Latest / Agency Uncovered / How to Choose the Right Agency Niche: A Guide to Finding Your Most Profitable Agency Niche
Transcript
- 00:00:00 — HOST How to choose the right agency niche. We are here with Mads Singers. Let's get started. So Mads, how do we choose the right agency niche? 00:00:10 — MADS Choosing the right agency niche is not necessarily that difficult, but most people get it wrong. The most important thing when starting — not just an agency, any company really — is figuring out: what is your one repeatable, scalable process? When you look at some of the most successful companies in the world — McDonald's, Coca-Cola — they could add millions of products to their inventory, but they don't. Because they have found what works for them. 00:00:43 — MADS The biggest thing is, when you're running an agency — at least in the early days — what most people do is this: let's say it's a social media agency. "Anyone, come to us — we do social media." But social media is a lot of things. Doing Pinterest is not the same as doing YouTube, and doing YouTube is not the same as LinkedIn. The problem is, because people are so desperate for customers, they're constantly saying, "Anyone with this sort of stuff, come our way." And what ends up happening is that very often the founder just gets stuck in it. It's the founder who figures everything out, the founder who does the things — and they have such a hard time growing, because an agency like that won't grow. The founder is the limiter. The founder basically holds it down, because there's no one they can hire who knows all the stuff they know — at least not at a reasonable price. So they end up doing it all, running around like crazy. Sometimes they can make money doing that, but it's not how you run a business. 00:01:47 — MADS If you want to run a business, the way to do it is to ask: what's the one thing that you're best at? If you're a social media agency and you've been doing all of this stuff, what I recommend is: look around at your clients. Which are the ones you got the best results for, and who have generally been the best clients — the clients that were the least hassle, paid you the most money, etc.? Look at them and see what you did for them. 00:02:05 — MADS Now, a lot of the time social media agencies will say, "But people come to us because they want everything." That might be what people want — but what businesses want more than anything is to make money. The reason they pay for social media is to make money. As an expert, if you turn around and say, "Yes, we can put content on Pinterest and LinkedIn and whatever — but for your niche, Instagram is where it works. We recommend putting all your resources into Instagram, and we promise you'll see a significant return — say 10x your actual money — whereas if we split it across the board, we can't guarantee anything." So look at yourself, look at your skills, look at your best clients, and figure out what the channels are where you're best. That way you can show you're delivering a great return for your customers — and then just niche down on that. 00:03:01 — MADS The challenge is, when you say "we do social media marketing," you'll probably talk to a lot of people — but the number of people who'll pay you a lot of money month over month for a long period of time, without being an absolute pain or costing a fortune to service — there aren't many of those out there. But if you niche down and say, "We've had a ton of success doing Instagram DMs on behalf of brands — that's where our clients make the money, that's what we do" — then, one, you can build a much more scalable, repeatable process. You can hire people who just do that one thing, instead of trying to hire people who know all 20 platforms. You just hire someone who is great at Instagram, and you create a great company process for how you deal with those DMs: how do we send them out consistently, how do we ensure we're getting a certain reply rate, a certain number of meetings booked, or whatever the criteria are. As an agency, you can spend all day, every day focusing on just that one process. 00:04:16 — MADS What this allows is scale — because any repeatable process can be broken into pieces. Maybe one person's job is to find and connect with the right people. Maybe one person's job is to write the right type of messages. And maybe you even have a third person who just deals with all the follow-ups and does the actual sales. By breaking it down — instead of having people who do 20 things, they now only need to be able to do one thing, and you can even break that one thing down further. That enables you to hire more affordable people, because they don't need the same level of skills. It enables you to train them faster, because you don't need to train them as much — you just teach them their part of the process. And most importantly, it enables you to get better results for your clients. When you can deliver better results — cheaper, more effectively, way faster — and train and try out people faster: ta-da, you've solved the puzzle of how to run an effective agency. 00:05:24 — MADS Agencies I know that follow this model — some are running 70, 80, some of them even 90% profit margins — because they have something they have perfected. They're so good at doing it consistently, their cost of delivering the service isn't that high, and they're so good at getting results that customers are very, very happy to pay for it. I'm using social as an example, but this works in so many niches everywhere. 00:05:48 — HOST Of course. So then — having the right agency business model: what does that mean, exactly? 00:05:55 — MADS For me, it is about finding that one process that is repeatable and scalable, and doing it over and over again — at least until you're making a few million. Sometimes, when you start making millions, you see, "Okay, all of our customers getting our one process now also need this very relevant related thing — maybe we should create a separate team to do that as well." But that doesn't mean go and do all of the stuff. It's: when you've perfected one process, add one more. 00:06:27 — MADS And it's way easier. When you're doing marketing for the agency and you go out there saying, "This is what we do — we win on Instagram DMs," people know exactly what they're getting. I don't need to explain what you're getting. Whereas when I say "we do social media," 17 different customers have 17 different expectations of what they'll get. And from a sales standpoint — let's say you're selling Instagram DM campaigns (I'm making this up, by the way — I don't know if anyone's doing exactly that) — if you go on Instagram and start messaging successful people who obviously have a lot of followers, you're going to have a much easier time finding clients. You can make case studies: "Here's how we helped three people by doing DM outreach to their audience — do you want us to make you a lot of money too? Yes or no?" Your whole sales pitch and everything just becomes so much easier. 00:07:25 — HOST And how do you know if your agency model fits the services you actually offer? 00:07:32 — MADS So again, the fit — it's really about looking at your skill set, your team's skill set. I typically say you can figure everything out, but what most agencies struggle with is depth: they're doing SEO, or cold email — pick one of these big niches — and they're trying to figure out a lot of stuff at the same time. Many people think niching down means saying, "We only work with e-commerce stores." Well — there are a million different e-commerce stores with different frameworks; some are B2B, some are B2C. That is very, very broad, and it's not a process. So think of niching down not as picking a vertical — think of niching down as picking a process. And when people do this — I've helped hundreds and hundreds of clients through this journey — when people do this, they win. 00:08:15 — MADS Many agencies spend three to five years getting to a point where the business is making good money, and it's typically because in the early days they were doing the "everyone come our way" thing. Then at one point they say, "Wait a minute — these two dentists are amazing to work with, let's try and get more of them," and at some point they automatically end up niched down. But they often waste three, four, five years before realizing: wait a minute, this is the way to run a business. 00:08:52 — HOST Right. So it's really finding that strong point, perfecting that process, and approaching your clients saying, "This is what we can offer you." So how do you ensure that your agency model is both profitable and also scalable? 00:09:00 — MADS Again, it's down to the model. When you've found your process, make sure it's scalable in the sense that you charge enough money to hire other people to do it. The biggest mistake I see: so many agencies say, "I'm the founder, I do all this stuff, so I'm okay with this money." But you always have to think: if you had to hire someone to do the work and still make a profit, what would the price need to be? Because you cannot grow if your labor is capped. You need to have the money to hire managers, the money for quality checking and staff, and so on. There needs to be capacity to grow, and the way you do that is by ensuring you have good profit margins. I generally never recommend agencies have less than 30% — if you're making less than 30%, increase your prices. 00:09:50 — HOST Okay. Well, a lot of people would argue that having a broad service offering will get you more clients. So why should you niche down if some companies do well going very broad? 00:10:05 — MADS The reality is, the few companies that succeed going broad generally succeed through a lot of willpower, a lot of resources, and so on. If you see any agencies doing exceptionally well while broad — had they instead niched down from day one, they would generally have been way more successful. So again: break things down into processes. Now, if you have a lot of resources — if you can start out by hiring ten people from day one — you might be able to do two or maybe even three processes, if you have a process owner for each. But most agencies get slowed down the most because they're spending so much time on delivery. If you want to run an agency efficiently, you want to get delivery to a point where it's very easy to run and repeatable. The more repeatable a process is, the more scalable it is — and the more consistent the results you get. 00:11:00 — HOST Okay. So what are the key metrics to know as an agency, as you're trying to make it more profitable and scalable? 00:11:10 — MADS The key thing to know is definitely your profit margins — you want to know how much it costs you to deliver. Very often in agencies, I actually recommend recording the staff's time — not to monitor them, but to understand what goes into which customer. I've worked with quite a few agencies that started monitoring time and then realized that the actual staff time going into some clients was more than the client was paying. The problem is, when you have no visibility, you don't know — and that happens a lot. So monitor time, not to sit on people, but to understand where the cost is going. Then you can go to a client and say, "Hey, we're investing this much to bring you results — you're going to need to pay more, or we part ways." 00:12:00 — MADS Then, the cost of acquisition. What does it cost you to acquire new customers? Often when people look at their business, they think about what it costs to deliver the service, but they don't look at what it costs to grow. As any company, you want to make sure you have the financial resources to actually grow. Customer acquisition cost is key, because it lets you understand how much you're paying to acquire customers — and if you say you pay nothing, you're wrong. Right now it might all come from referrals; many agencies grow only by referrals, and that's why they grow very slowly. You definitely want to start looking at what marketing channels you can utilize. And if you say you don't have enough money to do marketing — then you're not charging enough. You've got to bring money in to be able to afford marketing, and you have to have a budget for it. In most agencies, typically 20% of the overall budget goes to marketing and sales — for growing. 00:13:03 — MADS So you need to know your cost of acquisition, and you really want to know your customer lifetime value as well — because your customer lifetime value is what enables you to understand what you can afford to pay to acquire a customer. If you know that every customer makes you $200 profit per month, and an average customer stays ten months, that means a customer makes you two grand over their lifetime on average. Now, if you have to pay $500 in ads to bring in a new customer — that is good business. If you can pay $500 to bring in $2,000 of profit, that is generally good business. If you don't know those numbers — which many people don't — you go out and spend money on ads without knowing what you can afford to spend. You want to know those numbers. The agencies that win are the ones with the highest customer lifetime value — they can afford to pay more to acquire customers, they can do more marketing, and they can outcompete everyone else. 00:14:09 — HOST Thank you very much, Mads.