I’ve become aware recently that when I’m speaking to creative and marketing firm owners or other advisors in this space, we can sound like we are describing two entirely different industries. One person sees a positive trend in something like profit or impact and the other sees a negative trend. One sees a trend to a certain pricing or staffing model and the other sees something different. Of course the agency owner is biased in thinking that the industry is made up of firms like theirs, and advisors like me are influenced by the types of agencies that we’ve most recently worked with. We all extrapolate from these biases to assume the market is a macro expression of our limited or recent experience.
Those assumptions used to be largely correct because there was, for the most part, one agency business model. Generalist firms in the clearly defined advertising, design, public relations and then digital (web design, at the time) disciplines all had client rosters that spanned all the major categories. (In my agency biz dev roles I was always chasing clients in categories where we didn’t have clients.) The fee structures, too, were the same: commissions & markups in advertising, hourly rates and markups in design and monthly retainers in PR.
Today of course the lines between these types of firms are blurred. David C. Baker and I discussed this last year in the 2Bobs podcast episode The Evolution of a Marketing Firm, where we reviewed the positioning strategies of the 20 most recent firms that each of us had worked with. Among the forty or so firms discussed, there was very little overlap in claims of expertise. It would be silly, therefore, to assume a near total overlap in business models, but I realize I’ve been doing just that for far longer than has been wise.
In 2018 I wrote the post The Great Convergence is Upon Us in which I described the three functions of design, consulting and software engineering converging to form a broad new category of hybrid speciality firms, with each one slightly different from the next. That was an easy trend to spot and one that just keeps growing, with numerous sub disciplines, skills and tools like AI, social, AR/VR, ML, computer vision, SEO/SEM, etc., etc., all factoring into a large and growing body of unique specialty firms that solve specific problems for specific clients.
But also in 2018, I released my book Pricing Creativity: A Guide to Profit Beyond the Billable Hour in which I cautioned owners against the trend that I saw as the over-productization of services. Creative agencies, I argued, should see every engagement as a blank slate. Every engagement, proposal and price, therefore, should be seen as a bespoke creative act.
That’s wise advice, if I do say so myself, but it’s valid to an increasingly smaller number of generalist firms. Today, in 2023, that guidance does not apply to the majority of creative firms, and I’m not sure now that it did even back in 2018. [Note: this oversight in no way invalidates the main guidance in the book, and therefore does not provide you with a reason not to buy it now!]
Another good pricing book of recent years is Alex Hormozi’s $100M Offers from 2021. In it, Hormozi describes his own success at making tens of millions of dollars by solving marketing and sales problems for a very specific niche business (single location, owner operated gyms, in his case). When a firm is focused on a niche this tight, and where a solution to an expensive sales or marketing problem can be scaled across almost every other business in the niche, then the obvious business model is to sell one converged program—the solution—as Hormozi did.
There are a lot of different forms such a program could take and a lot of different ways such programs could be priced, but the commonality of the problem and the repeatability of a proven solution renders the idea of selling bespoke services a foolish mistake.
In between fully customized bespoke solutions and a convergent single program that you might sell to all clients is the idea of productizing your services into different products. This too is valid, but, for reasons I pointed out in Pricing Creativity and in this post on recurring revenue, a successful productized services business tends to require a scale beyond that available to what I used to think of as “the typical agency.” (The whole point of this post, dear, suffering reader, is that there is no typical anymore.)
Can We Ditch the “Agency” Label, Please?
Customized services, productized services and a single program are all different, valid business models for marketing firms. There are more that we haven’t talked about here (e.g., I think most clients would prefer to buy their websites the same way they buy other software: as a subscription) or their combinations, but it’s really only customized services that fits with the old agency model I described at the top.
I’ve preferred the term “firm” to “agency” for years now (the topic of another 2Bobs episode) for the obvious reason that it’s been many decades since advertising agencies were agents of daily newspapers. But the less obvious reason to ditch the outdated term is that it unnecessarily limits our thinking on how we shape and deliver our expertise. I’ve seen many great business ideas crushed as their owners tried to squeeze them into the agency business model.
If Alex Hormozi had thought of his business as an agency then he would have sold bespoke creative and marketing services priced by the hour. That business model might have earned him a nice six figure living. (Actually, most of us would look at Hormozi’s niche and think, “that’s not lucrative enough for an agency to specialize in,” and we would be right. But it’s lucrative enough for other business models that solve expensive problems in other ways.) Instead, Hormozi converged on a repeatable program to help his clients make more money with a high degree of predictability. He collectively made those clients over $100M and made himself many tens of millions. That just doesn’t happen in any business that sees itself as an “agency.”
Some agencies do make jaw-dropping amounts of money, but that’s down to how they charge, not how they deliver. I’ve tried to steer clear of pricing models in this post so as not to confuse them with business or delivery models. Plus, I wrote a book on it.
There is no one right business model for creative and marketing firms anymore. You could choose the old model—what we used to call an agency—but you could choose many other models, too. Don’t limit your thinking.
I’ve written this post for me as much as for you.