How to optimize your agency's revenue

Ranya Barakat

January 29, 2022
11 MIN READ

I’m no expert in revenue. However, I'm sharing our experience and journey, what I learned along the way, how I learned it, how it impacted us, and what we did to actually resolve revenue. I'm a serial entrepreneur. I've been doing this for the last 20 years in different countries with harsh business environments and lessons learned the hard way. We hit the HubSpot Partner Elite tier in early January of 2022. This outcome relates to all of the pitfalls that we kept falling into, all of the overwhelming experiences we faced. It is, after all, more about the journey than the destination. So here’s the full truth.

As an agency owner, trained the way I was, revenue’s been split into two forms; marketing retainers–that recurring monthly retainer we all want to get for 12 months–and the project work that comes along with it.

I just want to pause here and ask, is there really a difference between the two? I recently led a talk on agency revenue, and some of the replies to this question were:

I  recently lead a talk on agency revenue, and some of the replies to this question were:

  • “I think the work is a lot the same. It's just how we get priced over time.”
  • “If the retainers are going to send you a certain amount of money every month, and then as you complete projects, you're drawn against that prepaid balance. That's kind of the way I look at it. “
  • “With a retainer, you can plan better because you know that you're engaged and therefore you have more runway. To plan a project seems a bit shorter-term and not always able to take the fuller long-term picture into account.”
  • “It seems like there's more security with the retainer, but when you have a combination of retainer and projects, it seems like the projects come in on a steady stream as well. It's nice to have that bottom line layer of retainer work because there is that security. “

That was how I thought I could function until I encountered the dangers of having only very top-level retainers. I used to live in Sharm, by the coast of Egypt. As an entrepreneur, I had revenue coming in from marketing retainers, until January of 2011, when a revolution began. We lost everything in one day because marketing budgets were cut. Tourism was cut. 

In December 2017, we were in Chile as a fairly new agency. We were gold at the time with one huge client. We would do anything for this client, no matter how time-consuming or costly. They woke up and went, “Hey, I found a cheaper agency. I'm not doing it with you anymore.”. That was 25% of our revenue gone. When you're a small team, 25% is a lot of money and it has an impact on cash flow. This happened because of the mindset of “going to have and keep all of my retainers”. 

In June of 2018, we were working with an enormous enterprise company. It was 20 portals in one project.  A huge deal, but it revolved around an incredibly toxic customer. Late payers, late to calls, scope creep, aggressive, EMAILS IN ALL CAPS. You know what I mean :-)

 

A struggle arose when we thought we couldn't let them go because letting them go meant losing a huge amount of our revenue and our MMR. So we continued on with drama; it did not read as enemies to lovers for anyone involved.

While I was desperately trying to save revenue and MMR, I lost my team on the account. And that loss, despite everything I once believed, was worse than the original loss I feared for. The team quit because no one is going to tolerate a nasty, brutal client.

Surely, this chaos and lack of longevity weren’t right. We needed change. My partner and I went back to the drawing board. We broke revenue down into revenue sources by type instead of marketing retainers and projects. Is it marketing? Is it sales? Is it a service? Taking our multiple revenue sources, we began to wonder what percentage of revenue by source did we want to generate revenue from? Having a balance meant that if one went down, we wouldn’t go belly up. 

Knowing the source and how I wanted to distribute it, I pondered how I was going to get those sales. What are my channels going to be? Do I and should I hire more salespeople? We started to analyze each revenue source: how profitable is it? What is the cost of that revenue for my company? If the relationship with the client wasn’t healthy, no amount of revenue would make it profitable. Next thought: my service team that I need to deliver this revenue. 

Instead of thinking of retainers, we decided that we would still sell inbound marketing retainers: that standard 12-month contract to deliver X number of points or X deliverables, depending on how you work for X amount of money. We also went ahead and built self-service solutions so we could generate revenue without anyone on my team actually being there. 

We also shifted into training models because we repeatedly noticed how unreliable marketing can be. As soon as there's a dilemma, a pandemic, a revolution, an alien invasion, whatever else is going on, the first budget cut is marketing.

Instead of losing that client, I asked them if they were still interested in their marketing? If yes, let me train you on how to do it. You're still generating revenue and you're not losing the client. Everyone wins. 

Then comes passive income. If you have a good strategy for passive income, like tech referrals, you generate that lead. Then, if you’re doing good inbound and you introduce them to the provider, you'll be compensated accordingly. When we structured our sources like this, we realized that diversification was healthier for the agency. It was less risky. 

For each of these sources, we sat down and planned. How much revenue do we want to generate from inbound marketing? Is it 50%? Is it 80%? Is it 30%? Of course, this is tied to your team structure and your costs as an agency. We broke it down per source, trying to make sure that there wasn’t one source generating everything. If it went down for whatever reason, we would still be okay. There’s no risk of having to let your team go or having to sacrifice time and money for no reward.

So, always try to plan. If you can't plan for 12 months, start with a quarter. Evaluate the data: see how it's working in your sales funnel and optimize it for the next quarter and so on and so forth. Where's the revenue coming from? Did the blog generate revenue? Did it open a deal? Did the downloadable generate revenue? You want to plan for diverse sources which will (eventually) channel into diverse channels, the ultimate goal.

Now, channels will be coming up. The inbound marketing retainers, the self-service, the training, etc. Those are sources. Suddenly we have five or six things we can sell. How am I going to do that? I lead the sales in our company. I tried to be honest by taking the route of hiring salespeople, getting BDRs, and growing that area. And it didn't work. Not because they are bad people. On the contrary, it’s because there's something about selling through use cases and examples, not selling because you memorized a playbook. 

Again, I knew that I couldn’t really depend on that. The risk falls on us and not the salesperson because if they don't meet the quota, they can look for another job. And off they go. This impacts the cash flow pipeline, forecast, and everything for the company.

To combat this, we tried building a good, strong relationship with the martech direct sales teams to generate new sales. In addition, revenue presented itself with the channel managers–the ones that are managing customers who are already using the tool–because there are a ton of companies who have been onboarded are using tools and need a re-onboarding. It’s either two years old, it doesn't reflect their process today, or they have new offices and products, etc. Whatever the reason, there's always an update or an audit, or an improvement that needs to be done in a company's tool.

These were the routes that we took and it was working. We also did something which was very new to me. I was always a really competitive partner. I told myself that I will not work with a partner. I changed. I grew up. I let go of the fear.

Now, we service several HubSpot partners that need help with two services, integrations, and migrations because we know we do them really well. There is never a conflict of interest because we're not interested in the marketing services.

An additional channel is a referral program. Someone can say, “Hey, I know this company. They helped me achieve x. They’re great.”. It can be a client, an ex-colleague, someone you networked with. You want to always have a referral program.

However, just because they passed you the lead doesn’t mean you don't have to close it. You follow your own process. You qualify, you determine if it's a good fit for you. Can you help? Do they qualify for a change? Why you? Why now? How do they define success? Once all of those things are checked, then you can go back to the person who provided you the referral and let them know it’s a good fit. Provide them with 10 or 15% of the paid invoice as soon as it's closed. Everyone wins.

Again, what you're doing here is diversifying your sales channels while owning the qualification process.

The worst thing to deal with is a bad fit. It hurts as an agency to let go of revenue. You want to think about profitability: is this revenue profitable? Maybe I generate an invoice for $22,000, but is it actually profitable? You want to calculate that for each source. You need to sit down, go to your Asana or Clickup and do the calculations. Ask yourself why the product or service is important. Are you genuinely solving a business problem? Because if it's a vanity job, it's going to backfire six months down the road. If you are genuinely helping them, then it's healthy. It's profitable. People will pay for it. The more you add value, the more people are willing to pay. With less value, concepts like inbound marketing, blogging, and content become less important. Less impactful. They start cutting margins and discounting.

And, what's your margin? Not every source will have an equal margin. Of course, some revenue sources have higher profitability than others. We're in this process of trying to balance it. It's not easy. It's an ongoing job, but it's one that it's important to look at. That way you tie this metric of the margin to the percentage of revenue by source. If it's a small margin, you don't want 80% of your revenue coming from that, unless you're really selling mass. If you're selling mass, you have the problem of needing more people.

With that learning and knowledge, we strengthened our team. We learned that we were more profitable with fewer people. We researched how to deliver a service with fewer people and became creative with self-service tools and using asynchronous resources, AI, and tech to better our revenue. With revenue comes scalability. How scalable is the source? Maybe you’re delivering it now, but is it scalable? Can you grow? Can you forecast your growth and visualize if this can be more profitable? If you find that you can't, then that revenue source is one worth a tiny percentage in your growth plan (so that you don't go belly up ten months down the line).

Even with profitability and analysis, we watched our delivery become transactional. The work my team was doing for customers no longer added value. It's like we didn't wow them anymore. We felt this with inbound marketing, blogs, and downloadable lead magnets. They're a commodity today. Unfortunately, it's horrible to say, but it's a transactional commodity and this really tires teams, especially content teams. I urge you to ask yourself the prior questions as well as this one because it creates a starting point, a sense of understanding.

This solidified our pivot. Up until October 2019, 80% of our revenue was from inbound marketing retainers coming out of Chile. We were at the diamond tier for HubSpot partners and living in Chile. It was very healthy. Very stable. Very predictable. If you asked me at the time, I would have said the same thing without a hint of irony in my voice because… everything was great. Suddenly, what happened in Egypt in February 2011 happened in Chile in 2019. With all of the social unrest that happened, the immediate reaction was what happened back in Egypt. Those marketing retainers were canceled. Oh, we can't do it. Freeze this, freeze that. Same old story. I lost my revenue again.

 

What were we going to do? We planned to reduce our risk. Instead of being primarily based in Chile, let's physically open companies in Colombia, Mexico, and Peru. We thought we could diversify to lessen the risk. Great diversification was beyond costly because one month later, we hit March 2020. And we all know what that means. COVID-19. It became irrelevant, honestly, where you are in the world. We've been a remote agency since October 2018. Up until March 2020, we were considered a little weird, questioned as if we weren’t real or a serious agency. It wasn't the norm. At least with the ecosystem, I was in, it was always questionable. With COVID that changed because everyone was remote.

So March came, and we lost the revenue of the travel and hospitality industries. We lost 12 of our marketing retainers for the same reason that the marketing budget was cut. We were repeatedly told, “It's not you as an agency. It's just that the board has frozen the marketing budget for agencies.”. We saw a lot more demand for in-house work. To the point of clients trying to hire our team because they needed to. Hiring was more difficult, catastrophic even because anybody could work with anyone anywhere. Everyone was online and remote became the default. 

In June 2021, we had to pivot. To quote Albert Einstein.

“Insanity is doing the same thing over and over and expecting different results.”.

We changed our services, which changed our revenue sources. We stopped delivering inbound marketing services. We had customers, 12 marketing retainers, and some of them were willing to stay with us. We dropped that service because it wasn't a healthy profit.

We changed our target market. It became irrelevant where we are. So now we work with anyone everywhere. Our name was IDS Agency and we wanted to detach from the agency completely so that we were not associated with marketing. We changed our positioning and brand. We became CRM Toolbox. That was a six-month process.

In two quarters we incorporated into new territories, like opening up in different countries for invoicing and we terminated 12 marketing retainers, our recurring revenue. Every single person I spoke to asked the same question, “Are you going to give up recurring revenue?” I was like, “Yeah.”. They replied, “Are you sure?” 

It wasn't healthy revenue. That's the thing. When I started asking those questions I could call it what it was: a vanity metric. It was good for my managed MMR. That's what we would chase to reach the next tier but it was causing me stress and severe anxiety. So we changed. Some clients were devastated and confused. We paired them with our content team so that they could spin off a boutique content agency. We doubled down on specialized services that we excel at: integrations, migrations, complex onboardings, and anything CMS.

We took the decision to build solutions to help us migrate and integrate. We changed that marketing delivery into a training model. We gave up the production of blogs, emails, social media posts, ads, lead magnets, etc. We kept the training. We helped clients figure out what they would do with the content. How would they use it for nurturing campaigns, activation campaigns, or in sales sequences for frictionless selling? All the hard stuff.

In December 2021, our close rate doubled. In six months, we went from closing 40% of our deals to over 80% of them. I have a lot fewer leads, but they are going towards a more specialized, non-transactional service. Our sales cycle was cut in half. Typically, it took 4-6 weeks to close, now it takes 2-3. As the result, in 6 months we hit the Elite tier. These new processes increased our profitability because we got rid of low-margin services and built tools instead.

We were a team of 25 in March 2021. At the start of 2022, we are 10 people. Smaller, yes, but diligent nonetheless. We have stronger interpersonal relationships and we're selling more with the diversification in the channels.

That's what happened to us. That's our story. That's my experience. Hopefully, you don't fall into the hardships we fell into. 

Someone asked me how I took these risks. How I fell down and stood up again. Again. And again. How did I fail so many times yet get up and try again? I think that goes back to my story as a person as well as my partner’s. We're both 3rd culture kids, having been raised in multiple countries and cultures including Kenya, Egypt, Iraq, UK, USA, Australia, Malaysia, Switzerland, and now Chile. We've been bullied in schools. We were left out. We moved a lot. We were, and still are, the misfits. We never fit in. We've always been labeled as outcasts.

I think those experiences shape human beings in general. You have no option but to stand up after you've fallen down and been beaten up because your hair is weird or because you’re too tall, too short, too smart, too independent. Whatever it is. In the famous words of Taylor Swift,

"You are not the opinion of someone who doesn't know you."

You are yourself and no one else can and should fill your shoes.

Moreover, living through two revolutions means you have to leave home and find a way to survive. I think that is the driver.  I have to make it work. I have to make these hard decisions. I have no option.

We moved to Chile. We knew no one here. We didn't even speak Spanish. When you start to remind yourself that fear is an illusion, it’s easier, logical even, to burst the bubble it creates. Every time we burst that bubble, either by force or by choice, something better always came out of it. 

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Ranya Barakat

Ranya is a serial entrepreneur with over 8 years of experience working on the HubSpot CRM. She loves pushing her sleeves up , and getting s*** done. When she is not running her HubSpot partner agency, you can find her upside down on her yoga mat.

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