If your agency is operating at 5-10% margins, you’re just a few weeks from dead.
I talked to three agency owners in the last week, each doing around $1M in revenue, each with margins under 10% (they’re bringing in $100k in profit)
And they AREN’T relentlessly focused on fixing their margins
I’ve seen this play before, and I can tell you something with conviction: two of those agencies won’t be around in a year.
None realize how fragile this is. Just a few clients lost, a slight dip in sales, and they’re underwater
They’ll need to trim staff. Which will destroy morale, and clients & staff will leave
The death spiral will begin
THEY ARE NOT SAFE but also in denial
How do I know this?
Because when I hit $1M in my agency, margins were 40%, and there was a financial hiccup
And if I had been running at 10%, the whole thing would have collapsed
But I didn’t have to fire anybody and made it through
I gave 2 of the 3 agencies the same offer. I’ll give them a strategy to fix margins. If they don’t like the strategy, they pay nothing.
Both had excuses about why now wasn’t the time to fix it.
Here are the excuses I got, so you don’t make them:
“I need to just get more sales”
NO. More sales on a broken model is going to make things worse.
You should count yourself lucky to have a business that hasn’t been blown over by a slight breeze
Sales does NOT fix this.
You’re filling a leaky bucket
“I’m busy fixing X right now” (where X doesn’t have to do with margins)
NO. Every moment you’re not fixing your financial model you are risking the business as a whole.
You might think this is overblown, but it’s not:
Too many people are just assuming tomorrow will look like today
And one day, because they didn’t focus on what mattered the business they poured blood sweat and years into will be worthless.
If you care about your business, your clients, and your team – and your margins are under 20%, this should be your #1 priority. It won’t get better on its own, and more sales won’t fix it.
If you’re not sure how to fix it – get help. Don’t risk the whole business because you don’t know how to fix it. Many of us have fixed it for ourselves and for our clients businesses – get help from someone who’s been there.