenses vs. agency services—one invoice for expenses, one for services, on different remittance schedules. The Challenge: Standard “Work for Hire” IP Language and Restricted Portfolio Rights Most client-provided services contracts will address IP rights in agency work with a broad brush—the agency creates, the client owns. Many brands now also default to prohibiting the agency from displaying samples of the work it creates for them. Sometimes the restriction covers even mentioning the brand as a client. Imagine the impact this has on your ability to attract new clients in the future. These IP defaults and work display restrictions have real-world consequences for your agency’s revenues and future business development efforts. And there may be some work that the agency doesn’t intend to transfer to the client (like your proprietary knowledge, software, methodologies, etc.), or cannot transfer to the client (like third-party licensed assets or anything generated by AI). Your Agency’s Rapid Response: Address this deal point with these recommended responses: Include terms that the rights to work your agency agrees the client will own do not transfer until the agency is paid in full. Carve out rights transfers in any work that is proprietary to the agency (this gets licensed, not transferred), or work that is third-party created (like stock assets). Reserve a license for the agency to display portions of the work that are not confidential for its promotional and marketing purposes—including the right to share the client’s brand name. If you’re unable to secure this term, negotiate instead for a “disclose/display with permission” term to share this information in your agency’s marketing. This is a midpoint on the issue that at least keeps the door open to the possibilities for promotional use cases later. The Challenge: Exclusivity Demands by The Brand One outcome of agency specialization and niching is that clients have increased their expectations about restricting your agency’s ability to serve other similar businesses or product categories. Brands want to guard against their agencies working for perceived competitors. But your agency needs flexibility to pursue these other opportunities, or an economic incentive to agree to exclusivity. Your Agency’s Rapid Response: If you’ve made the decision that your agency will accept some exclusivity requests in order to serve the client, consider these response options: Request, and expect, minimum spend requirements and/or premium pricing from the client. Choose your language as carefully as you like; however, the agency deserves a premium for foregoing other business opportunities to serve the client. Suggest limitation of the exclusion to a narrowly defined list of competitors. Suggest limitation of the exclusion to as short a list as possible of product or service categories. Request that the exclusivity end as soon as the agency’s services to the client do, not for any “tail” period after they conclude. The Challenge: AI Compliance and Responsibility Expectations Increasingly, agency-client agreements are addressing the responsibility of agencies when using AI. This is particularly true in the case of the agency using GAI to create deliverables, but is also an increasingly recurrent challenge when it comes to data privacy compliance and confidentiality. This is a balancing act during your contract negotiations. AI’s presence in the work stream is dynamic, and the law around the legal issues it can create is still unsettled in many areas. Meanwhile, the agency wants to display proactivity in AI adoption, and the client has risk management concerns and likely has more conservative organization policies around AI use. Your Agency’s Rapid Response: The client will expect your agency to share some of the risk when using AI to create and deliver work. Your role in the negotiation process is to balance the risk as fairly as possible, given the legal unknowns. Here are the starting points for responding: Require the client to acknowledge the agency’s use of AI in writing. Include the acknowledgment in the contract. Include approval and legal review of all deliverables by the client as a defined client responsibility. Require the client to disclose its AI use policies to the agency before work is performed. Expect the agency to have to assume some part of the responsibility if any of the work it creates (using generative AI, especially) infringes someone’s intellectual property or data privacy
The Generalist Trap: Why Saying Yes to Everyone is Sinking Your Agency
Let me guess: You started your agency by saying yes to everyone. The local lawyer. The fitness coach. That friend-of-a-friend with a “cool app idea.” It felt like momentum. Like you were building something. But here’s the thing: That “something” was a trap. Let’s call it what it is: the Generalist Trap. You know the symptoms: Context-switching chaos. Employees pleading with you not to sell another deal. A team stretched thin, relearning new industries every week. You—the founder—becoming the bottleneck, the only one who “gets” every client. Work that’s good, not great. And clients who leave because they don’t see the difference between you and the next agency on Google. Sound familiar? You’re not alone. Most agency founders fall into this trap early on. And it makes sense: generalists survive. They hustle. They scrape by. But they don’t scale. The Generalist Trap is a Cycle—And It Feeds Itself Here’s what most agency owners miss: each “yes” sets off a chain reaction that circles right back to more “yeses.” It’s not just inefficient—it’s a loop. And if you don’t break it, it’ll run your agency into the ground. Let’s walk through the cycle: 1. It starts with “Yes to Everyone.” That random inbound lead? You take it. That one-off project in a new niche? Why not. But this isn’t building a business—it’s building a time bomb. 2. Next comes Context Switching. Now you’re building a funnel for a SaaS startup on Monday, running local SEO for a dentist on Tuesday, and launching a paid media campaign for a nonprofit on Wednesday. No momentum. No rhythm. Just whiplash. 3. Which leads to Operational Inefficiencies. No repeatable systems. No SOPs. No leverage. Your team spends more time learning than executing. Your margins vanish. 4. Then the Founder Becomes the Bottleneck. You know every client’s backstory because you sold them. So you become QA, strategist, firefighter. Growth stalls because nothing scales without you. 5. You Become a Commodity. Generic agencies get generic results. You’re not known for solving a specific problem, so you blend into the crowd—and clients start shopping on price. 6. Client Churn Kicks In. Without deep expertise, your results are average. Clients leave. Retainers die. And your team starts wondering if this is really worth it. 7. You Chase Revenue. Churn hurts. Cashflow gets tight. So you do what you’ve always done: you say yes to anyone. And the whole thing starts again. And that’s the trap. A hamster wheel disguised as hustle. Here’s the visual to drive it home: You Can’t Grow What You Can’t Systemize This isn’t just a list of problems—it’s a feedback loop. The longer you stay in it, the more it costs you: in time, in energy, in sanity. And the only way out is to specialize in a vertical market. Vertical specialization gives you: Clear positioning Tighter processes A more empowered team Higher margins Clients who stick around And a business that doesn’t rely on you doing everything Want Out of the Cycle? The first step to breaking free from the Generalist Trap is getting clear on where you are today—and what’s holding you back. That’s why I built a quick, powerful assessment to help agency founders like you spot the hidden gaps in your positioning, marketing, and sales systems. In just a few minutes, you’ll get a personalized snapshot of where you stand—and your best next moves to scale with less chaos and more momentum. Take the free Agency Growth Scalability Assessment here → https://geni.us/eY3xB Let’s stop the cycle—and start building the agency you actually want.
It’s Not About You: Winning New Business in a Crowded Agency World
(Exclusive excerpts prior to January 20 Publication, Preorder here) There are 17,000 agencies in the U.S. Or maybe 37,000. It depends on the source. Let’s put it this way: there are a lot of agencies! And winning new business is tough. With so many options available, prospects often feel overwhelmed and unsure of where to turn. Meanwhile, agencies are scrambling to differentiate themselves and emerge as the obvious choice. After all, every agency needs new business to thrive. But in a sea of thousands of firms offering help, how do you get your agency front and center of that consideration? Amid all of this competition, agencies often face three challenges that weaken their success rate: Agencies aren’t ready to be found. Agencies don’t know how to be found. Agencies don’t effectively pitch once they are found. Agencies that know how to address each of these challenges land more new business. Let’s talk about these challenges. Challenge 1: Be Ready to Be Found We’ve frequently heard agencies say, “If we can just get in the room, we’ll prove we’re the best agency for the job.” So, how do you get in the room? You can’t showcase your strength if you’re not even invited to the party. Preparing for that opportunity means investing in your agency first. Several critical readiness steps are essential for growth — steps you overlook at your own risk. The first step in this journey is to define your agency’s positioning, making it crystal clear what kind of agency you are and why you stand out. This involves two key elements: understanding your agency’s identity (your frame of reference) and articulating your distinctiveness – what makes your shop unique and appealing from a prospect’s perspective. The second step is to make sure your website is prospect-friendly, so when a prospect does discover you, they immediately see you as a potential partner. A prospect-friendly website allows visitors to find the information they’re looking for quickly and effortlessly. Of course, all of this requires time and resources — and many agencies operate on razor-thin margins with lean teams. Challenge 2: Know How to Be Found You might be the perfect agency for a prospect in need, but that opportunity vanishes if they can’t find you. That’s why it’s crucial to have a clear understanding of the marketer’s customer journey for agency services. Marketers don’t think about agencies until they must. They are focused on their business. And since they don’t think about agencies very often, most marketers also have very low unaided awareness of specific agencies. Even with agencies they may have heard of, their knowledge is limited. When we interview clients during an agency search process, we typically ask which agencies they would like us to consider. They can rarely name more than one or two agencies. Often, they will say things like “that Nike agency” or “the agency that did the Apple work.” Prospects often have little awareness of where to even begin searching for the right agency. Most clients don’t pore over Ad Age, Adweek, or Campaign from cover to cover. They might subscribe, but they don’t engage with these publications with the same frequency or depth as agency professionals do. If they reach out to their personal networks, they’ll find little help. Clients simply don’t know where to begin, so they behave much like any B2B buyer these days. They do much of their research online, and most of it before an agency even knows that the client or prospect is looking for help. What happens behind the scenes when a marketer needs to find a new agency? Typically, a middle manager is assigned the task of researching agencies and compiling a shortlist of potential candidates. Often, they start with a simple web search. A Google search for “advertising agencies” can return millions of results. Or they might turn to an AI tool to research the industry. In a market flooded with thousands of agencies, there’s a good chance your agency won’t even surface in the results of a search or AI prompt. Clearly, the odds are against any one agency. But they don’t have to be – there are steps agencies can take that will enhance their odds of being found when the right prospect is looking. The key is to develop and execute a marketing plan that elevates your agency’s brand. By making strategic and focused choices, you can balance limited resources with the most impactful marketing efforts, whether that’s submitting award applications, creating compelling content, engaging in PR, participating in trade shows, or securing speaking engagements. Marketing your agency is a critical foundation for your agency’s success! Challenge 3: Pitch Well Once You’re Found “Pitching” can take on many forms and meanings. For our purposes, we’re not focused simply on competitive opportunities. Rather, we are referring to any conversation you have as a representative of your agency that can yield new business. A conversation over coffee, an introduction at a conference, a call about something else that leads to a question about your agency. These all have the potential to lead to new business, so they can certainly be “pitches.” We’ve observed thousands of formal and informal pitches, and the unfortunate truth is that most of them end up looking the same — to us and to our clients. These pitches often fail to excite or inspire the client or prospect. Someone wins simply because a decision has to be made — but it’s frequently not the right agency, and sometimes not even the best one. And most of the agencies that make it to a presentation probably can do the work. They have the capability; that’s how they got in the room. But it’s a shame to see a good agency — the agency that has the strongest skillset to meet the prospect’s specific needs — lose the prospect by not being properly prepared for or delivering a customer-centric pitch. And, unfortunately, there’s little opportunity for an agency to learn
Tips for Brands + Agencies: How to Create the Right Client-Agency Partnership
Brands have been relying on agencies since the 1800s. The first advertising agencies brokered deals for advertising space in newspapers. We’ve come a long way since then. Both advertising and client-agency relationship complexities have greatly increased over the last 200 years. As complexities have increased, so has the need to thoroughly assess if the partnership is the right fit for both the client and the agency. Fundamental Alignment: The client-agency partnership needs to fundamentally align across the scope, service requirements, global support needs, experience and expertise, budgets, etc. These elements are the foundation for building a long-term and successful partnership. This way, you’re not trying to force a square peg into a round hole. Tip for Brands: Conduct a thorough internal discovery process so that you have a deep understanding of your needs, agency requirements, budgets and goals. Share this information openly and honestly with your prospective agencies. See how successful CMOs are defining agency partnerships here. Tip for Agencies: Be honest about your agency’s capabilities and if this client and scope is right for you. Make sure that all of the brand’s requirements and that the budget is appropriate for your agency. Ask the Right Agencies the Right Questions: The agency review process should be about asking the right questions to shape the right conversations so that both the brand and the agency can determine if the partnership is the right fit. Written RFP questions should be focused on the specific scope and not a laundry list of questions. Pitch meetings should be more of a workshop-styled meeting focused on solving a challenge together and laying the foundation for building trust and chemistry. This way, all written communication, pitch meetings and conversations are focused on the specific relationship. Tip for Brands: Take the time to thoroughly vet each agency, asking only questions that matter to you. Skip general and philosophical questions by replacing them with specific questions about how the agency can support your brand’s needs. Resist the temptation to be dazzled by a single charismatic agency leader and assess fit across the entire team. Tip for Agencies: Answer each question as if you are writing each word for the brand. Use their language, their name, their audience information, etc. Allow your team to shine and connect directly with your prospective clients. Focus on building the relationship, rather than just winning the business. Check out additional tips here. Financial Viability: The client-agency relationship should be financially viable for both sides. Neither side should be taken advantage of, price gouged or squeezed. Pricing should be transparent and fair for all. Agencies are a “for profit” business and deserve to be paid for their work. That said, all fees should be transparent. The contract should clearly outline in normal and non-legal language what is and isn’t included in the partnership. Tips for Brands: Be clear and transparent about what level of support is required so that the contract matches your needs. When reviewing the agency contract, eliminate any ambiguous language or language that would be easily misinterpreted. Insist that all fees are clearly and transparently documented. Check out tips for negotiating with agencies here. Tips for Agencies: Promote contract transparency. Help your client by clearly defining scoped elements, including expectations around communication and reporting. Provide clear insight into all fees and invoicing. Before entering into a new partnership, make sure that there is fundamental scope alignment, that you’re thoroughly vetting your potential partner and that the relationship is financially viable for both sides. From this foundation, wonderful relationships can be built and prosper. And, if you ever want help building successful client-agency relationships, Tenx4 is here to help.
The Connection Between Your New Biz Plan…And Being Acquired
Alright, I’ve probably already confused you with the title. The idea that your marketing plan is essential to your firm’s success surely isn’t new, but you’ve been thinking about that in more expected categories: New business gives you more options to say no to prospective clients who aren’t a great fit, but still have enough opportunity to fill the roster. Cycling your clients, regularly, on your terms, helps you keep prices higher. Service offering design is quite important, and since the easiest way to lose money is to have an entire division that a client doesn’t want to use, just sitting there, and so new business lets you favor clients that want to use most of your services, most of the time. Best of all, you constant opportunity allows you to reinvent your firm, which is a process best done one client at a time. So think of new business as leverage: you don’t have to “invest in the sale” because you have other options. You can experiment. You can lead the client, and when you run across a client who just wants you to do stuff, at their direction, you can move on and find someone who really values your work. Their Big Questions You know all this, but what does it have to do with an acquisition? When someone buys your firm, whether that’s a somewhat accidental or organic process, or whether you’ve hired a firm to conduct a sell-side search for you, they will inevitably have some quick questions. These are big questions, too, and each one represents a potential “stop sign” that pauses the discussions. Or if your answer isn’t that fatal to the process, it might just slow things down and make sure that the buyer protects themselves from any downside from that perceived defect in your firm. What They’ll Ask They’ll ask questions like this: What’s your growth curve been like? What’s your EBITDA percentage? How much of your revenue is recurring vs. project-based? Do you have any client concentration risks from one or more clients who represent too much of your billings? Why are you selling? How long do you want to stay around? What role would be willing to fill after the acquisition? Will you accept any of the sale price in rollover equity? How do you get opportunity in the top of your sales funnel? That last question is the one that I’m addressing in this article. Note, first, that the potential buyer is not asking about how you close sales. The buyer will safely assume that you are pretty good at sales. They’ll assume some base hits here and there, and the occasional home run, but they want to know how you get “at bats” so that you can swing at something. Why They Care The riskiest two things in an acquisition are these two: How long will the clients stay. How will you replace them when they leave. You’d think they’d care about your people, and while they do, it’s not at the top of the list. They want to know if this transaction will pay them back or solve some other goal over the long term. That’s why earnouts were first used widely in the early 2000s, and then very commonly during the 2008 crisis, and they’ve been a part of the acquisition world ever since: let’s share the risk with the seller so that a portion of the purchase price is subject to hitting certain performance targets over time. But even more than they, the buyer might very well want to pour some gasoline on that new business fire and speed up your growth. If your growth comes from flattering but unpredictable referrals, that’s not going to cut it. When they ask the question about how you dump opportunity into the top of the funnel, they want you to pull up a spreadsheet and then talk them through it: “Here’s a brief overview of our marketing plan. We typically start X number of conversations of month, keeping careful track in our CRM. These conversations originate from these three sources, usually. We typically close one-third of those, and on average it takes us 7 weeks from initial contact to signed contract. The average client relationship lasts Y months and yields Z in revenue and profit over that time period. At any given time, we have 19 active client relationships. Do you want me to go any deeper into any of those numbers?” Finally There are many reasons to have a strong marketing plan, but don’t forget that being acquired one day could go a lot better than it otherwise would if you have a good plan in place.
AI demands a new model of differentiation
To command a premium as AI democratises agency capabilities, CEOs must rethink their traditional approach to standing out. Agencies have long settled for superficial distinctiveness over deep differentiation. Generic offers of ‘great work for ambitious brands’ are everywhere. As are variations on ‘inserting brands into culture’ or giving clients ‘an unfair share of attention’. Without a compelling reason for clients to choose you, you’re just another option in an ever deeper sea of sameness. No wonder traditional repositioning exercises so frequently fail to create lasting change in commercial performance. Now AI is upping the ante on differentiation. The pace at which capabilities are being democratised is remarkable. And once everyone has access to similar tools, it will get even harder for your agency to stand out – let alone command a premium. That’s why agencies need a new model of differentiation – one rooted in clarity, conviction and relevance. We call this creating a ‘Market of One’. What is a Market of One? Being in a Market of One means becoming the obvious choice for certain clients when they’re facing a certain challenge. This could be literally anything – narrow or broad – from supercharging iconic brands to helping start-ups secure funding. You become the obvious choice when what you offer is unique. As your competitors increasingly offer the same capabilities, applying your experience, culture and beliefs can make your agency tangibly different for the clients that matter. You become the leader in a category defined by your own expertise. This gives you a clear and lasting competitive advantage. Differentiation is business strategy Creating your Market of One runs much deeper than external packaging. This isn’t about fancy copywriting. Instead, it’s about single-minded focus – total clarity of business strategy alongside relentless execution to make it real. You need deep conviction about who you are and the specific client challenges that you’re best placed to solve. If you’ve spent years striving for ‘uniqueness’, perhaps all this sounds idealistic. But creating a Market of One is actually based on well-established thinking – albeit thinking that agencies rarely apply. In his 1980 book, Competitive Strategy, revered author and Harvard Business School professor Michael Porter described how companies can differentiate themselves on what their customers value, or by focusing on selected market segments. Creating a Market of One combines these ideas and then extends them – defining ‘segment’ in broader, more behavioural terms than traditional verticals. Another valuable reference point is the ‘resource-based view’ (RBV) of company attributes, as popularised by Jay Barney’s 1991 article, Firm Resources and Sustained Competitive Advantage. This is about utilising the capabilities, competencies and assets most likely to deliver a competitive edge, using the so-called ‘VRIN’ model: Valuable: Solving specific problems Rare: Bringing unique perspectives and experience Inimitable: Building on authentic beliefs Non-substitutable: Delivering outcomes that others can’t. By combining focused differentiation, a discrete target audience and the application of your unique qualities, you can create your Market of One. Tangible competitive advantage Ultimately, you’re cultivating ownability – like Coca-Cola owns ‘happiness’ or Kit-Kat owns the idea of ‘having a break’. But remember this isn’t consumer branding. It’s not about fancy straplines and repetition powered by vast media budgets. Agency differentiation demands more than distinctiveness and consistency. Cutting through the noise requires a clear, tangible offer that your ideal clients can quickly understand – and value. So whether you want to accelerate from good to great, or turn around poor performance, developing your Market of One is an act of commercial transformation – and in the age of AI, an act of survival.
The Four Most Important Financial Metrics to Monitor Your Agency’s Health
Running a successful marketing or advertising agency requires more than just creative excellence—it demands a solid grasp of financial metrics that ensure the agency’s long-term profitability and sustainability. At Agency Management Institute (AMI), we’ve spent decades helping agency owners master the business side of their operations. Our goal is to keep the critical KPIs very simple so that a 5-10 minute glance at your monthly numbers should give you either reassurance that your agency is financially healthy or give you insights as to where you are off-track and how to dig in deeper to diagnose the problem. Below are four critical financial metrics we believe that every agency should monitor. Adjusted Gross Income (AGI) Why AGI Matters: Adjusted Gross Income (AGI) is one of the most crucial metrics for understanding an agency’s true financial health. Unlike gross revenue, which includes all client billings, AGI represents the revenue left after subtracting client-related expenses like media buys, printing, or freelance contractors. This is the money available to cover operations, salaries, overhead, and profit. Gross revenue is a “vanity metric” because it doesn’t reflect what an agency actually keeps to run its business. AGI provides a more accurate picture of operational efficiency and profitability. Ideal Ratios for AGI Allocation: AMI advises that agencies follow the “55:25:20” rule for spending AGI: 55% on salaries and benefits: This includes all W2 employee costs and loaded benefits like health insurance. 25% on overhead: Rent, utilities, legal fees, software subscriptions, and other operational costs fall into this category. 20% for profit: This is the amount that should be left over for reinvestment, bonuses, or owner dividends. If payroll exceeds 60% of AGI or overhead goes beyond 25%, it signals inefficiencies that need immediate attention. Unfortunately, the average agency in the US runs at less than 10% profit until they begin to measure performance against this simple metric each month. AGI per Full-Time Employee (AGI:FTE Ratio) Why This Metric Matters: The AGI:FTE ratio measures how much revenue each full-time employee generates for the agency. It’s a key indicator of productivity and profitability at the individual level. A low ratio suggests inefficiencies in staffing or underpricing services. Ideal Benchmark: Agencies should shoot for at least $175,000 in AGI per full-time employee. Agencies with an AGI:FTE ratio below $130,000 are often in the “danger zone,” where profitability is at risk. Conversely, agencies with higher ratios tend to have leaner operations and better margins. This is the most violated agency metric we see. Most agencies are over-staffed, which negatively impacts all of the other key ratios. How to Improve AGI:FTE: Evaluate team utilization rates to ensure employees are working on billable projects. Increase pricing for services if necessary to align with market rates. Avoid overstaffing by hiring only when AGI growth supports it. Client Concentration Why Client Mix Matters: Client concentration measures how much of your total AGI comes from your largest clients. While landing a high-paying client can be beneficial in the short term, over-reliance on one or two clients can jeopardize your agency’s stability if those clients leave. Ideal Range: Ideally, agencies should keep any single client’s contribution to AGI below 25%. A concentration above 30% is considered risky because losing that client could significantly impact cash flow and operations. It also leads to the client running your agency because you become beholden to that income. How to Diversify Revenue Streams: Actively pursue new business opportunities that align with your ideal client profile. Focus on upselling and cross-selling services to existing clients without becoming overly dependent on any single account. Regularly review your client portfolio to ensure a balanced mix of revenue sources. Profitability Metrics: EBITDA and Delivery Margin Why Profitability Metrics Matter: Profitability is the ultimate measure of an agency’s financial health. Two key metrics stand out: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): Agencies should aim for an EBITDA margin of at least 20%. This ensures there’s enough profit left after covering all operating costs. Delivery Margin: This measures the percentage of revenue left after direct costs like salaries and project expenses. Agencies should target a delivery margin above 50%, with anything closer to 60% being ideal. Common Profitability Pitfalls: Overpaying employees due to competitive hiring markets. Underpricing services relative to their true value. Inefficient project management leading to scope creep or write-offs. How to Improve Profitability: Regularly review pricing models and adjust rates as needed. Implement tighter controls on project budgets to minimize write-offs. Monitor overhead expenses closely to avoid unnecessary spending. Tracking these four financial metrics—Adjusted Gross Income (AGI), AGI per Full-Time Employee (FTE), client concentration, and profitability ratios—provides a comprehensive view of your agency’s financial health. By adhering to benchmarks like the “55:25:20” rule for AGI allocation and maintaining a balanced client portfolio, agency owners can ensure sustainable growth while mitigating risks. Running an agency isn’t just about delivering creative work; it’s about running a disciplined business operation. Monitoring these metrics monthly or quarterly can help you identify red flags early and make informed decisions that drive long-term success.
Your Four Competitive Advantages
This article is not about your positioning, which should be truly unique to you versus other firms in your category. I’ve covered that in great detail in this look at the Waterfall of Differentiation, where you try to put competitive distance between your firm and the other firms in the same category. The simple test for whether you’ve landed on something that will actually work is easily summed up in this question: “If I withheld my services from this potential client, how long would it take them to find what they deem to be a suitable substitute for my services?” And “they” is italicized because they get to define that, not you. The answer, if they are fair about it, should lead to them to a half dozen other firms from which they can choose. Inhouse = Specialized But this article isn’t about that. It’s more about how nearly every independent firm in the comms and marketing and advertising and digital and public relations space, as an entire group, is distinct from an inhouse department (sometimes known as client-side departments). In other words, why do they hire you instead of building out their own capacity? Some do, too, and in fact 80% of companies have some sort of internal capability. Some people will say that an internal department saves money, but that’s largely nonsense. I’ve authored those studies myself and there’s no cost savings to be had. No, the best reason to build a department is the same specialization question: we are creating a mix of professionals that know our space exceedingly well. All the other things that are also true of that department (like accessibility) usually work against them and not for them. So back to the question: why do companies—even the ones with internal departments—use firms like yours? There are four eternal reasons, and it’s good to keep these in your back pocket when you are pitching your services. Some of these you can talk about directly and some you should never mention, just because, even if they are absolutely true. Your Four Unique Advantages The really healthy independent firms like yours compete on a combination of these four things. You do many things that overlap with what your client is capable of, if they have an in-house department, but they do not have any of these four things, usually: People working for them that would never be caught dead working on the client side. These are your secret weapon. The misfits and rogues who are unquestionably brilliant (and difficult to manage sometimes, too). The only way your client has access to them is via a firm like yours or in a contractor/freelance relationship. External objectivity. They aren’t so close to the situation that they can’t see things. And when you see things, you have the courage to call them out, kindly. You do have that courage, right? Nimbleness without tons of layers and procedures. Yes, you do need process at your firm, but never let it start looking like your client’s process. Start a project the very same day, put the whole team into a “quick react” mode when something happens, etc. If you charge enough, this shouldn’t be burdensome. Pattern matching from seeing many situations like theirs, assuming here that your positioning takes advantage of this and that you aren’t a generalist firm. The client will have multiple people who have been at one or two other places, but your collective history has seen 40 or 75 of these. Other than your specialization, which should lead conversations, always keep these four in mind, too. If you’re talking about other stuff, it should be secondary to these four.
The Pipeline Paradox: Why Agencies Struggle — and How AI Could Save Them
For agency leaders, there’s a persistent, maddening reality we don’t talk about enough: new business is hard. Really hard. Despite all our creativity, strategic brains, smart teams, and deep client experience, the pipeline still feels more like a trickle than a torrent. And yet — here’s the kicker — most agency clients are looking for more help, not less. Our latest national research reveals a striking disconnect: while many agency leaders fear clients will cut us out or slash budgets because of AI, clients are actually looking for our guidance. They don’t want to replace us — they want us to help them navigate AI safely and strategically. Agencies See Uncertainty Ahead, a 2025 study released this summer at the Build a Better Agency Conference in Denver, was conducted by Agency Core, a new non-profit research organization founded by myself and Brian Gerstner of White Label IQ, providing free research with and for agency leaders. It offers a deep dive into the attitudes and challenges of marketing agencies, and reveals the tremendous challenge for most agencies of maintaining a robust pipeline of right-fit clients. Leading Through the AI Revolution: The New Competitive Edge for Agencies is the latest in the 12-year Agency Edge research series we conduct with Drew McLellan at Agency Management Institute, and explores the opinions of agency clients around their agencies’ use of AI Fielded just months apart, these two studies reveal a paradox most agencies haven’t yet recognized. While many are cautiously adopting AI, worried about how clients will react, they’re also struggling to stand out and win new business. Meanwhile, those same clients are overwhelmed by AI and actively looking for strategic agency partners they can trust — not just to “use AI,” but to help them leverage it wisely, protect their brand, and gain a competitive edge. Let’s unpack what’s going on — and see how savvy agencies can flip their fortunes from frustrating to flourishing. Agencies in the Trenches: The Core Struggle The Agency Core 2025 study gives us a data-backed look into the internal landscape of small to mid-sized agencies. Spoiler: the new business challenge is real — and it’s not just a temporary dry spell. The research includes an attitudinal segmentation that reveals five different “mindsets” of agency leaders. Two say their agencies are doing far better than those of their colleagues: Thought Leaders are agencies with a clearly defined niche, strong positioning, and a commitment to thought leadership. They’re not just surviving — they’re thriving. They’re not worried about the pipeline because they’ve built a brand that attracts the right kind of attention from the right kind of prospects, and those prospects come to them based on their expert reputation. These agencies struggle less with challenges, including new business, than any others in the survey. Loyalty Builders have robust, long-term relationships with their clients. They prioritize maintaining an expert reputation while deeply understanding what makes clients leave and ensuring their client communication and reporting underscores their value. The other three segments revealed have critical issues that make new business efforts (and agency survival) much more difficult. Staffing Strugglers wrestle with talent shortages that make it difficult to even pursue new business opportunities. They can’t afford the employees they really need, and are losing current members to agencies that pay more. They’re in a tailspin of less-experienced, overworked employees and price-focused clients. Change Seekers feel pressure to evolve in the face of a changing marketplace and new technologies, but are handicapped by their focus on tactical work over strategy, which they believe clients won’t pay for. 89% of these respondents strongly agree that finding new clients is harder than ever. Cobblers’ Kids know the importance of agency marketing, but never seem to get around to doing it. Their clients love them and stay loyal, but few prospects are aware of their strong track record so they’re limited to word of mouth from their existing client base. Without more exposure to ideal prospects, their pool of new sales is severely limited. While the other respondents don’t match the Change Seekers’ extreme struggles with new business, about one-third strongly agree that finding new clients is harder than ever, and 61% cite maintaining a robust prospect pipeline as a severe challenge. This makes pipeline the #1 challenge for agency leaders by a significant margin. For many agency leaders I know, this issue has led to a disheartening loss of optimism about their agencies’ prospects in the coming years. Again, the research confirms what many of us are feeling. In our 2022 Agency Core survey, 73% of agency leaders felt strongly optimistic about opportunities for their agency. In 2025, only 47% do — a shocking drop. The Disconnect Between Struggle and Opportunity This is where the Agency Edge 2025 study flips the script. It gives us the client perspective — and reveals a giant opportunity for agencies willing to claim it. Despite the fears of many agency leaders, most clients aren’t looking to cut agencies out. They’re not trying to replace us with AI or squeeze our margins. In fact, they want better ideas, better strategies, and more guidance from agencies they trust who are experts in AI. Across the board, clients say they value agencies that lead — that offer clarity, expertise, and partnership. Not just deliverables. Not just billable hours. Leadership. And when it comes to AI — the big, scary disruptor everyone’s whispering about — most clients don’t want to go it alone. They’re not looking to become prompt engineers. They’re worried about the potential for the use of AI to create issues for their brand or fall behind competitors using it well. They’re looking for partners who can help them understand what’s possible, what’s risky, and how to use AI to make smart marketing decisions. AI: The Trust Accelerator Agencies Didn’t See Coming Let’s talk about the three client mindsets that emerged in the AI-focused Agency Edge study: AI Embracers: These clients
It’s Time to Drive Organic Agency Growth
The current economic outlook can seem frightening. P&G Chief Financial Officer Andre Schulten recently noted, “Consumers on both ends of the spectrum—low income and higher income—are reacting to the current volatility they are experiencing. We see consumption trends consistently decelerating.” P&G Chief Executive Jon Moeller added, “This new behavior is driven by worries about the future, whether over immigration policies, inflation, or how tariffs will filter down to consumers.” With consumers on edge and political uncertainty, agencies are facing a number of headwinds, including less pitch volume. Agencies everywhere are finding business development to be a greater and greater challenge. Agencies everywhere are finding business development to be a greater and greater challenge. Unfortunately, the business development strategies of many of these agencies are not up to the current challenge. Unattainable growth rates are often needed to achieve agency growth objectives The investment required and the low odds of winning pitches is debilitating Too much reliance is placed on a small group of senior “sellers” Difficulty “standing out” in pitches leads to expensive, wasteful theatrics Cold calling experiences are generally unsuccessful and demotivating If you experience some of these challenges, your team is not alone! Most agencies face these challenges – hence, an opportunity exists to reinvent the industry’s business development strategies. Many agencies approach business development with a focus on these three areas: Reviews: By far the biggest area of focus. Reviews get most of the business development resources – in people, focus and money. This is a tough focus, however, in a period of reduced review activity. Prospecting: Agencies do some prospecting, but this invariably is mostly relationship oriented. Few major accounts are landed today because an enterprising agency executive cold called an account they wanted and managed to work their way through to win the account. What happens more often is that agency executives maintain relationships and follow client executives from one company to another, hoping to land some business when the client executive has the chance to dole it out. This is a fine strategy, but not a predictable one. Current clients: Current satisfied clients are often an excellent source of organic growth – but rarely is there a devoted strategy to building business with the current client roster. Worse yet, there are very few well-conceived and effective processes in most agencies aimed at even maintaining the current clientele. For example, I don’t know of very many agencies that work with their major clients to establish disciplined, third-party-driven annual 360-degree review processes—yet our work shows that an annual third-party-managed 360-degree process can virtually eliminate performance-related major account losses. There is a better way – and if you start today, you will have a more promising future. Agencies everywhere need to turn their business development strategies upside down. Instead of the classic priority order of: Reviews Prospecting & cold calling Hoping for organic growth and praying you don’t lose accounts Instead, turn it around – and re-invent your approach to each strategy: Avoid account losses & drive organic current client growth Learn to sell – and then go get the accounts that you really want Use your newly gained sales skills to improve your odds in reviews A few words about each of these strategies: Avoid account losses & drive organic current client growth: This is where it all starts. Your senior team probably can’t do this today because their lives are overwhelmed with the black hole of major pitches – most of which end in failure. And because these senior agency execs are so distracted, they can’t love the agency’s current clients the way the clients want to be loved. The result is lost business – putting that much more urgency on the new business pitches. A vicious cycle ensues – a race to less profitability and a lousy quality of life. This is no way to run an agency. Your senior team must spend much more time ensuring existing clients are satisfied. Just one of the many ways they can do that is by championing the third-party 360 process. It is an early warning system to identify possible problems. And, in working through the process, the two parties are more committed to each other, understand each other better, and organic growth opportunities almost magically appear. This, along with training and quality performance, can be one of the best investments you can make in achieving your annual growth plans. In addition to a 360, another key to consistently growing your existing clients is to create an endless stream of discussions about their business – which can often lead to opportunities for your agency to help even more. Job #1, of course, is to simply do great work. We won’t discuss that in this article because it is so painfully obvious. If you aren’t delivering on your existing SOW with distinction, you don’t deserve additional work.Assuming you are delivering great work, here are four ideas that can add value and lead to additional opportunities for your agency: 1. Updated Strategy: A refreshed look at your client’s customer-facing strategies can be a powerful way to create important conversations about the client’s business and how your agency can help. Where possible, and certainly for important clients, we recommend that agencies make such a review a routine part of their relationship management efforts. This typically involves taking a fresh look at the client’s brand, competitors, and target audience. Look to derive important new insights where possible and recommend strategic evolutions as appropriate. 2. Provide a Competitive Review: Your clients need to understand their competitors’ strategies and tactics in order to stay current with their own marketing activities. Providing an updated competitive review to clients is a fine way to highlight your commitment to their business and to showcase your focus on their success. Has the positioning of key competitors changed? What is the focus of their current campaign work? What search terms are they buying? Has their media mix changed? What are they doing to navigate the current economic
