Roadmap to a New Agency Business Model

The old digital agency model is dead. Almost a decade of running this agency has given me some insight into what’s on the horizon, and for those who are stranded in old-school-agency-mode, the harsh reality is that it’s not going to be pretty.

The idea of being paid a sum of money to design and build a website for a client is totally obsolete, folks.

I suppose it has been many years in the making: from the likes of Xanga and Myspace, to WordPress, Tumblr, Facebook and Weibo, to Joomla, Drupal, Virtuecart, OpenCart, Magento, Wix, Squarespace and more – the tools for mass distribution of original content has steadily shifted into the domain of, well, the masses.

Millennials already have the ability to publish globally; millions of readily available skins and themes allow anyone to create unique, professional websites in minutes.

Who, then, will pay for an agency’s services – and where do we go from here?

An agency is a human capital intensive business – almost all of our expenses have gone to paying our teams salaries. A good team costs money, and keeping a great team costs a goddamn fortune.

I’ve always believed in a tightly-knit team under a single roof and refuse to outsource any work to remote teams in India or Mainland China – a common cost-cutting measure – as no matter what the new age folks say about being able to work ‘together’ while dispersed halfway across the world, a team in the same room will communicate more effectively and thus produce better work.

I know – I’ve outsourced. And it sucked.

At this rate traditional digital agencies are setting themselves up for a massive fall.

The irony of all this is that when we first started, we looked to the big boys on how to model our company and services: how did the mega agencies charge? What kind of services did they offer? What kind of teams did they build? We modelled ourselves around the global agencies with the largest clients, and incredible billings thinking that if those guys had a play book we should do ourselves a favour and use it.

What did this mean for us? It meant that we were actually building very expensive, unsustainable custom factory lines producing digital products that the clients themselves can build – sometimes for free! Sure, it’s entirely possible to bring in bigger clients and projects while expanding the team. But let’s be real here, talent is an inflexible resource that offers very little in terms of leverage and scalability. With our current model, as projects increased, yes, so did revenue – but also insomnia-inducing liabilities.

But what, then, if not the traditional model?

Okay – up to this point I’ve raised more questions than answers. Paul Roetzer in his book The Marketing Agency Blueprint posits the following:

Pricing strategy is a key component to disruption. Agencies motivated to change will shift away from the inefficient legacy system of billable hours, and move to more results-driven, value-based models accessible to the mass market..to disrupt the industry with lower prices, and potentially higher profit margins.

I’m convinced he’s onto something. Of course, there will always be a place for traditional fee-based agencies, but these will be fewer and farther between. In a few years time, only agencies who can execute guaranteed, measurable strategies – and not those with the standard fee-based offering we have today – will survive the cull. Agencies will generate value by bearing the risk of failed campaigns. In other words: agency services need to become scalable products.

As for us, we’ve taken the leap head first into ‘results-driven’ services. What does that look like? Well, that’s a story for another day.

Do you work in or with a digital / creative agency? What are your thoughts on our industry? Let me know in the comments!

Edit: This post was originally written several years ago when I first realized that my agency business was on the verge of flying off the abyss (metaphorically speaking). I’ve updated it to reflect my current thoughts.