What phase is your agency in right now?
A lot of you are in what we call freelancers phase. One of you is a dreamer, somebody who is basically just getting started, or thinking you about where they want to go. Then people who are employers with employees.
Do you plan to grow your agency in the future?
Everybody wants to grow their agency in the future, so that's always a good thing to see that. People want to grow.
What type of legal entity has your business established?
As far as entities go, half are LLC, 2 S Corp, another one's a UK corporation which is similar to what we'd call like an S corporation. And one's a sole proprietorship. This call should be around the time for lessons on forming legal entities, and the type of businesses.
How many equity partners does your agency have?
The majority of you are freelancers, so obviously you don’t have partners.
Do you have strategic partnerships with other agencies?
The majority of you says no, some says yes. I would say that a strategic partnership can be a really good way to complement your services, and for generating new business. It can be a good thing, but you have to see how it affects your margins and how it affects your business. There’s two sides to that sword.
Who makes important decision in your company?
With no business partners, freelancers are going to be the one who make the decision.
Do you have a board of directors?
Everyone don't have a board formed yet.
Do you have a buy-sell agreement?
Obviously you don't really need a buy-sell agreement if you're an individual freelancer. If its just you, then you don't need an agreement to buy and sell with your partners. And that's what we were specifically talking about, is with your business partner.
If you somebody wanted to buy your business, then you have absolutely would have a buy-sell agreement with them. But it'll be a little bit different than what we talked about in the lessons.
What are your thoughts on exiting your agency?
Half says that there’s a lot of work you have to do before you can sell. The other half basically say it's in the back of my mind but not influential. And one says agencies probably not worth anything. And the reality is that all these are good valid answers, depending on the phase of your business.
A response on the decision making process: They filter out the different options that are in front of them and then they say does these decisions fit our mission, vision and values of the business. And then for the most important ones, consult a volunteer Advisory Board to get their thoughts. They usually do a good job of reeling it back in, and making sure that he's meeting his own growth goals according to the timeline that is laid out.
If you're making a major decision and you're stressing over it, then check if it fits into the defined mission, vision and values of your business. Most businesses don't have these defined. Or they're very loosely defined. And so the fact that you have that already defined is pretty awesome. That's really a solid thing.
And so you can always fall back on that. But then it's not always easy to fall back on just that, so you want to ask advisors, people who are interested in helping you. People who are willing to help you out and provide you with with advice long away.
So I definitely have those types of informal advisors that I talk to. I talk to as many people as I can when I'm stressing over a big decision as well. Although, sometimes you just know that that's what you need to do. So its a little bit of both. There’s no perfect framework. But just getting opinions and then saying how does this fit in with with how we want to run our organization is a good way to go.
What makes your agency unique?
"For B-Corps and social enterprises that need a more fluid relationship with their marketing communications partner, we manage marketing programs that enable clients to amplify their social impact. Unlike traditional marketing agencies, our approach allows clients to insource specialty skills instead of outsourcing projects. We also share an unrelenting commitment to creating positive social change."
This is the same person who responded about the values piece, about the mission and vision. Basically your business stands for something. Your company stands for what it is and what it does and then also you've clarified the value proposition for the people who are your clients. So that's a really good thing to do.
Basically when you're talking about what makes your company unique, think about the things you do that is rare, uncommon or that makes you feel good/ accomplished. And then also how does that make your client feel?
How to get big clients when you’re a small shop?
Sean says that he works with a digital agency that subs out the analytics work to him, which is not the main piece of the business, it's a small piece. The main business is social impact enterprise space. In this digital agency that you work with, they have bigger brand agencies on their client roster. So what's the best way to approach those agencies to explore partnerships? These bigger brand agencies are also in the social impact space.
Let me throw a few ideas out there.
I love this. I like when you're getting started out, you’re going where the business is, as much as you possibly can. So there's big agencies, who have the advantage of winning big client. Generally speaking, when you're just a one-person shop or small shop, it’s going to be really difficult to land big fish. Even if you have the best networking and business development skills in the world, it is going to be hard to land those big fish.
It’s because big companies want to have this perception at they're going to have a lot of people working on their business. They're going to have redundancy on your team. They're going to have expert. They're going to have the resources. Resources, that's the number one word I've ever heard big companies use. When I work with Fortune 500 companies, they’re obsessed with resources. Which agencies is going to have the resources needed in order to accomplish what we want to accomplish?
The biggest resource is money. And money is what ends up talking.
If you pay me the same amount of money you pay a bigger agency, I'll find the resources. But they don't like hearing.
So yeah, you’re not going to go directly with these big relationships. You're going to have to grow your company or suck it up and be a subcontractor for a while. So yes it's hard to grow with the big ones directly. Unless you are just so good at something or if you have this relationship that transcends the concept of not having enough resources.
So doing what you're doing right now is a good way to go. So working with other agencies and see what they'll give you. But as you probably already discovered, that's not always the best deal. It's never the best deal for you unless that company just doesn't know how to how to bill you out. Usually you’re not going to get the rate that you're looking for.
Also you don't have a relationship with the client. You don't really have the opportunity to take anywhere. And if you do have an opportunity to talk to the client usually that they're going to have a no poaching clause in your subcontract. You can't take that client with you.
That’s the point of clarification that I have for you. Is that the perimeter you're under? So you work for this company and you're getting exposed other people. Is it legal for you to talk to these people? Is it frowned upon? Is it welcomed? And what's the nature of that relationship?
Personally I'd been a sub of a sub many times. That was how I got started in this whole business in the agency world. I was a subcontractor for subcontractor. So me as a one-person went to a small agency, which I now own part of that agency, went to Nestle, one of the biggest food company in the world. I never really talked to them directly, but I’ve worked on their business. I never thought that it is a good idea for me to go out there and start pitching these Nestle people directly.
But I could use it in other ways. So I could tell people that I worked in this business. I could use it as a way to make me seem a lot bigger/ knowledgeable than I really was. So that might be something you can do from it. So maybe there's never a good way because of the contract you have or the relationship you have to ever try to poach the client away the bigger client or to take them away. But that doesn't mean you can’t say that you work with them. That you worked on their business or that you understand what their needs. That doesn’t mean that you can’t be friends with them on LinkedIn.
There's ways you can cultivate a relationship without making it purely business-oriented. It doesn't have to be transactional right now to form a relationship with this bigger company that you want to have on your target. But it also doesn't mean that you might get revenue from it ever. But it is valuable. And it's something that you can just take the temperature as to what this is. And whether it's a good idea to propel that relationship with the bigger company, to sacrifice the relationship you have with the company who's subbing out work to you. And how does it fit into your overall plan.
Now those relationships that I built ended up becoming opportunities down the line. As people leave Nestle, they look me up and they'd want to work with me. I've done a lot of stuff still from people I used to work with at that point in time. I never went directly and try to undermine my company's contract with Nestle but I definitely built relationships. I did all these things I'm talking about.
So maybe that’s one way to look at it. That is to say I can build relationships without making it purely transactional. And then just build up your overall brand, make people familiar with you and so when they move on or when the environment changes then that can be how it goes.
Now it's another funny stories that Nestle actually fell out of favor with their previous agency, and they fired them. They fired their other agency and they had this technology in place that they needed somebody to work on. The two people who were the founders of my agency, they said okay, we can do that. And so this big company ended up working with them with a two-person company who just got established like 2 days before that.
Nestle ended up working with them because they didn't really need to worry about the resources because they needed immediacy and that was what ended up happening. That was an exception to the rule, but that was how that ended up happening. So basically if you're working on something, and then the people fall out of favor, you're going to be the one to pick up the pieces. I should have clarified that the guys who founded my agency were subcontractors of people got fired. And then once that other bigger agency, which is actually Hallmark, got fired they just like gave the contract over to these two guys and that started Three Deep marketing. That's our agency origin story.
I think it's beneficial to see how these things play out. It’s a slow play. Now it's not in the contract that we’ll be frown upon. I don't have any relationship with the end client brand agencies and their clients. So do you want to have a relationship? Is it feasible to do that? What can you get out of it? Those are the types of questions I'd probably ask myself if I were you.
The frown upon pieces you sort of have to just assess the situation. I personally don't like to poach clients over but if there's a relationship where I know it's not the relationship that I want to have in the long-term. If they are not giving my favorable rate or throwing the best projects at me or if it seems unstable, then I don't value that relationship as much as I would if somebody was a true partner somebody was truly treating me well. And so it doesn't mean that I go and steal their clients away from them, I still wouldn’t do that. But it doesn't mean that I wouldn't listen to those clients or try to start a relationship status. So you have to draw the line between these things. What's innocent and what's potential to steal away the business.
So one of the first things I ever do when I'm on a call and sniffing stuff out, if somebody announces themselves in the conference call I looked them up on LinkedIn and I see who they, what they do, and I might even connect them. Or they might see that I looked at their profile, and they might connect with me. I do a lot of things just to really understand what I'm dealing with. Because I think it helps me do work better when I know who I’m dealing with. And also the more information you have, the more connections you have, the better its going to last you in the long run.
I don't see why you wouldn't just write it out and see what you can get from it. My advice on this one is just to see where it leads. It doesn't seem like you really lose anything either way. But also I think loyalty when your sub-contractor is something that you have to thread the needle. You don't have to like give up your ability to thrive in business, or give up all your future because somebody gave you a $500 a month contract.
If it's not a big piece of your business, you don't really owe them much. You're doing exactly what they ask you to do. If they don't have it protected by the contract, then you have some stuff to play.
Now I'm not advocating and I wouldn't advocate that anybody poaches clients. But what I would advocate is developing a relationship with that client if the need presents itself. Or telling people you're subbing for that you'd be better off if you could be the one leading the calls and giving your insight, versus just delivering report to them and then having them call the client.
So there's a lot of ways you can approach this thing obviously. I don't know the nuance of what you're dealing with, but those are some ways that I would treat it.
Branded water bottles
I’ll get some water. This is brilliant by the way. This agency in Minneapolis – Rocket 55 – they handed out these bottles at MnSearch, which is the conference that we put on in Minneapolis every year. And I’ve been carrying this thing around ever since. It’s pretty awesome. Branded water bottles are a really good idea. It’s in one of the lessons actually.
That’s what we ended up doing with Nestle. We had our branded water bottles and they just loved it. It was everywhere. Everywhere you go, there’d be a ‘Three Deep Marketing’ water bottle sitting around Nestle. I think they still have them. Actually they fought over them. They’re like ‘I want one I want one!’ That was one of our favourite tactics out there.
Partnership and contractors
Jason’s saying that doing partnerships with other agencies is a pain because you’re doing double the account management.
Yeah for sure. If you’re managing them as an account and also the client, misinformation and all that type of stuff, it can be frustrating. I think it goes both ways. As you develop your company, when you call on a contractor, you’re going to get the best results when you work with a contractor for your business. I’m going through this right now. Actually I’ll share a story since we’re not getting a lot of questions in.
Should you bill clients on discovery work?
From my business, I personally got proposals from two different copywriters and one from a friend who works at Leadpages. He was doing some side jobs and wanted to do some consulting for me. So I got three proposals in front of me and it was interesting to see how people are proposing to me. It’s funny but all of them had a big piece of the contract being discovering how to work with me.
I mean I would actually advise that if you bill for your discovery time. But then I started thinking about it from a business owner perspective. Do I want to spend a discovery fee from all three of these people when each one of them was like $1,500 or $2,000 just to discover something?
So it’s funny that basically, these people wanted me to pay them to discover my business, and it’s like okay well if you’re using contractors. Yes, if I’m requiring their time to discover these things, it should be at that point. But wouldn’t you think there’s a way that you can visit somebody who’s in the middle? Couldn’t I have given them that information for free, or as part of the process in vetting them?
And so I started to think with my own interactions. Obviously they want to get whatever they can get paid for but how do I get the most out of people who are working for me on my business? Also, if I’m the contractor, how do I do the same for my clients?
For example, if I do a subcontract where I’m doing Google Analytics type stuff, I do charge sometimes for discovery work. Although it’s funny, generally speaking, that’s sort of implied in the contract. Like when I’m doing discrete projects, I don’t need to do a ton of discovery because it’s not a custom job. It’s like if I’m looking at your Google Analytics account, it’s basically the same, right?
So when I look at the Google Analytics account for one company or another, I pretty much know what their problems are going to be. I don’t need to do a ton of discovery. I just look at it in there so I guess it’s implied in my billing. But these three contracts from three different people, they all had very similar structure and it was like billing me to figure out what my business actually ends up being.
Peter’s wondering what discovery work is. Now I know we’re on a 90 to 120-second delay for sure, people. So sorry about that but obviously when I’m talking, I’ll get to your questions as we go along. But for other stuff, yes it can be frustrating.
So discovery work ultimately means, for example, the first copywriter wanted to take a look at all the things that I had written, read through them, classify them and learn about my business, interview me, maybe potentially do a survey of users, that type of stuff, and wanted to know more about how my business operated and what I wanted to do. They were going to charge $1,500 for that.
Second one: pretty similar. They wanted to charge $1,500 to look through all the materials that I had, take a look at my Hotjar surveys that had little responses on them. They wanted to look through my analytics account. Potentially, they wanted to look at all these surveys that I’ve done in the past. They wanted to gather as much data as they could so they were informed with what was going to happen next.
And the last one’s same thing.
So all three of them actually wanted me to pay them for discovery which was to just look at all the stuff that I have and to come up with something. Now, from a service provider perspective, it’s sort of brilliant, right? Like I would pay somebody $1,500 to tell me what I already knew. I knew that something’s not working. I don’t want to pay somebody $1,500 to tell me that. I want them to come up with ideas.
I’m telling this story because I’m not saying that it’s right or wrong to do that. Actually, you should get paid for your time for sure, but it also means that these people have businesses that are so reliant on their client having all their shit together, that if the client doesn’t have their shit together, they’re going to have some troubles or not going to close a lot of deals. They think they’re so in demand or valuable that every single second should be charged, and it rubbed me the wrong way.
Actually I had one call with somebody. They made me do a video call for the sales opportunity which is really annoying. I hate – oh my god – video calls for a sales opportunity? And then two hours later, she’s like ‘hey here’s a contract. I need 50% down to take the next step.’
I was like ‘Whoa. This is the most bold sales tactic I’ve seen.’ They basically just hit me over the head with this thing after a 30-minute call, and I was like ‘I don’t know what you do.’ And so I asked her for some more materials. I said ‘I don’t really understand what you do and what you can do for me. Why would I pay you for this thing?’
That’s like the type of stuff that rubs you the wrong way. Yes, she probably took some course that said ‘Make sure you get a minimum. Demand the money upfront.’
Maybe she’s successful at it if you do enough outbound business development and prospecting, but there’s no way I was going to work with this person when they tried to close me before I even knew what they are capable of doing. I didn’t get a writing sample which is important for a writer. I didn’t get a sample of what their discovery would do, and they wouldn’t price up the rest of it either. They go ‘oh well discovery costs $1,500 and I can’t tell you what the rest of it is going to cost until after discovery’ which is a pain.
Is your “foot in the door” tactic hurting you?
When I do contracts and this type of stuff, I’ll often do an hour or two of discovery, I’ll do all these things to pull stuff together. I’ll look at their analytics account and then tell them ‘yes I can help you out and it’s going to cost this much.’
I think the biggest problem that a business owner has, and I say this from the perspective of my own, is uncontrolled costs. I’ll never sign anything if I don’t know what the final all-in cost is going to be because I don’t want to get stuck with somebody. I know if they get that foot in the door, the $1,500 could easily become $15,000 if I really want the results. And I’ve had that happen before.
Actually it doesn’t happen to me that much because I’m afraid of it happening to me. I have to keep penny-pinching with the business.
I’m going through this stuff because that’s what I go through as a business owner. If you’re selling to a business owner or a company that either has a budget, and so that’s why they want to know the amount you’re going to give; or it’s their own money that’s not budgeted but it’s coming out of their pocket. Literally, if I pay my business and your business as well, all of you, if there’re small enough businesses where it’s either you give somebody that money or that money’s going to you, you’re going to pay yourself or invest in something else in your business, right?
Listening and learning from pitches
When it comes down to that, you need to have costs under control. Now, it doesn’t mean I didn’t learn some things from being pitched. I actually like to sit in on people’s pitches just because I like to see what other people do, how they approach problems. I actually learned a lot. There’re actually some ways that you can do really well with the pitch.
One is, people aren’t shy with how much they charge, which is good. The other thing is, how people are doing business development, how they’re getting in there and doing these calls, there’re some cool online proposal tools which piss me off as a consumer. But as a business owner, it might be useful for you guys.
For example, one of the copywriters sent me a proposal and it came through via a website. I had to click on a link in order to view the proposal. The 6-page proposal was all HTML. There was a video in there and stuff. It was cool but I knew I was being trapped when there’s some software that says ‘Jeff, open up your proposal’ when I hasn’t responded yet.
I felt like I was on the clock from the second that I got that thing. That bothered me but it also can be a good thing depending on the client. Now it’s hard to sell or market to marketers like myself because I’m sceptical. I’ve seen all the crap that we do as marketers but it’s fun to see and apply these things.
And so, as we come up with some more lessons for the agency course, one of the things I’m going to do is talk about proposal software and how you track proposals and use that to your advantage. I’ve been mentioning in the last few calls I’m implementing a CRM system and how fascinating that is to see how that works. There’re all kinds of systems you can use in order to be more efficient with these things. There’re all kinds of prospecting you can do as well.
I know it’s a long, drawn-out way of talking about discovery and these things but I think it’s sort of fun to see these examples. To experience being pitched, I would recommend all of you to sit in on some kind of sales call or opportunity to see how other people are trying to sell to you, is your guard up, what they are trying to say and what value they are bringing.
It’s another thing I’m developing right now for our sales module which is coming out soon, hopefully in August or maybe September. The sales module is going to talk about some of the sales process that I went through, how my deck worked, how a typical workflow went during the sales process… I’m going to share with you some of that. I might even do a pitch to people in one of the videos as part of the course, trying to sell you on something and see what you think.
Another thing is – I’m not sure how it’s going to work – but at some point, I might offer to hear your pitch or link you up with another agency owner. You guys can try to pitch each other, and tell each other what the other person needs more.
Alright so I’m going to pause for air and make sure that I didn’t miss any comments here.
Pricing in partnerships
Yeah so the wholesale pricing and everything like that. Pricing is unfortunate when you do partnerships. That’s why you want to go directly to consumer whenever you can, especially when it’s two small agencies. If you normally charge $1,500 for something, and the other agency wants to mark it up, then now you’re priced out of the market. You’re $3,000 for something instead of $1,500. So somebody’s taking a margin hit or you’re just very expensive because somebody’s really good at selling.
Jason: At what point did you think it makes the most sense to take on a partner?
I have a lot of thoughts on this one because I think about it with my own business too. It’s what you benefit from having a partner, when you should do it and all that good stuff.
One reason why you’d want to take on a partner is because of shared responsibility, if there’s this loneliness of being an entrepreneur; the feeling that you’re the only one with sole responsibility and all the weight on your shoulders. Having a partner is not so much relief. It doesn’t necessarily go away but at least you know somebody’s in it with you.
That‘s one nice thing and advantage of having a partner. So if you have that feeling every day when you get to work, that gets all on you and you want some of that relief, then it that be a time when you want to take on a partner.
Generally speaking, if you’re already established and have built up a nice business, then the value you think seems to be a little bit less valuable. If you are already doing a couple hundred thousand in revenue, do you still need a partner? You’ve already got over some of the first humps which is replacing your old income.
However, a partner might bring other values, such as succession planning. If you ever want to get out of your business, maybe somebody buying into part of your business or eventually taking over 100%, that’s a reason why you want to take on a partner. That’s maybe later on down the line.
Another one is complementary skills, when you’re only good at certain things, and that’s debilitating and not working well for your business. For example, if you have a great financial mind but you can’t sell anything for the life of you, and you know somebody you’ve worked with.
I’d say that generally, the stat is 75% or 80% business owners who are partners had worked together at some point, or knew each other previously. You don’t really just get matched up randomly with partners. You sort of have a working relationship with somebody and then it makes sense.
Now, one of the things that I talk people out of all the time: freelancers. Just because you’re two freelancers does not mean you should be partners by any means. When I say complementary skills, if your skills are only complementary as far as you do web design and somebody else does PPC, that’s not a good idea for a partnership from my experience. It’s because what you do at your agency is only like the 3rd most important thing.
The 3 important aspects of your agency business.
I know it’s weird to say that but basically the 3rd most important thing that you have is what your agency actually does. No. 1 most important thing is sales. By far, hands down, is how many people are buying from you. Sales cures everything. Sales is like the lifeblood of everything.
No. 2 is basically the financial pieces of it, by making sure you have somebody who’s responsible for finances and that everything is profitable. So 1st, sales; 2nd, profit. Those two things are really important. Then the 3rd thing is what you actually do delivering the work to your clients. If you have great account management and other skills, then yes, subpar work will sometimes be more profitable than doing the best work in the world.
That sounds terrible but I’ve been in this industry for a long time and seen a lot of bad agencies make a lot of money. Actually, most of the advertising agencies I’ve worked with are pretty terrible at what they do. They are able to print money only because they have a great sales team and reputation.
That’s sort of the order of importance.
When I think about taking on a partner, I obviously evaluate those criteria. If you’re working with somebody and it’s a natural fit, things are going well, then that’s a good time to take on a partner.
If you are really good at something that’s not sales, since sales is that high in the importance list, then yes you should take on a partner if possible. If you bought or hired a salesperson to sell your agency services, and you gave them a big commission or incentive that’s going to drain out all of your profitability, it’s going to drain everything.
Let’s say a good salesperson wants to be paid ¼ million dollars. If you have a $100,000 business and want to bump your sales up, and then you have somebody who wants to make $250,000, tell me where you’re going to make that from. Basically, they need to sell $1,000,000-2,000,000 in business to get what they want, and then you have to be able to deliver very efficiently on that $1,000,000 or $2,000,000 in business for that to happen.
This is why it becomes better in a partner scenario because that person has a vested interest and they’re not doing it for their salary. They’re doing it for ownership of a company. You can also pay them in two ways. Instead of giving them a sales commission, you can also pay them in equity, do dividends, distributions or stuff like that.
So there’re advantages to being a business partner with somebody who’s good at sales because it can boost things and there’s not as much pressure out there.
Now if you’re great at sales, maybe you should look at a partner who can do whatever your agency does but is also very good at the financial piece. Somebody who can read and understand financial statements, and be the profitability tsar of your business. That makes a lot of sense.
Or, if it’s just two struggling people – say, you’re both freelancers making $100,000 a year. If you combine, you can make $300,000 a year and you each divide that $50,000, that’s great if that’s all you ever want to do in the future. If it’s basically making a little bit more money and having somebody who’s your partner-in-crime and never expand, then that’s not bad either.
You definitely want to do a 1+1=3 scenario, minimum. You have to be able to make your business 3 times the size of what yours is now, by joining forces with somebody.
The problem is, if you want to do that 1+1=3 scenario, and you’re both just complementary in the skills, you basically gave somebody 50% ownership of your company for a hurdle that you probably could have done on your own. If you just plugged away at it more and figured it out, you could have gotten to that part. So you just gave away half your company for an extra $50,000, and then as it goes on, that can be dangerous because it gets out of sync.
And so, taking on partners. You know you’re ready because you worked with somebody. It makes sense to work with them but it doesn’t mean it’s the right idea to bring them on. That’s where this other stuff comes in. Hopefully that helps a little bit, Jason.
Awesome, Jason. Glad you like that.
If you were to take on a partner, what does a discussion look like about percentage of ownership?
What I would do is, I would look at what the company is worth now and what it’s going to be worth afterwards, and then decide upon that. Generally speaking, if your agency’s worth 1-2 times your revenue in a year, that’s probably what I would say. If you’re making 100 or 200 grand, it’s worth that. Maybe you can get 1.5 times and I would plan it off of that.
Basically, your value that you’re already created at this point – depending on your revenue – is worth… let’s just call it 300 grand. So say, you bring in a partner and they’re going to immediately bring in a book of business that’s going to end up making your company worth much more. Or, if they’re going to bring in $200,000 in revenue, then that might be a case where you could do 50/50 partnership because you’re bringing in $300,000. Or not 50/50, but 60/40, or something like that. Since you’re bringing in $300,000 in book value, and they’re bringing in an extra $200,000 in cash or revenue, that’s going to be worth 40% of the company in theory, if they can pull it off.
Now, I would make them vest in some way and make sure that they deliver on what they’re doing. Also, since you’re the founder, you should get more value if you’re the one who started off. Unless you’re merging companies, then there’s some value in getting to that $100,000. Because honestly, it’s a lot harder to get $100,000 than it is to go from $100,000 to $200,000. It’s way harder to get to that first $100,000.
Now, as an individual, it does tail off. I don’t know any companies that are just one person doing consultancy or agency work who are making more than $250,000. And so there’s a tail-off point. It’s hard to get up to $100,000, easier to get to $200,000, and then it gets hard again if you want to get beyond that. It’s just so many hours and contracts you can handle.
And so that’s their thing. If they help you scale and get beyond that, then it can be worthwhile. But you got to give value to you owning the company.
In one of the lessons, I do talk about how there’re several different valuation models. One is like the 20% model where you give 20% to each of the different major functions. You divide that up and see who’s doing it. That’s when you decide who’s going to do each of those things, and then each one gets 20% based on how much they do.
That’s when people start the company at the same time. You’re already the founder and so somebody else is coming in on top of that. That means you wouldn’t give them as much as you would if you started at the exact same time unless they bring in equal shares and you merge the companies. Then, it would make sense to do it that way.
How do you describe the valuation of agency?
Honestly, Jason, I don’t know the numbers off the top of my head. We’ll do a lesson on it so make sure to watch the lesson about valuation and what’s an agency worth. It’s in module 4, I believe. Man, it’s late here, it’s almost 9 o’clock. So forgive me on that one.
I’ve heard all kinds of numbers being thrown out for what an agency is worth. I’ve heard EBITDA, I’ve heard profit. EBITDA is like earnings before interest. It’s basically your net profit. I’ve heard 3-6x net profit. It’s a number that I’ve heard a lot. I’ve also heard 1x revenue and 2x revenue.
However, when you think about those numbers, they’re totally different, aren’t they?
Usually, if we’re advocating a 15-20% profitability, it would have to be 5x profit to equal 1x revenue. And so I don’t know the exact number.
It’s whatever somebody’s willing to pay you. There are evaluation specialists who will tell you exactly what your company’s worth, based on how much money you have and where your revenue growth is going. I don’t know the exact equation off the top of my head. Sorry about that.
Well this has been good. I appreciate you guys joining me. For the next one, we’re going to push back a week. I’ll send out an email about the next one we’re going to do. It will be August 29, most likely somewhere around there.
I’m in Portugal, Jason. I’m here for another 2 months, which is pretty cool. I really like it here. It’s really chill. Basically I just had this fibre optic internet connection and I’ve been working for 12 hours a day. Then, on the weekends, we go out and explore Portugal so it’s been fun. It’s not all glamour though. It’s mostly work but it’s been awesome.
Cool, guys. I’m going to sign off then. It’s nice to chat with you all. If you have any follow-up questions, definitely let me know. I’ll look forward to talking to you on August 29.
Oh the computer box is back there. They can’t see it. It’s great. Actually, you can’t see my cursor, can you? How do I point? It’s right there. It’s behind that little chair so computer box has made the trip. And yes, thank you for pointing that out.
Alright. On that note, I think it’s time for us all to sign off so I’ll talk to you guys later.
What phase is your agency in right now?