#3: Agency 101: Types and Fundamentals
An overview of the different agency types and their foundational principles based on my experience engaging with others.
Here is the Newsletter #2 Blueprints of an Agency's Birth if you missed it.
From the outset, the type of your offering, the business model and client profile you choose will shape the trajectory of your agency's growth, operations specifics, margin prospects, scaling strategy, and even the potential for an exit.
Typically, here are a few primary services you can offer to clients:
Consulting
Creating / Building / Developing
Outsourcing
Now, let’s break them down:
1. Consulting
This is where you hold a knowledge advantage over your clients.
As the agency owner, you and your team should have a solid 5-10 year background before offering advice. This implies hiring seasoned, though higher-priced, individuals and managing a significant payroll.
On the brighter side, you can charge a higher fee since clients are ready to pay for experts with a proven history.
They measure success in terms of dodged bullets and are seeking help for some tricky problems they're grappling with.
We once hired a consultant to refine our advertising strategy or just recently to investigate why our sales closing rate dropped from 10% to 5%, and devise corrective measures. We paid a premium for the most experienced and reliable consultant in our network.
Consulting projects usually span between 3 to 12 months or even longer. The payment could be a one-time fee, monthly charges, contract fees or even commissions, depending on the consulting scenario.
The beauty in consulting is that once you're in and have demonstrated your expertise, you could be in for a long-term engagement.
The hurdle, however, is the hard sell. There is no other way to put it.
Whenever my team engages with consulting firms, their value offering is centered around solving complex issues, which can be quantified, but there's no concrete guarantee of service delivery.
The pitch of consultants usually goes something like, “We need to explore, interact, understand, plan, implement, evaluate, adjust, and so on. It's a collaborative effort.” - consultans say.
Hearing this, the initial reaction is usually reluctance because it seems time-consuming, costly, and it’s going to expose some weaknesses. So, the response is often rejection, followed by a flurry of questions like, “Is this a priority right now? Are these consultants the right fit for us?”
The mix of strong retention but tough selling implies that scaling up such operations is quite challenging. The clear bottlenecks are:
clients usually come through referrals;
hiring the right experienced folks is a rare find;
given their high salary expectations, your margins and available cash are tightened.
From my perspective, consulting firms resemble a close-knit group of 10-20 top-notch professionals, a blend of new and old clients, all earning a good income, but that's about the extent of it. For me, it leans more towards a lifestyle business.
2. Creators / Builders / Developers
This one's pretty self-explanatory.
Whether it's producing videos, crafting content, designing or developing websites and apps, it's all about creating something from scratch. I'd estimate a solid 75% of agencies find their home in this category. And why not?
It's a clear-cut deal. I create this for you for $$$, as simple as that.
Belkins operates in this realm too.
We deliver leads to you—no leads before, and voila, now you have them.
Straight and to the point. What's attractive here? It’s easy to track what’s been delivered. I can assure you it'll get done, and typically, I won’t be demanding a lot of your time since I’m the one carrying out the task.
Honestly, just discussing this category gets me energized.
The do-for-me services are top-notch. It encapsulates everything fantastic about the agency business. Quick perks from the top of my mind:
You look for talented individuals to hire, but they don’t have to be industry veterans like in consulting.
You create things out of nothing, yet it's more substantial than just a plan.
You have your unique approach and a range of value-adds. For instance: design an app → develop it → maintain it → enhance it with more features → automate aspects of it → integrate other tools, and the list goes on.
Recall that amusing scene from Pirates of the Caribbean, Part 2, where Jack Sparrow is hunting for a key to open a chest?
When his buddy asks if he found the key, Jack replies, “No, I found something better, the drawing of the key.”
It's somewhat like consultants versus creators. The former have the blueprint, the latter can actually craft the key.
As you can see, I'm quite enthused about this category. But here’s a thought.
Do creators bring in more profits than consultants?
It’s a tough call. Creation usually entails a mix of individuals tangled in a complex project, a slew of resources needed, tech dependencies, and of course, clients keen on multiple revisions, shaping the final product. It’s a challenging operational realm.
But the silver lining? It’s scalable, very scalable.
Your margins are adequate for reinvestment, the sales and retention are more balanced (easier to sell compared to consulting and relatively retainable), and recruiting isn’t a giant hurdle since you don’t need the most experienced folks.
And that’s why, dear subscribers, is likely why a significant 75% of agencies (in my modest opinion) find their footing in this category.
3. Outsourcing
To be frank, outsourcing isn't really my cup of tea, and root of my discomfort boiles down to two core issues: margins and people.
The crux of outsourcing is essentially, “I can find someone to do this job for you, and it’ll cost you less than if you did it in-house.” So if a US-based in-house SDR costs me $5K, outsourcing the role to an agency might bring the cost down to $3K, saving me a nifty $2K. However, for the agency to have its slice of the pie, it needs to find someone who’ll work as hard as the in-house SDR for, say, $1.5K or $2K.
That’s the basic layout. The catch here is this model flourishes on the disparity in labor costs between countries, like the US-Ukraine or UK-India scenarios.
My reluctance towards outsourcing—centered on margins and people—comes from the reality that your markup as an agency is lean, and the race is always on to find individuals willing to work for less, enabling you to scrape together enough margin for growth. This path often leads to swift hiring, short tenure at the company, and a revolving door syndrome.
I've been down the outsourcing lane in Customer Support, Software Development, and SDR Outsourcing, and the narrative remains unchanged:
Individuals usually stay on board for a year or two at most before moving on;
Companies swell in size, and with more people on deck, operational hiccups multiply;
The rush to hire is constant, often ending up with a lot of newbies on the roster;
The creation of IPs and value-adds that could beef up the margins is scant;
Your earnings are bound to the gap between what your client pays and what each employee takes home.
However, it's not all rain clouds. Outsourcing has its silver linings:
Quick scaling with big players is straightforward. Need a hundred SDRs in Ukraine for Microsoft? You got it.
Employee retention is somewhat better as companies tend to invest in training and retaining outsourced talent.
Natural growth within accounts is common. If Microsoft decides to add an extra hundred SDRs, it’s not due to some clever Account Manager finding hidden value; it’s because the initial project hit the mark, calling for an expansion.
Being Ukrainian, outsourcing is a big deal in my neck of the woods, and we have a solid understanding of this domain.
Now, while some might see Belkins as a leader in SDR outsourcing, we’ve never really donned the outsourcing hat. Our clients don’t merely hire SDRs from us; they engage Belkins to secure sales appointments.
The mechanics and people behind the curtain don’t ruffle their feathers as long as the outcomes are delivered as promised. This flexibility allows us to manage our team and margins in a way that resonates with the value we offer.
If we believe a service tagged at $5K is better priced at $10K, we have the elbow room to tweak the price tag without being entangled in a “1 SDR for $5K, now 2 SDRs for $10K” storyline.
I don’t want to blur the lines here. Yes, there’s a certain number of hours earmarked to deliver a service, and sometimes a project calls for a bigger squad which technically translates from 1 SDR to 2 SDRs, but in the broad view, a single SDR could still get it done.
Having discussed the three types of agencies, I want to stress that you don't have to stick to just one model or blend them. Instead, you can evolve from one type to another over time. Here are a few scenarios to consider:
Building and scaling within one type:
Scale a consulting business
Scale a marketing agency that delivers services
Scale an outsourcing company
There are shining examples of agencies in each of these categories, and they're all fantastic ventures to be part of.
Blending types to broaden your offerings:
Operate a marketing agency that also provides consulting and other services
Run an outsourcing company that offers consulting services
Manage a consulting firm that provides any services
Here is another way of building your agencies. I call it - Gradual Evolution:
Outsourcing → Marketing Services → Consulting.
The journey of Belkins sheds light on this gradual evolution.
When we kicked off our venture in Ukraine, we had some perks and some hurdles. The lower operational costs in Ukraine made outsourcing a logical starting point.
However, we aimed higher as we weren’t thrilled about staying in the outsourcing lane due to the reasons mentioned earlier. We also weren't quite ready for marketing service delivery or consulting due to a lack of operational maturity and a solid client base.
As we progressed, the focus shifted from the price tag to the value we deliver, which mirrored in our pricing evolution:
2017 - $1,750 with no setup fee
2018 - $2,750 with no setup fee
2019 - $3,300 with no setup fee
2020 - $3,900 with no setup fee
2021 and onward - $4,100 and $5,500 with a setup fee of $750-$1,200
2024 - we're likely heading towards a price tag of $6,500 with a higher setup fee
From 2017 to 2019, we were heavily into manual work, a.k.a. outsourcing. As our services improved and we gained more independence, we began offering more complex value to our clients.
Fast forward to 2024, we find ourselves guiding clients on what needs to be done and why, crafting Go-To-Market strategies, and enhancing our offerings. Our team has matured from junior to senior levels, marking our transition into marketing services + consulting around 2023 and 2024.
Who knows? Post 2025, we might pivot solely into the consulting space. Only time will reveal the contours of this organic transformation.
Here's a fun thought on the evolution strategy:
Had we dived into consulting from day one, we might have had 10-20 clients, larger accounts, high margins, but a smaller team and perhaps lesser ambitions. The current transformation path, having 200 ongoing clients, propels us towards operating a 500-strong agency of a higher caliber once we transition into consulting.
If you’ve read up to this point and don’t feel overwhelmed, and you haven’t yet connected with me on LinkedIn, please do that today.
Also, don’t forget to share, comment, like, or show any signs of engagement. Your support fuels my passion for sharing these insights.
Thank you for your time, and see you in the next edition!
Extremely valuable! Thank you, please keep going.