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Your Team Got More Productive. Did Your Business? · Uphoff on Media Podcast

• 0:02
  SPEAKER_00: It's Tony.
• 0:03
  SPEAKER_00: Everywhere you turn right now, there's another story about agentic AI and productivity.
• 0:08
  SPEAKER_00: Teams doing 10 times the work, sometimes more.
• 0:11
  SPEAKER_00: Those stories have moved from early adopters into the mainstream
• 0:14
  SPEAKER_00: across almost every kind of business.
• 0:18
  SPEAKER_00: Here's the problem.
• 0:19
  SPEAKER_00: Productivity gain isn't a revenue gain,
• 0:21
  SPEAKER_00: and nowhere is that truer than in B2B services,
• 0:24
  SPEAKER_00: where agentic workflows are pushing the shift to services software faster
• 0:29
  SPEAKER_00: than most firms can reprice.
• 0:32
  SPEAKER_00: In this episode, your team got more productive, did your business?
• 0:36
  SPEAKER_00: I used three recent conversations with services firms to show why you need two numbers, not one.
• 0:42
  SPEAKER_00: The output multiple measures productivity,
• 0:45
  SPEAKER_00: the scale multiple measures whether your business actually got bigger.
• 0:49
  SPEAKER_00: Okay, let's get to work.
• 0:54
  SPEAKER_00: Agenic AI is multiplying what service teams produce.
• 0:58
  SPEAKER_00: Bill by the hour and you just handed the game to your clients.
• 1:04
  SPEAKER_00: This fall,
• 1:04
  SPEAKER_00: I've heard the same story three times from three different businesses,
• 1:08
  SPEAKER_00: a B2B ad agency, a PE-backed marketing services firm, and an AI consultancy.
• 1:15
  SPEAKER_00: Each has rebuilt real work aroundogenic workflows,
• 1:18
  SPEAKER_00: and the gains they describe don't round to a percentage.
• 1:21
  SPEAKER_00: They round to a multiple, 10 times, sometimes more.
• 1:25
  SPEAKER_00: The productivity is real.
• 1:26
  SPEAKER_00: The payoff isn't automatic.
• 1:28
  SPEAKER_00: A multiple of output is not a multiple of anything you get paid for.
• 1:33
  SPEAKER_00: If you bill by the hour and your team now does in one hour,
• 1:36
  SPEAKER_00: what used to take 10, you just gave your clients a 90% price cut.
• 1:40
  SPEAKER_00: You worked hard for it,
• 1:41
  SPEAKER_00: they didn't ask for it,
• 1:43
  SPEAKER_00: and the invoice looks exactly the same as it did last year, only smaller.
• 1:49
  SPEAKER_00: The number everyone quotes isn't the number that pays.
• 1:52
  SPEAKER_00: Two numbers are getting blurred together in almost every conversation
• 1:56
  SPEAKER_00: about agentic AI and services businesses.
• 1:59
  SPEAKER_00: Pull them apart and the picture gets much clearer.
• 2:03
  SPEAKER_00: The output multiple,
• 2:04
  SPEAKER_00: how much more a person produces on a given workflow now that agents do most of
• 2:09
  SPEAKER_00: the execution.
• 2:10
  SPEAKER_00: This is the multiple everyone quotes.
• 2:13
  SPEAKER_00: The scale multiple, how much more revenue each person brings in.
• 2:17
  SPEAKER_00: Revenue per employee now divided by revenue per employee the year before agents.
• 2:24
  SPEAKER_00: $150,000 ahead to $300,000 is a scale multiple of two.
• 2:29
  SPEAKER_00: This is the number that shows up in the P&L and eventually in the valuations.
• 2:34
  SPEAKER_00: The gap between the two is what you're handing your clients for free.
• 2:39
  SPEAKER_00: Last week,
• 2:39
  SPEAKER_00: and before you flatten the org chart,
• 2:41
  SPEAKER_00: I argued that revenue per employee is the number to measure
• 2:45
  SPEAKER_00: before you restructure around AI.
• 2:47
  SPEAKER_00: This is the next question.
• 2:49
  SPEAKER_00: How did the number go up?
• 2:51
  SPEAKER_00: Two businesses can post the same improvement and be building two different companies.
• 2:56
  SPEAKER_00: Revenue per employee is the right yardstick because the one software companies use
• 3:00
  SPEAKER_00: to grade themselves and services businesses are about to be graded the same way.
• 3:04
  SPEAKER_00: The median price SAS company now does about $175,000 of ARR per employee according
• 3:13
  SPEAKER_00: to Benchmark's 2026 data.
• 3:16
  SPEAKER_00: The largest agency holding company runs well below that.
• 3:20
  SPEAKER_00: WPP booked 11.4 Billion pounds of revenue,
• 3:25
  SPEAKER_00: less pass-through costs in 2024 with an average
• 3:29
  SPEAKER_00: of 111,281 people per its 2024 results.
• 3:29
  SPEAKER_00: About 102,000 pounds or roughly $130,000 per person by my math.
• 3:32
  SPEAKER_00: Margins tell the same story.
• 3:43
  SPEAKER_00: The average digital agency earned a 13% net margin last year, according to Promethean Research.
• 3:51
  SPEAKER_00: Its size data is the whole problem in one line.
• 3:54
  SPEAKER_00: Agencies under 10 people run 19% margins and agencies with more than 50 people run 8%.
• 4:02
  SPEAKER_00: In the agency business, getting bigger makes the margin worse.
• 4:05
  SPEAKER_00: That's been the history of the services model where every new dollar
• 4:09
  SPEAKER_00: of revenue shows up with a new salary attached.
• 4:14
  SPEAKER_00: The holding companies are raising revenue per person the old fashioned way.
• 4:18
  SPEAKER_00: The largest agencies already know the labor model is breaking and they're responding
• 4:22
  SPEAKER_00: by taking people out.
• 4:24
  SPEAKER_00: WPP went from 108,044 people at the end of 2024 to 97,388 at the end of June.
• 4:34
  SPEAKER_00: In March,
• 4:34
  SPEAKER_00: its CFO,
• 4:35
  SPEAKER_00: Joanne Wilson told analysts the company intends to, quote,
• 4:39
  SPEAKER_00: move away from time and materials and decouple revenue from headcount, end quote.
• 4:44
  SPEAKER_00: Omnicom,
• 4:44
  SPEAKER_00: which bought rival company Interpublic,
• 4:47
  SPEAKER_00: or IPG, expects to end the year with roughly 105,000 people down from about 120,000.
• 4:55
  SPEAKER_00: The cuts are the core of a $1.5 billion annual savings target from the merger,
• 5:01
  SPEAKER_00: one billion of it from Labor.
• 5:03
  SPEAKER_00: Its CFO added that the cuts,
• 5:05
  SPEAKER_00: quote, really have not impacted client-facing people very much, end quote.
• 5:10
  SPEAKER_00: One company,
• 5:11
  SPEAKER_00: One holding company CEO quoted anonymously in Forester's predictions 2026,
• 5:17
  SPEAKER_00: put the plan in a sentence.
• 5:19
  SPEAKER_00: By 2028, we'll double profits and have the people.
• 5:23
  SPEAKER_00: That raises revenue per employee.
• 5:25
  SPEAKER_00: It does it by shrinking the denominator, not by growing what each person produces.
• 5:30
  SPEAKER_00: I've led companies through structural disruption more than once,
• 5:34
  SPEAKER_00: and the pattern holds every time.
• 5:36
  SPEAKER_00: Cost cuts by time,
• 5:37
  SPEAKER_00: and the only thing that buys a future is a new answer
• 5:40
  SPEAKER_00: to what exactly are customers paying us for.
• 5:44
  SPEAKER_00: Publicist is the useful exception.
• 5:46
  SPEAKER_00: It grew 5% organically in the third quarter after 4.8% in the second while its peers cut.
• 5:53
  SPEAKER_00: That's a data business winning share built on Epsilon and now LiveRamp,
• 5:57
  SPEAKER_00: not a smaller team doing more.
• 5:59
  SPEAKER_00: Scale still works for the company that owns the data layer.
• 6:02
  SPEAKER_00: It stops working for everyone billing hours on top of it.
• 6:06
  SPEAKER_00: Outside services, the gap is even starker.
• 6:08
  SPEAKER_00: On October 21st,
• 6:10
  SPEAKER_00: Meta reported third quarter revenue up 26% from a year earlier
• 6:15
  SPEAKER_00: with headcount down 15% to 66,775.
• 6:20
  SPEAKER_00: That's revenue per employee up roughly half in a single year from more revenue
• 6:25
  SPEAKER_00: and fewer people at the same time.
• 6:28
  SPEAKER_00: Meta isn't an agency.
• 6:30
  SPEAKER_00: It is the comparison your board will make anyway.
• 6:33
  SPEAKER_00: The market doesn't pay for margin by subtraction.
• 6:37
  SPEAKER_00: Cutting your way to a better ratio has a second problem.
• 6:40
  SPEAKER_00: Buyers and investors can tell the difference.
• 6:43
  SPEAKER_00: Kroll's Summer 2026 Software Sector Update makes the point
• 6:47
  SPEAKER_00: with public software companies Median EBITDA margins barely move
• 6:51
  SPEAKER_00: across growth rates,
• 6:54
  SPEAKER_00: 28.9% for companies that are shrinking, 25.1% for companies growing faster than 20%.
• 7:00
  SPEAKER_00: The multiples move enormously from 2.4 times next year's revenue for the shrinkers
• 7:07
  SPEAKER_00: to 7.2 times for the fastest growers.
• 7:10
  SPEAKER_00: The market is paying for growth, not margin.
• 7:13
  SPEAKER_00: Services businesses won't be graded more kindly.
• 7:16
  SPEAKER_00: A firm that gets to 40% EBITDA by cutting people is more profitable and no more valuable.
• 7:22
  SPEAKER_00: A firm that gets there by growing revenue per person has built something
• 7:25
  SPEAKER_00: a buyer will pay a multiple for.
• 7:29
  SPEAKER_00: Here's an Uphoff advisory framework to put both numbers to work.
• 7:33
  SPEAKER_00: I call it the scale multiple map.
• 7:36
  SPEAKER_00: Picture a simple two by two.
• 7:38
  SPEAKER_00: Across the bottom is your output multiple, how much more each person produces.
• 7:42
  SPEAKER_00: Up the side is your scale multiple, how much more revenue each person brings in.
• 7:47
  SPEAKER_00: Low on both, you're in the business as usual.
• 7:49
  SPEAKER_00: The agents are a pilot, a tool, or a line in the credentials deck.
• 7:54
  SPEAKER_00: High output, low scale, you're giving it away.
• 7:56
  SPEAKER_00: That's where most of today's productivity stories live.
• 8:00
  SPEAKER_00: Real gains priced by the hour pass straight through to the client.
• 8:04
  SPEAKER_00: Low output, high scale.
• 8:06
  SPEAKER_00: That's margin by subtraction.
• 8:08
  SPEAKER_00: The holding company playbook.
• 8:09
  SPEAKER_00: Revenue per person goes up because headcount goes down, not because anyone produces more.
• 8:14
  SPEAKER_00: It works until there's nobody left to cut.
• 8:17
  SPEAKER_00: High on both is team scale.
• 8:19
  SPEAKER_00: The gain lands in your P&L.
• 8:20
  SPEAKER_00: That's the square you want.
• 8:22
  SPEAKER_00: Team scale is the next rung up from solo scale, a model I wrote about earlier this year.
• 8:27
  SPEAKER_00: SoloScale is one expert with agents running from $250,000 to $5 million in revenue.
• 8:34
  SPEAKER_00: TeamScale is a small senior team doing the same thing at roughly $400,000
• 8:39
  SPEAKER_00: of revenue per employee.
• 8:41
  SPEAKER_00: That's two to $3 million with five to eight people, up to 25 or 30 million with 60 to 75.
• 8:48
  SPEAKER_00: At the holding company rate, booking that same 30 million takes more than 200 people.
• 8:54
  SPEAKER_00: The full map with what each square means for your business is in the post or
• 8:58
  SPEAKER_00: at upoffadvisory.com slash frameworks.
• 9:08
  SPEAKER_00: Three ways firms are getting there, build it, buy it, or sell it.
• 9:13
  SPEAKER_00: The three conversations I opened with mapped to three different routes into that top right box.
• 9:18
  SPEAKER_00: I've changed identifying details, the math is theirs.
• 9:22
  SPEAKER_00: Build it.
• 9:22
  SPEAKER_00: The BE-backed marketing services film built a series of agentic workflows.
• 9:26
  SPEAKER_00: Before, it hired three people on average for every incremental $750,000 of revenue.
• 9:32
  SPEAKER_00: Since then,
• 9:32
  SPEAKER_00: it has added nearly $5 million of revenue from new clients and
• 9:36
  SPEAKER_00: from expansion inside existing ones with headcount flat.
• 9:40
  SPEAKER_00: Under the old ratio, that $5 million would have met 20 new hires.
• 9:43
  SPEAKER_00: It made none.
• 9:44
  SPEAKER_00: Its scale multiple will take a few quarters to read.
• 9:47
  SPEAKER_00: The 20 salaries it never added show up in the P&L today.
• 9:52
  SPEAKER_00: Buy it.
• 9:53
  SPEAKER_00: The agency is using an acquisition to add AI capability with a target
• 9:56
  SPEAKER_00: of taking EBITDA from 20% to 40%.
• 10:00
  SPEAKER_00: That plan can go two ways and the math shows why the route matters more than the number.
• 10:05
  SPEAKER_00: Cut about a quarter of the cost base with flat, revenue flat and 20% becomes 40%.
• 10:11
  SPEAKER_00: That's margin by subtraction or hold the team roughly where it is.
• 10:16
  SPEAKER_00: Grow revenue by about 60% and keep cost growth under a fifth
• 10:20
  SPEAKER_00: and 20% also becomes 40% with revenue per person landing right around
• 10:25
  SPEAKER_00: the team scale line.
• 10:26
  SPEAKER_00: Same margin, two very different businesses and per crawl, two very different multiples.
• 10:33
  SPEAKER_00: Sell it.
• 10:34
  SPEAKER_00: The AI consultancy is building an agentic workflow app for
• 10:38
  SPEAKER_00: a multi-location consumer business with thousands of customers and a mix
• 10:41
  SPEAKER_00: of full-time and part-time staff that makes scheduling and billing a manual mess.
• 10:46
  SPEAKER_00: The new system takes those processes from weeks to hours.
• 10:49
  SPEAKER_00: That's an output multiple well past 10.
• 10:52
  SPEAKER_00: The question worth asking is who keeps it?
• 10:55
  SPEAKER_00: The client keeps every hour it saves.
• 10:57
  SPEAKER_00: The consultancy keeps only what it priced for.
• 11:00
  SPEAKER_00: Build that build as a project and the consultancy is giving it away on its client's behalf.
• 11:07
  SPEAKER_00: The solo scale version of build is my own.
• 11:10
  SPEAKER_00: I built Uphoff Advisory's client tools,
• 11:12
  SPEAKER_00: the Uphoff Value Index,
• 11:14
  SPEAKER_00: the Sales Talent Matrix,
• 11:15
  SPEAKER_00: and the Marketing Talent Matrix,
• 11:17
  SPEAKER_00: along with the website and the system I run engagements on,
• 11:20
  SPEAKER_00: at roughly a 10 to 1 ratio of output to time against what
• 11:23
  SPEAKER_00: the same work would have taken before agents.
• 11:26
  SPEAKER_00: I did roughly 90% of it myself for the last 10% authentication,
• 11:32
  SPEAKER_00: secure data storage, and wiring it all into one client portal.
• 11:35
  SPEAKER_00: I brought in a developer.
• 11:37
  SPEAKER_00: AI didn't replace him.
• 11:38
  SPEAKER_00: It made me a much better client because I handed him a working spec instead of a rough idea.
• 11:45
  SPEAKER_00: The judgment didn't get a discount.
• 11:47
  SPEAKER_00: Scaling yourself and automating yourself are not the same thing.
• 11:51
  SPEAKER_00: Automating hands execution to something that isn't you.
• 11:54
  SPEAKER_00: Scaling extends judgment that is still entirely yours to more clients more often.
• 11:59
  SPEAKER_00: Every story above is the scaling story.
• 12:02
  SPEAKER_00: The research, the drafts, the versioning, the scheduling, the reporting all got cheaper.
• 12:06
  SPEAKER_00: The judgment about what the work should be didn't get cheaper at all.
• 12:12
  SPEAKER_00: My pipeline versus forecast tool weights a strong verbal awaiting signature at 90%,
• 12:18
  SPEAKER_00: a confirmed proposal at 50%,
• 12:20
  SPEAKER_00: a contact made at 10%, and an assigned account nobody has touched at zero.
• 12:24
  SPEAKER_00: No agent came up with those weights.
• 12:26
  SPEAKER_00: That's decades of watching sales forecasts inflate and collapse written down
• 12:31
  SPEAKER_00: so it can run without me in the room.
• 12:33
  SPEAKER_00: Writing it down is the step most firms skip.
• 12:36
  SPEAKER_00: In most agencies,
• 12:38
  SPEAKER_00: Agencies taste lives in the heads of three or four people and moves
• 12:42
  SPEAKER_00: by apprenticeship.
• 12:43
  SPEAKER_00: A junior designer shows work to a creative director hears,
• 12:47
  SPEAKER_00: no, not like that, and slowly absorbs the standard.
• 12:51
  SPEAKER_00: Agents don't apprentice.
• 12:53
  SPEAKER_00: As Digiday put it, a thousand ad variants now cost what five used to.
• 12:57
  SPEAKER_00: That's a production statistic.
• 12:59
  SPEAKER_00: A thousand variants of mediocre is a very efficient way to dilute a brand.
• 13:04
  SPEAKER_00: Taste that's codified in standards,
• 13:06
  SPEAKER_00: evaluation criteria, and examples of almost right but wrong scales.
• 13:11
  SPEAKER_00: Taste that lives in a creative director's head leaves when she does.
• 13:17
  SPEAKER_00: Keeping the multiple is a pricing decision.
• 13:19
  SPEAKER_00: Everything in the top right box on the framework depends on one decision,
• 13:23
  SPEAKER_00: what the client pays for.
• 13:25
  SPEAKER_00: As I argued in thanks for the lecture on price,
• 13:28
  SPEAKER_00: most pricing gets set against cost and never gets rechecked.
• 13:32
  SPEAKER_00: In a business whose cost to deliver just fell by an order of magnitude,
• 13:37
  SPEAKER_00: that habit is now a productivity multiple turns into a discount,
• 13:40
  SPEAKER_00: is how a productivity multiple turns into a discount.
• 13:43
  SPEAKER_00: The largest agencies see it and are moving slowly.
• 13:47
  SPEAKER_00: WPP CEO Cindy Rose said in August that outcome-based pay will quote-unquote take
• 13:53
  SPEAKER_00: a few years and WPP currently has one client,
• 13:57
  SPEAKER_00: Jaguar Land Rover, paying against business and brand metrics that clients set.
• 14:03
  SPEAKER_00: At Pipeline 360, we built the business around a demand as a service.
• 14:07
  SPEAKER_00: Clients paid for demand delivered, not hours worked.
• 14:10
  SPEAKER_00: It works.
• 14:10
  SPEAKER_00: It also teaches the lesson every services firm is about to learn.
• 14:14
  SPEAKER_00: Whoever defines the outcome controls the economics.
• 14:17
  SPEAKER_00: B2B Marketing has already run one big experiment in outcome pricing.
• 14:22
  SPEAKER_00: It was called Cost Per Lead and it taught an industry to apply the wrong outcome.
• 14:26
  SPEAKER_00: Done right, it looks different.
• 14:28
  SPEAKER_00: A base fee that pays for senior judgment plus a variable piece tied to a number of
• 14:32
  SPEAKER_00: the clients CFO already tracks and trusts.
• 14:34
  SPEAKER_00: Pipeline created, win rate, payback on acquisition cost.
• 14:39
  SPEAKER_00: Never a metric the agency invented to make its own dashboard look good.
• 14:44
  SPEAKER_00: By 2029, the middle of the agency market will be gone.
• 14:48
  SPEAKER_00: By the end of 2029,
• 14:50
  SPEAKER_00: the fastest growing B2B agencies will clear $400,000 in revenue per employee.
• 14:55
  SPEAKER_00: They'll have stopped billing hours for execution.
• 14:57
  SPEAKER_00: They'll get paid on a number.
• 14:59
  SPEAKER_00: The client CFO already reports to the board.
• 15:02
  SPEAKER_00: The squeeze come from three sides.
• 15:06
  SPEAKER_00: The holding companies that own the data keep getting bigger,
• 15:09
  SPEAKER_00: the AI tools keep getting cheaper,
• 15:11
  SPEAKER_00: and client teams keep pulling production in-house.
• 15:15
  SPEAKER_00: 82% of ANA members already ran an in-house agency as of 2023,
• 15:21
  SPEAKER_00: up from 58% a decade earlier, and agents speed that up.
• 15:26
  SPEAKER_00: The firm that disappears is the one in between.
• 15:29
  SPEAKER_00: 50 to 500 people billing hours for execution, already earning 8% margins.
• 15:35
  SPEAKER_00: Too big to be senior and too small to own the data.
• 15:40
  SPEAKER_00: If you're building,
• 15:40
  SPEAKER_00: running,
• 15:41
  SPEAKER_00: funding, or starting a services business, measure both numbers this quarter.
• 15:46
  SPEAKER_00: Pick one workflow and calculate its output multiple.
• 15:49
  SPEAKER_00: Then calculate your scale multiple for the whole business.
• 15:52
  SPEAKER_00: If the first is 10 and the second is barely above one,
• 15:56
  SPEAKER_00: you already know where the difference went.
• 15:58
  SPEAKER_00: The multiple is already here.
• 16:00
  SPEAKER_00: The only question is whose P&L it lands in.
• 16:06
  SPEAKER_00: Well, that's the episode.
• 16:07
  SPEAKER_00: To download the scale multiple map and plot your own business,
• 16:11
  SPEAKER_00: go to the post on Uphoff on Media and Substack
• 16:14
  SPEAKER_00: or visit uphoffadvisory.com slash frameworks.
• 16:18
  SPEAKER_00: And one favor,
• 16:19
  SPEAKER_00: if the show is useful,
• 16:20
  SPEAKER_00: follow it and leave a rating or review on Apple Podcasts or Spotify.
• 16:24
  SPEAKER_00: It's the easiest way for other operators to find it.
• 16:27
  SPEAKER_00: Back at it next week.