Why Are So Many Marketing Agencies Scaling Back?
By nearly all accounts, the number of agencies entering the market continues to grow by leaps and bounds. However, the percent of agencies offering a full suite of services appears to be declining. Instead of performing the tactical work (content, design, SEO, etc.) a large number of agencies are shifting towards a strategy-only model. What does this mean? Why is this shift taking place? And what implications will it have for owners, employees and clients of said agencies? Let’s dig a little deeper.
The Struggles of Growing and Maintaining a Full-Service Agency
Every digital marketing agency is different, yet most of them follow a somewhat predictable life-cycle:
They often start out as a solo operation, where a lone founder offers his or her services to a small number of clients. Over time, the agency grows. They roll out new services, hire employees and build a large roster of clients. Everything is going great, until…
The quality of work begins to suffer. The clients begin to churn. The margins get squeezed and cash-flow becomes highly problematic. The agency staff is either burnt out or underutilized. Turnover is high. Morale is low. The agency starts to offer more services, but instead of adding revenue streams, they lose focus on their core strengths. The list of miscues goes on.
At this point, they’ve painted themselves into a corner. They cannot grow without compounding their current problems, and they cannot scale back without drastic changes. They instinctually know that something has to give, however.
If it seems like I know this problem all-too-well, that’s because this was basically my experience in trying to grow a full-service agency. In response to all the problems listed above, we made the decision to pivot and become an on-demand content creation platform. But for others facing similar challenges, the response has been to abandon the role of service provider to focus only on marketing strategy.
My good friend Max Traylor elaborates on why so many agencies go this route:
Companies have always gained competitive advantage from technology, people and process. We see that both marketing technology and services (people) have become a commodity. Thousands of providers enter the marketplace, and as a result the price for these technologies and services are dropping. Marketing agencies make their money from selling labor resources: it’s a race to the bottom. So where is the opportunity when buyers have equal access to technology and cheap labor? Process: it allows companies to realize predictable outcomes from their people and technology.
In other words, they want to create the strategy, not execute it. They want to suggest content topics, not write them. They want to enable their clients to achieve marketing success on their own.
The Implications of Scaling Back
If you own, operate or work at a successful agency that does offer a full suite of services, then keep doing what you’re doing! Realize that you have defied the odds and overcome obstacles that prevent the vast majority of agencies from reaching this status. Give yourself a pat on the back. But if you are one of those agencies feeling the pressures of growing and maintaining your operation—and think scaling back is the way to go—then it would be wise to consider the implications this will have for your business.
What it Means for Agency Owners
- A Change in the Business Model: The 12-month retainers will likely become a thing of the past, as value is delivered less often, perhaps even as a one-time engagement. This means an entirely different value proposition, revenue model, and cost structure.
- A Focus on Partnerships: In order to support clients without the luxury (or burden) of a large, full-time staff, the agency must expand its roster of partners to execute the tactical work. Done right, these types of referral/partner agreements can lead to passive, recurring revenue streams with zero overhead.
- A Change in Clients: The type of companies that demand or expect a full-service agency may no longer be a fit. But on the plus side, going “strategy only” opens up an entirely new market that might have been priced out of your previous business. More on this below.
Of course, agencies owners are not the only ones being affected by this change.
What it Means for Agency Employees
The list of roles in a typical full-service agency is almost endless: project managers, writers, designers, operations, associates and so forth. It’s quite common for such tactical workers to outnumber sales and strategists by a factor of 10:1. With this shift, those numbers will be inversed. In fact, in a strategy-only agency, the need for any full-time creatives is practically eliminated, as those functions are handed off to strategic partners and freelancers.
Instead, future employees will be recruited, hired and trained as agents of growth. Instead of hiring people based on their ability to deliver (e.g. to write or design) they will be hired based on their ability to strategize and sell. Although they might seem similar, they are in fact very different tasks, requiring much different skill-sets.
What it Means for Agency Clients
It’s fairly common for a company to “outgrow” their full-service agency. Over time, as clients become more familiar with the mechanics, tools, and tactics of digital marketing, they eventually decide to take those functions in house. And as their marketing department grows—in both numbers and knowledge—the value of a full-service agency diminishes significantly.
On the flip-side, a strategy-only actually becomes more valuable as the client expands its marketing staff, as it can help ensure that those internal resources are being put to the best use.
Agency success comes in many forms, and the decision to scale back and focus on strategy does not automatically equate to success. In the end, it’s all about building the type of agency & operation that you’re passionate about. I hope this post has helped to give you some perspective on which type of agency is right for you, your employees and clients.
nDash has helped hundreds of marketing agencies – both full-service and strategy — scale the content creation process. If you’re interested in learning more about how we can help you increase your revenue from content (without any overhead) give us a shout or read our latest agency case study.