Jason Swenk Breaks Down How To Evaluate Your Marketing Agency To Prepare For An Exit
Jason Swenk breaks down the metrics to calculate how much your agency is actually worth and preparing on getting it ready for an exit.
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Here are some questions that the video had covered:
00:13 What is it that you actually do and how do you generate revenue for your company?
1:00 How many team members are on your team and what’s the current breakdown of that?
03:13 How many clients were you servicing?
06:32 How big your audience size is?
07:57 How do you actually make money?
09:02 What’s the pricing model look like?
12:02 What’s the biggest needle mover that you had?
16:10 What’s the number one most successful automation is that you have in your company?
18:35 What CRM are you using to track all the leads?
18:44 What does your sales process look like?
23:00 What metrics to look before buying an agency?
28:44 What’s a good gross profit margin for an agency?
31:09 Is it easier to outsource or is it easier to just build the team for clients fulfillments?
34:21 What is the favorite software tool that you use to run your business day to day?
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What’s going on, everybody. We have Jason Swenk from Colorado. Jason what is it that you actually do and how do you generate revenue for your
Company? Yeah. Well, thanks for having me on Chad. So what I do is I show people the right systems that they need to do in their agency to create the freedom to do basically what they want in their agency, whether it be, grow it up and sell it, or you know, keep it as an incubator agency.
That’s awesome. And obviously I’m assuming that the avatar is the profiles that you’re going after is purely agencies, but is there, are you targeting people or are you helping people maybe in a better way where it might be startup agencies or is this guys already coming and doing six, seven figures and just want to take it to the next level? Where’s your sweet spot of where you can really?
Yeah. They’re all, they already have a team or they’re transitioning to a team all the way up to about 40 million in revenue is our sweet spot. Okay,
Awesome. And how many team members are on your team and what’s the current breakdown?
Yeah, so we have a rather small team of three. There’s three of us from coming from a hundred people at our agencies.
Yeah. So for those, for those of you guys who have not heard of Jason swig, maybe we can do like a, a 30 minute rundown of your background. I know you, you, you, you had a big 30 seconds, right? 30 seconds agency scaled it. So that, all right onto the next question now, but let’s, let’s do like a, just a quick for those, for people who have never heard of you and maybe want to also follow you at the same time, just give a quick background of what it is that you do.
That was an accidental agency owner. So in 99, someone asked me to design a website because I made a website making fun of one of my friends that looked like Justin Timberlake and Chet. And then,uso I, I didn’t quickly grow it over the past. You know, maybe two, three years then we grew to amount a million and then we just kept scaling from there to over an eight figure agency. And then we eventually sold it, h2 years later. And then, mou know, we worked with brands from legal zoom, Hitachi at and T so really big brands doing amazing things, a lot of fun things had amazing team. And then, hwo years after I sold, I was bored and my old competitors are like, Hey, how’d you do what you did? And I was like, well, let me put it in a videos and podcasts. And we’ve been doing it for six years where, u,’re just act as a resource we wish we had. That’s all
Awesome. And I’m assuming that what’s the reason cause people, you know, viewers, listeners, they might be wondering if you have this big agency, why sell, what was the reason why you decided to pull the trigger and get out? Honestly, we, I did it ever since I was 22 and then the money was right. I like literally like everything’s for sale and just, just been doing it for so long. Right. I can relate, we’ve had our retail agencies, social agencies since 2009. So it’s been quite a journey and and then we switched over to dash clicks. Full-Time pretty much about two years ago. And I think,uit’s just, once you do something for so long, you need, you need, you need something different in your life,uto keep the motivation going. Uso I can definitely relate to that. Uand just curious, when you did sell your company, how many clients were you servicing right before the sell? How many guys? 30, 30 clients. But you’re talking about obviously big name brands. So what was, what was the average person paying you
About half a million.
Wow. And that’s obviously annual contracts or is it that’s? It’s annual. Okay, great. What were you doing? Half a million dollars with most agencies that we have on the show, or you’re talking about guys that are doing like Facebook ads, campaigns, you know, two, three K a month, right. What do you do for a half? A million dollars? Uwe were doing a lot of things,
User experience, a lot of strategy, a lot of custom development as well. So like we were one of the ones that help build legal zoo. Uwe did, we did everything for Lotus cars in the U S so we did their website, their marketing, and you know, all of the digital. So,ua lot of different things, but here’s the deal. It was like, we didn’t start there. Like everything big starts off small. So we started out with $500 websites and then it just grew from there.
Who is it? Who is your, that, that first client were like, Holy . I think we just, we just closed one of our biggest clients ever. Right. Who was that first person that was like, wow, we just closed these guys. These aren’t our clients. Yeah. It was watered down,
Come, which was crystal Springs or Bentley Springs. They have a bunch of they’re all Springs. Right. They were a billion dollar water companies and we closed them. And then we leveraged that in order to, I think, get Aflac and a couple other ones. And then, you know, it just kept stemming, but here’s the deal like those big companies sound really good. And a lot of you guys want to work with them. They’re really a pain in the .
Oh yeah. I’m sure they’d probably have to go through approval processes and a bunch of people collaboratively working with you. How
Big was that water.com deal when you got it? I mean, it started off small, right? Like I always tell people, you don’t go in and you don’t see the woman of your, or your significant other of your dreams and go up to them and ask them to marry you right off the bat. You have to build trust and you build that relationship. So I literally think, I think it started off at like a $500 image, like for one of their trucks. And then it just kept getting bigger and bigger and bigger and bigger. And, and the funny thing is then I actually married my client. Wow.
You married? So is this from water.com? Yes. Wow. Well, that’s how you close the deal, ladies and gentlemen, you’ve heard it first. There you go. That’s how he got his first client. He had to marry her first big Lawson. That’s awesome. And I know let’s, let’s back that a little bit. So you have your podcast, what’s your podcast call also? So the viewers can
Know smart agency masterclass.
Awesome. So you got your podcast and I’m assuming you also have a YouTube channel probably. And anything else that you’re doing to get content out?
I mean, follow us on Instagram. We’re starting to put together a lot on Instagram trying to figure that out, right? Like everything’s always changing, but we have the podcast. We have the podcast dialed in. Okay.
If you could take all of your audience put together, let’s say your podcast, listeners, your YouTube subs, your email lists, many chat bot, subscribers, whatever it is. If you can take all those people and put it into one bucket. If Jason tomorrow wants to wake up in the morning and send out a message to the world, how many people you think you’re going to hit with that? How big is your audience? Wow.
I mean, the podcast gets 40,000 downloads per episode per month. So know that’s by far our biggest.
And how long have you been doing the podcast for this is now a personal curiosity. 66 years. Right. So consistency I’m obviously assuming is what gets those numbers up. Exactly. It’s amazing. This is a podcast alone is, I mean, that’s, that’s an amazing asset to have. You can get your message across to four. That’s like filling up a football stadium and then a crazy cast for what, like 15 minutes, maybe 15,
20 minutes, 20, 30 minutes. Yeah. 30 minutes and twice a week. So yeah, Mondays and Wednesdays. So yeah, that, that is kind of crazy when you actually think about that. But and the cool stat is like 95% of them listened to the whole way through. Wow.
So the, the engagement rate is crazy. Cause I mean, if you, let me tell you something just from coming, obviously we’re in the world of creating content too. Right. having somebody listen the, almost a full way through your content, whether it’s a video, whether it’s reading your blog, listening to your podcasts, that obviously means that people are super engaged and not only what that means to be like swing back. Right. That means that your list also is super hot too, because they’re listening to what you have to say and they’re super interested in it. Which is incredible, but so how do you monetize all this? You have your podcasts, you’ve got all this content, but how do you actually make money? Do you have a coaching program courses? Talk to me about that a little bit.
Yeah. I mean, so there’s, everybody works a little bit different, right? So there are certain people that want to work on their own and do it themselves. So I have a program that I created a number of different years ago that we update all the time called agency playbook. And it’s a system framework that goes through everything that we’ve done through building the agency and what we’ve learned over the years, even what we’re doing, applying into the new agency that we own that’s quickly grown. So they can get that spelled the agency playbook, if you go to the other website and everything’s there. And then we have an exclusive a mastermind called the digital agency elite. And this is for the top agencies you know, that want to get together on an ongoing basis and have a lot of fun. And, and then the funnest thing I do is called the digital agency experience where I invite those mastermind members out to my house in Colorado, where we play for three days, climbing mountains and riding steam engines. And we do work, but a lot of fun too,
That sounds fun. What’s like the, what’s the PR cause that, to me sounds like a value ladder. You know, you got your small offer, middle offer and then the higher end offer what’s the pricing model look like if you can strip everything back, like, is it 1,005 thousand, 50,000? Like, what is, what’s the cost for all those three packages? So, so people can learn as they’re trying to structure their course.
Yeah. I mean the playbook is 1600 a one time and then they have lifetime access and always get updates. Uthe mastermind
That’s no touch, right. That’s just jump into, you know, an education platform and you’re going through the videos.
Right? Yeah. And then they get access to, you know, their community and all that of the thousands of people that have gone through it. So they tap on what are you using for that Facebook group? Yeah. Facebook and Slack and starting to kind of move over to, to Slack and then how’s that work.
Okay. I just want to jump in real quick, cause we have Slack in our, excuse me, in our middle tier program. And I S we actually moved away from the Facebook group for the private, more of like the private style coaching. And it just becomes more personal that way. I don’t know why, but I feel we have our Facebook group. There’s like about 5,000 agencies in there. But it’s a lot of, you know, just generic questions, people coming in and out, and then you have like this like small, cool community of like, let’s say a hundred or so people in this private program that we have, it almost feels like this like little space where you can just share ideas and be super creative. What do you get? What what’s that feeling that you get versus like Facebook group and Slack? Is there, is there you feel the same way?
Well, for the mastermind, we transitioned from the fate, from Facebook to Slack and the engagement’s gone way up. Right. because you gotta think the people that are getting into you know, the mastermind there at least a million and above. Right. And so they’re a little bit busier and they don’t want the distractions of Facebook. So, you know, Slack’s been better for us on that, but you know, it just, it really depends, right. Like on playbook. That’s why we have, you know, both, both groups were like, whichever one you want, go for it. Yep.
Three levels. So, so 1600 bucks coming in for the playbook. And what’s the middle tier offer. How much is that one?
A thousand dollars. Every four weeks. Okay, cool.
And is that recurring just never ending or is that okay? So just as long as you’re in the program thousand bucks, a thousand bucks a month, pretty much, you know, we don’t, we don’t want
Anybody in for a long time. But once people get in, like people don’t go as long as they show up there. And we’re more, the more the ones of like, if they don’t show up, we ask them to leave because they’re taking up someone’s spots. So
Is there like a certain level of people that you leave in there, like a hundred people and that’s it, no more people are allowed in the doors. Cool. 75 people. That’s awesome. And and then your higher end package. Now, if I want to come on, hang out at your house, what does that mean?
Yeah. 15 to 25,000, depending on if we’re just meeting for the day or if we’re going to work together for a couple months afterwards. Awesome.
And a lot of entrepreneurs coming on here, listening to the podcast, what would be, you know, what’s the biggest needle mover that you had, that, that one thing, whether it was in your agency or whether it was in this coaching program that you have, what’s the one thing that was like that aha light bulb moment where like, this is, this is the thing that’s going to generate me either the most revenue or take my company to the next level.
I mean, it’s the easiest thing you could do is raise your pricing. I mean, by far, and here’s the telltale sign. If you’re not charging enough, if you’re too busy, if you constantly you’d be like, I’m just too busy to do that. Like, well, you’re not charging with them. Well, or right.
Well, what would you say for an agency owner? I want to, I want to peel the onion back on that just a little bit. What would you say for an agency owner? Who’s, let’s say starting not starting out, but they’ve got a couple of clients right now. Obviously they’re not going after like zoom and all these large companies, right. Regular, you know, regular agency. What would you say, like a sweet spot is to charge a client? What would, what should people create their offers based around like that pricing model? Because I see a lot of people that are like, I’m gonna charge $500 a month and they’re going to get X, Y, and Z. I’m going to charge three grand a month. Like where where’s that sweet spot for, for somebody that’s coming in to actually start at,
Well, I think that there’s two parts to this, right? So you have to think about what’s the, what’s the floor that you need to really kind of set. And that’s based on the value that your client’s actually going to get. Right. So just coming up with a number out of your and, you know, that’s, it’s just going to be a number, right. But if you can figure out like, what’s the, like every six months. So depending on when you’re listening to this podcasts are prices, hopefully go up. They’ve always gone up. And the reason being is, is every six months, we look at the value that our clients and members are actually getting. We look at it and then we average it out and then we divide it by 10, right. Because we want to, every dollar someone gives us, we want them to get 10 X back.
Okay. So that’s coming up with a floor now here’s the second part of the thing is that’s just being like, okay, I want them to get 10 X. And then also looking at that number of going, does this get me to my goal of allowing me to do what I need to do? Right. Because a lot of people are like, well, I’m going to come up with a pricing based on my expenses now. And you may not have any employees, but then you have to hire three employees in your, like a couple of years, go by. You’re like, I used to make a lot more money a long time ago, but now I’m not right. And then you just go back. And so you need to kind of match those up. And then the last part of it is really figuring out the client’s expectations.
So we always had variable pricing depending on who we’re chatting with. I learned this the hard way when I went into a client or prospect just absolutely nailed it, nailed the meeting. And they were like, Jason, how much for a website? And we were like 20 grand and they kind of laugh. We lost the deal, go back to the office. People are like, who did you chat with? I was like some company Brookshires and something Berkshire, Hathaway. I was like, yeah. And they’re like, you idiot. And I lost the, I asked them and they go, we were expecting 300,000. So that’s why we’d have variable pricing of going, if your expectation is up here, you better come up here. Because if I sell you a hundred dollars Ferrari, you’re going to be like, is it a matchbox car? Is it stolen? Like, what am I missing? Right.
Love that, answer, love that answer. And that, that makes, that makes sense. I think what most people struggle with is, is what to charge and the value to give especially new agencies coming into the space. They get lost sometimes with all these different services. You know, you’re going to be trying to sell SEO, Facebook ads, Google ads, website, listing, social media posts, and content. I mean, the list goes on, right? You can get super creative as an agency owner. What I like to tell most agencies is to just dial it in and be really good at a couple of services because you can definitely create a list of a hundred services to offer, but dial in the ones that you’re really, really good at and focus on creating a package and an offer around that. And obviously mixing. And now what you’re saying is make sure you’re speaking to the right person and crafting the offer to the right person.
Right. and and, and that makes, that makes perfect sense. What now we’re, we’re in 2020 now. Automations is getting crazy. Everybody wants to automate everything in their life. I mean, if they get automate their life, they’d probably automate their life, which is pretty sad now. Right. but what would you think, or what do you know that the number one most successful automation is that you have within your company, and that can be anything from like a Zapier or a funnel that just works on autopilot. What’s the sexiest, coolest automation you have within your agency. I used to be,umy messenger bot
And I’ll tell you why it used to be is because everybody started copying it and then it’s not new anymore. Right. So what we used to do is we got rid of our contact page at the time, because I was tired of everybody trying to spam me. And I was like, I’m gonna make a messenger bot. So this was like three years ago and we automated it, but we didn’t want to trick anybody. And we called it the Don Draper bot, right. Because all I help is agency owners. And so it asks a couple of questions, be like, are you an agency owner? What’s your revenue. And then, and then it would take the automation. It would set up with automation, but then I would personally respond and I still personally respond and I re respond with an audio message most of the time be like, Hey Chad, thanks for coming to the, you know, asking a great question. And they’d be like, how’d you automate that? Like, it’s not automated dummy. That’s me.
We made it with messenger bot. You automated the original, the start of the conversation and got them through and maybe filter them. I don’t know if you feel you’re using those questions to filter.
If you go to my contact page, I did put my contact page back because a lot of people just want to hit me up to, you know, pick my brain, which is basically saying, I want to take your, like, tell you nothing. I’m like, I go to Molly. That’s why we have 2000 pieces of free content. So you can pick that brain, like that’s way smarter than me because I forget . But like, if you go to the page on the very bottom of the contact page, you’ll see the messenger bot and you can mess with it. Like if you say I’m not an agency owner, and we’ll tell you a joke, like,
Is that what’s, what’s the website in case people want to go test it. Yeah.
Just go to Jason swenk.com and then click on contact.
You’re gonna have, you might have a, an exponential amount of inquiries coming out here in the next couple of weeks.
I mean, I responded, I wrote respond to all of them. And people are like, how do you do that? I’m like, well, you know what, I’m at my kid’s swim meet or track meet when they used to have those, like, like it’s a lot of watching, sitting around.
That’s true. What CRM are you using right now to organize all of this influx of either leads or inquiries that are coming in? Yeah,
Currently I’m using active campaign,
Active Campaign. Awesome. And what is your let’s talk about? Cause obviously the sales process is different from agency and then coaching, right. What is your sales process look like? Let’s, let’s go to the agency side really quick. Let’s flip to the agency side. Cause I know we’ve got obviously all agency owners on here and that’s probably what they’re going to be more geared towards. When you were running your agency, when you had your agency what, what did your sales process look like? I mean, a lot of people are doing zoom calls. People are just doing phone calls. They’re trying to do like one call closes. What is, what is it? What is your sales process actually look like?
Well, I mean, let’s go back to the one other question you were saying, like selling services. Like we didn’t sell services, we sold the results. Right. We looked at, how can we put a number of the services that they needed into a solution? So our first call is basically like trying to figure out, can we actually help them? Right. And we’re going through what I call in that need budget authority and timing. Right? Like I need to qualify them to make sure I’m talking to the right people. Like, what’s their need, can I match up? What’s the budget. Right. And I know everybody’s asking me like, well, I can’t figure out the budget. Like, are they saying, you tell me, I’m like, no, you can get the budget. 99% of the time by asking them this would be like, what’s your budget? I don’t have one.
Cool. I love working with people that don’t have a budget so we can spend, we don’t have to worry about money. And then there’ll be like, what? And that’d be like, Oh, so you do have a budget. And then you have to start high, which I call reverse auctioneer. I’m like, so are you trying to stay around and start really high? Like if my highest pricing proposal was a hundred, I’m going to start at a million. What are you trying to say around 1,000,500 thousand go down because remember the first number and then you go into authority and then timing, right? And then once you qualify them, then you have to go through what I call the three I’s. What’s the biggest issue with what you want. What’s the impact it’s going to have on your business or having on your business now. And how important is it to you?
Right. Ask those questions. And then from that, then we start moving on and going, making sure we positioned the right thing, the right offering. I call it the offering ladder. Right? So you’re not coming in selling a big retainer and everybody wonders if they’re doing SEO or pay-per-click. And they’re like, well, I do month to month because it’s easier. I’m like, yeah, dummy. And I used to do the same thing. So I can call you a dummy. Cause I was the biggest dummy of all of us. Right. This dummy can figure it out. All of you can. And so what I realized is it’s hard to sell a big retainer, especially if you’re wanting to sell your agency one day, right. Or have that predictable revenue, it’s hard to sell a retainer when they’ve never tested you out. So why don’t you position something to help them maybe a roadmap to get them to what?
Right. Position something very small, maybe 2000, 5,000. I don’t care. I don’t even care if you lost money on that, but you position something to get that deal. That’s what we did with Lotus cars. Right. Rather than pitching a big website, like all the other Joe Mo’s out there, all the me too agencies. And so we positioned something small that, and then from that, that identified the plan and we’d be like, do you like the plan? And we build it with them. They’d be like, yeah, sure. I do. And I’d be like, cool. It’s this amount to go execute on this and they would love it. And then once they start seeing value from that, then we’d start positioning the retainer and we just keep staggering and building, you know? Right. You know, those things up. And that’s how we, you know, our sales process worked.
Love it, man. Love it. And then I, I’m sitting here thinking, and I know other people, I think you said you sold your agency. Right? What, what are some of the metrics like if somebody is looking to buy an agency, what are the metrics that they’re going to look at in your agency? Are they buying a book of business? They buying a team. They are they buying, you know, because you have a hundred K in MRR, are they buying because your turn rates super low, what are, what are like the actual metrics? Like when you sold your agency, the person who bought your agency, what did they actually look at? Was it, what was the multiple right? Was it two, three, five bucks for an agency because agencies, softwares, I mean, these all have different multiples when you’re doing an exit, right. Let’s go through the exit process for somebody who might already have an agency is looking about what, what does that look like?
Long conversation. So I’ll go over. Maybe the six things we look at. So like the agency that I currently own now we’ve bought seven agencies in the past 10 months. And here’s what we actually look for. And if you guys know the numbers and makes you even more attractive and then I’ll tell you about how we do evaluation, right? So the first thing and the most important thing is EBITDA, which is, you know, you’re really your net profit. Right? and so you have to make sure that, and if you can get over the million Mark in EBITDA, then you can really sell because anything under a million in EBITDA, you’re going to get maybe two to three X
You’re talking net or gross. So you’re talking
Gross is irrelevant. I don’t care about it. Like people that brag on that I’m like most people brag on gross revenue and I’m like, no, like profit is everything the next monthly reoccurring revenue. Right. and then the next one after is what I call act. Right. What’s your average contract term. And that’s why I’m saying like, if you do 12 months, how long are you holding onto clients? Yep. Cause we want predictability. Uthen we’re looking at your churn rate percentage and it better be low. If it’s high, then we’re going to be like
Dive into that really quick. What’s what’s a healthy churn rate for an agency under 10%. Okay. And for those of you guys listening, if you’re unsure of what a churn rate is, essentially what a turn rate is, is how many clients did you have last month versus how many you had this month? Right? It’s a simple math equation, right. So if you’re losing 10% monthly churn that’s a lot that means you’re losing 10% of your business every single month as your business is running. Right. So you want it, you want it to be below 10%. That’s a healthy number. So, okay. What other things, so churn rate, what else, what else do you really look at your age
Are, which is your average expansion revenue, like as you take on a client at 10,000, are you growing that to 20,000? Like what’s the average you’ve been growing that, and then the last one we’ve actually started looking at is net promoter score. Like, do your clients actually like you, like, are they actually saying good things? Right. U
I’ll look for that. Is that, are you looking at reviews online or is this like a, you’re just going around
W w w we’re hoping that the agency has it right. And then we’re asking, well, how often do you send this out? What’s the process? That kind of stuff, especially if we go into due diligence. So those are really the six things. You know, even if you’re not doing the net promoter score, like those are the top five things that we’re looking at when we’re going to buy an agency. And so and then let’s say there’s also ranges, right? And if you go to, if you go on my homepage, Jason’s link.com and scroll down a little bit, you’ll see a valuation agency evaluation formula that you guys can use. That gives you a bunch of ranges, but let’s say you’re at a million in EBITDA last time, it’s around four to five X in valuation. And then we break it up.
So like, when we come in with like republics, which is agency, we’ll say, alright, we’ll value a 5 million two and a half million is going to be cash up front. The other two and a half is going to be an ownership. And the new agency you’re going to stay the same. Right. Umnd then when we sell, because our whole goal is to build that up to 50 million EBIT and sell it or go public. And our whole goal is for them to get 10 apps on that two and a half. So hopefully that turns into 25. So it takes some chips off the table,
Keeping for safety purposes. You’re keeping the agency owner on for six, 12 months. How long are they staying? You want them to stay on. Okay. So you’re just essentially buying into the company.
Exactly. And they’re basically taking chips off the table right. And cashing in a little bit, but then having huge other opportunity in every state, everything stays the same, but more resources like brand name, all that. And there’s multiple ways that people do it. Like this is just the way that we’ve done it. That’s worked really well for us so far. Yeah.
So healthy economics in your agency we’ll probably get you, let’s say right around four X, multiple, right. Even for the smaller guys, is that makes sense. Cause there’s got, there’s a lot of smaller guys who are watching this podcast as well, who might be doing a hundred thousand dollars. Let’s say, what would companies even look at that to buy them out? I mean, a hundred, a a hundred K MRR, if you, even if you’re doing, you know, two K a month, average client term,uyou know, 50 clients,uand whether it’s, you know, six months, 12 month term, whatever it is, would you still look into buying a company that’s doing a hundred K EBITDA
W for us, no, because the same amount of work for a million and EBITDA to a hundred K and it’s not much benefit. Right. so it’s just, it’s the amount of time, sheer time, right. That’s our most valuable asset. But there are people like, look, if you’re a a hundred K and you want out there’s people that will buy you, but you’re not right. It’s mainly is going to be tied up into an earn-out, which you’re not going to control. And it’s basically just kind of take over this company, give me a little ownership, maybe, maybe a little money and pay my salary. Right. And that’s perfectly fine for some people there’s, you don’t have to have huge exits what’d you say
Worth it at that point, if you’re out to just keep ramping it up and at least try to get to the million Mark before,
That’s what I tell people. I’m like, look, you’re, you’re like, it’s like a golf putt, right. You miss the pot and it’s like this far off. And that’s a lot of people like you could go, like, if you figure out like a framework to follow or, you know, you raise your prices or you do some of these put these strategies in place, you could be at the million, any of it before, you know it like, it’s like, it’s just the amount of about where you’re at.
I wanna, I wanna, I wanna take an extra couple of minutes. I want to dive because I like getting into like economics and health of agencies and things like that. Cause I don’t think it’s topics that most people speak about. I think in the agencies based everybody’s so focused on just like, how do I get more clients? How do I grow my company? Right.
That’s totally, that’s totally mistake. Oh yes. Your pipeline. Here’s your funnel.
Yeah, exactly. Right. So talk to me about, I want to ask two questions. First question I have for you is what’s a good gross profit margin for an agency.
Well, so, well, I’ll talk about net margins, right? Like I think that’s more important at least over 30%. Okay.
Where’s the sweet spot. If you see company like this, guy’s got 35%, this is a healthy sweet company. Would you say, you say it’s right around 30%. Where’s how about this? Maybe. Let me, let me phrase that a little bit differently. What’s the agency that you’ve seen cause you probably, it seems like you deal with a lot of agencies. Why looking, looking to acquire agencies, where’s the highest net profit that you’ve seen.
I’ve seen 70,
70%. And that’s you think about that? And you have to have in order to have, okay. So in order to have 70% profit margins, you have to have a very lean machine. Number one, and number two, you have to have high paying clients because in service and the game that we’re in, mt’s all about people, right? You’re not selling t-shirts, you’re not selling products. You’re selling time. That’s what most people figure out. So it’s essentially, it’s the value of time. If I trade you, hou know, most agencies are selling a hundred dollars an hour or $200 an hour. Well, how do you actually bring that net revenue up? It’s it’s if you take back everything and unfolded, okay, well how much is your time worth? And then calculate that. Now you’re selling that your time obviously, but your team’s time. Right? Because we only have so much time in a day.
Yeah. I think people lose a lot if they’re just, if they’re charging by the hour. Right. Because think about like, like you let’s say what you used to do last year for your agency this year. It takes you half the time. Yeah. If you’re charging on time, that means you’re losing 50% more. That’s why I want people to sell on value.
That that makes more sense too. Okay. So that’s the first question that I had for you is because I always, I always see people, especially people inside of our dash flex platform. And this is going to piggyback into the second question here. Fulfillment is a big thing right? In the agency space. What, what’s it like? Cause I mean, you’re, if you’re, if you’re, if you’re talking or buying companies or acquiring companies that are doing over a million dollars in EBITDA, they obviously have a team. Right. There’s there’s a team behind them. Is it easier to fulfill orders yourself or would you recommend, especially newer agencies coming into the market where maybe they’re under the hundred K MRR or even two, 300 KMR? Or is it easier to outsource or is it easier to just build the team?
It depends on the individual. Right? You have to do like a self assessment of like, what do you want? Like, you know, our, our first agency and even this agency now it’s all physical, like employees. Right. but a lot of the clients that I’ve worked with and in the mastermind, a lot of them have a hybrid model. Some have all outsourced. Yep. But if you’re all outsourced, you’re not going to be that valuable to and acquire. I’ll just tell you because it’s very risky. But what I tell people, if, if I was going to do it over again by myself I would have all the managers and the leaders in the agency as full-time like employees, and then all the, like writing creative that would all be outsourced
Current work, which is really what takes some majority of the time. Especially if you’re filling a large amount of orders and you’re servicing 5,000 clients you know, we have, we have a lot of, and this is, this is I’m going to touch on one thing that you said also it’s, you know, some agencies will, will only do, like, let’s say half of the services, they’ll, they’ll pour it out. You know, I’m a, I’m an, I’m a website design company. I want to do all my websites, but I don’t want to build the whole SEO team or I don’t want to build the whole Google ads. And it’s just not something that I’m interested in. Right. So I’m going to go in, I’m going to farm that out. Right. And we have a lot of people in dash flicks that do that. We also have people in Dallas flicks that will come, they focused.
Their whole business model is how do I sell more and keep more? And I don’t want to do the stuff that’s in between because that requires a lot of, you know, hiring and training employees, especially in the service industry where you’re dealing with a lot of technology contend to be difficult. And if you’re not the technical person to go out and do that, then you need to hire really high level people on your team to go out and be able to perform those those tasks like running a Google ads campaign or a Facebook ads campaign or whatever the case is. So they’ll go and they’ll focus purely on front end there. They just want to dial in their sales process and they get really good project managers to be able to manage the projects. And we’ve seen people scale to over seven figures over seven figures in revenue going at that model. So just some tidbit of information for you guys. It’s not always that you have to outsource everything. It could be just maybe outsourcing it. There’s massive companies, NASA companies, and you wouldn’t even know it that are outsourcing certain departments because they just, they don’t want to deal with the headache sometimes of building that whole thing out.
Yeah. I mean, I think Amazon and FedEx outsources. So, I mean, there you go, an example, I just saw someone dry off in their Prius and drop off a package.
Yeah. So there you go, a hundred percent. And that’s funny you say that because Amazon, you know, I think I read an article, Amazon, I think 40% of, or something like that. I think it was 40% of the revenue that Amazon makes is actually not from selling their own products or maybe it was 60%. It was some crazy number like that. Right. yeah. I don’t know. I just thought that that was crazy. I’m just gonna say that anyways, to wrap this all up. Jason, I’m going to ask you one final question. What is the favorite software tool that you use to run your business day to day?
Hmm, that’s a good question. I’d say Canva.
Canva. Okay. That’s a first,
I really like it just because it’s so like I’m a big Photoshop person or it used to be same here. And I don’t know. I’ve just been messing with it for my team to be able to create some thumbnails and amazing artwork. I’m like, here’s the template go?
I’ve had it ladies and gentlemen Canva. It is guys. Jason swing all the way out of Colorado. Jason, thank you so much for joining us here on this very special episode of the marketers mindset podcast. We appreciate your time and hopefully we will get you on here soon in the near future. Have a good one. Awesome. Thanks for having me. Bye.