Expanding your services might seem exciting at first, but it could end up being a costly mistake. As an agency owner, you need to be very strategic about what you offer – more doesn’t always mean better.

The Story of Jim’s Agency Struggling at $1M

Here’s the story of an agency owner I worked with named Jim. His agency was doing about $1 million in annual revenue – but growth had stalled for two years.

Jim’s agency started out just focusing on SEO services. But then he expanded into content marketing and social media as well. After all of that, Jim was frustrated that his agency was only bringing in $50,000 in profit each year.

Recently, Jim had gotten some inquiries from potential clients interested in video production and podcasting services. He thought if he added those services too, he could “soak up additional revenue” from clients.

5 Reasons Why Expanding Services Can Backfire

I explained to Jim that adding more services could easily cost him millions in lost opportunities. Here are the 5 key reasons why expanding services often backfires for agencies:

1. Dilution of Expertise and Market Position

Being a specialist is a unique selling point for an agency. Broadening your services undermines that perceived expertise. It’s like the difference between a general practice doctor vs a brain surgeon – the specialist commands higher fees.

By staying lean and focused, you can make MORE money while taking on FEWER clients.

2. Lower Margins

More services means you need to hire more specialists and managers. If you resort to freelancers, how can you ensure quality? All of this eats into profits.

3. Quality Control Issues

With each additional service, there are more chances for something to go wrong. Since Jim had no experience with video or podcasts, this risked delivering a bad customer experience.

4. Higher Management Complexity

Scoping projects becomes exponentially harder with more service options. Managing capacity and workflows across multiple disciplines is a nightmare.

5. Competing Against Larger Agencies

By expanding your services, you end up competing directly with much larger agencies who already have the systems and staff to deliver those additional services efficiently.

6. Harder to Get Acquired

With a wider range of services, buyers just see you as a portfolio of clients. But as a focused specialist, you’re an attractive acquisition target – they want your expertise!

Focusing on Most Profitable Services

After I explained all of this, Jim understood the pitfalls of service expansion. He was already feeling overwhelmed by his agency’s complexity.

Instead of adding new services, we did the opposite – narrowed the focus to just the most profitable offerings.

It turned out content marketing was not very profitable for Jim’s agency. But SEO and social media had great margins.

Jim stopped taking on new clients for content marketing and directed all sales and marketing efforts toward SEO and social media. He also increased pricing to match this more premium positioning.

The Results: Higher Close Rates & 26% Profit Increase

By focusing on fewer, strategic services, Jim’s prospects saw him as more of an expert. His sales close rates increased substantially, with larger average deal sizes.

Within just a few months, Jim’s agency profits were up 26%.

The key question is – are you going to continue adding complexity? Or get focused, strategic, and make your agency more profitable?

Categories: Agencies