BenLabay

Agency owners. YOU WILL BE IN HOUSED or replaced if your fees continue to scale for the same service. You cannot take a disproportionate % of the brands revenue and survive. Not in this era. Here’s some math about why “scaling” an account won’t be justification for increasing fees. Imagine you start with a brand and they are doing $1M in revenue a month and spending $250k. A 4:1 MER. But they are stuck at this level. They can’t seem to grow further. For the sake of simple math we will say the brand is paying 10% of spend. Thats $25k/mth or 2.5% of their revenue. Now importantly let’s establish that the $1M in revenue breaks down 50/50 new vs returning revenue. Which gives us a 2:1 aMER (new rev over ad spend) which is roughly break even on first order. Now you come in and crush it. You double spend and maintain the SAME efficiency in the first month. Awesome job. But now let’s look at the numbers. You have now spent $500k at a 2:1 aMeR giving you $1M in new customer revenue. Add in your $500k in returning revenue and you have $1.5M in revenue on $500k in spend. A 3:1 MER. Now a 50% nCAC is not producing incremental contribution margin in the first month for this brand. Now your fees have grown to $50k and 3.3% of the revenue and the P&L has gotten worse (or just slightly better) at the end of the month. Now I understand all the logic around the future value of those customers and total dollars verses percentages but I’m just telling you that brands HATE this. They will always bee looking to replace inflating line items in their opex. Always. They will come for your fees before they cut internal headcount, offices or other expenses. Fair or not there is only one pie of money to draw from and brands rational want to keep as much for themselves as possible. If you find yourself with fees above 2% of revenue would think about proactively capping the amount or adding scope. P&Ls are super tight and cash is limited. The days of growing billables from $10k to $100k/mth for the same function are gone.