All right. We are on part three of How To Grow Your Agency. I love this series. It’s what I do all day is I just go to bed thinking about how to grow. I wake up thinking how to grow. I’m kind of obsessed. That has its pros and cons, to be honest with you. But one of the pros isI am decent at growing the agency. The cons is you’re never really that satisfied and it’s hard to enjoy the growth. I’m terrible at enjoying the growth. So do not look at me as a model citizen.But if you are looking at me as someone who can help you grow your agency, I’m Probably the guy for you. Okay, so step one we talked about already and that’s just getting your niche right and that’s hard. You got to start saying no to people so you can start saying yes to the right people. Go up market number one. Number two, we talked about your ideal customer, how to pick it and then how to turn that into a total addressable market and then use that total addressable market like ABM on steroids. Upload that to platforms like LinkedIn or metadata or StackAdapt for programmatic and essential tell every one of your ideal customer personas in the world. Slash The markets you service why they need your brand.And if you want to get them to the sales call, you need an incentive, like a gift card that can get a human who’s currently on social media platforms and not thinking about buying to create some type of intent and get them from apathy to action. On my YouTube, you can also see my keynote called Customer Generation, and that’ll also walk you through this methodology.Okay, now for part three, I call this financial bucketing.
When I look at your business,I have a little saying that says, Show me where you spend your money and I’ll tell you what you’re great at. So almost always as a business owner, when I’m bad at something and I’m struggling with something, it’s because I’m underinvested in something.For example, if your team’s not getting the results you want, you can try to hire new people.That’ll maybe work, maybe not. Or you can ask yourself structurally, am I giving the right people enough time to do great work? Okay? And what does it mean to give people more time?It means lowering your gross margin target.See what I’m saying?So everything comes back to your financial modeling. Now, the way I like to organize an agency and really optimize accelerator, decelerate it, or really get it to work better is by bucketing the business into these buckets of revenue. So if you’ve been on myYouTube channel, you can find the agency exact dashboard I use. It’s on a loom video and on that dashboard I track as a percent of revenue the following categories operations and you can see my benchmarks for what I think you should be targeting and operations in that video and on that asset,I talk about sales marketing. So what percent of revenue should you invest in sales? What percent of revenue should invest in marketing? What percent of revenue should you invest in your finance department? What percent of revenue should you invest into people ops? What percent of revenue should you invest in a general HR? Those are your buckets. So you should think about your business. Now, what I love about this is it lets me see how i get to my EBITDA target as well.So essentiallyI don’t have 100% of revenue available.
Let’s say I have 70% of revenue available because I want to 30% EBITDA So of that70% of my money. How should I Categorically invest it to hit my OKRsand my goals? And when we talk about how to grow your agency, which this series is all about,what we have to be real about,is that you’re most likely drastically underinvested in sales and marketing,because I’m gonna give you a little bit of my story over the last three years.Three years ago,it was post-COVID,and between pre-COVID and post-COVID I only grew 3%.So between 2019 and 2020,I only grew 3%and I was at $6 million.Top line revenue.After COVID,I was able to grow from $6 million to $14 million. And from that last year,I was able to grow from $14 million to $22 million.Now, the reasonI was able to do that was from the first two videos you already saw. Choosing, my vertical identifying my ideal customer persona,and then finding all the people in the marketsI serve that match that ICP via TAM, uploading them to social media, and then advertising to them using an incentive like $105 giftcard to get them to a 30 minute sales meeting. And I essentially my reps wake up every morning to five or six calls each with named accounts. That’s how I did it.Now I had to pay for it.So currentlyI am spending 35% of revenue on sales and marketing.If you’re not spending that and you’re not somehow magically good at like organic social, which I’m not, I try to be. Thanks for watching my videos, but I’m notGary Vee call a spade a spade. I’m good at what I’m Good at and that’s capitaland finance and allocation and strategy. And unfortunately, that’s expensive. There are no cheats. There is no fairy tales. You’re not going to hustle your way to success.SEO is great. It’s somewhat affordable. It has a sunk cost. You can hit against it, but it has no firmographics. So when you raise your rates, SEO works worse. When you choose a niche, SEO works worse because search volume goes down.
So if you really want to be successful here, you’re going to have to spend a lot more on sales and marketing. Now you can’t have your cake and eat it too. So if you’re going to spend 35% of revenue on sales and marketing, don’t expect to have a bunch of EBITDA. So for the last ten years, I’ve ran us on less than 5% EBITDA. So that I could reinvest my own money, not in my paycheck menu. And you need to hear this many of y’all You’re spending way too much on yourself. I do M&A and I look at PNLs all day. I can’t tell you how many founders of six to 7 to $3 million agencies are paying themselves a sixth or a fifth of revenue. I’m paying myself like a 28th of revenue. Delayed gratification is critical if you want to build a big shop. You can’t take all the money and put it in your pockets. You got to stay humble. You got to stay in that affordable mortgage. You stay in that affordable reality, and you’ve got to live within your means if you want to swing for the fences. I’m bootstrapped. I don’t got any daddy bank giving me money. I’m bootstrapped and I have to be tight with my financial modeling. As you start to scale, you can lower your percent of revenue into sales and marketing because you’re going to start to see diminishing marginal returns. In other words, your TAM is only so big, you can only advertise to them so much. So eventually, as top line revenue grows, you’re going to hold your sales and marketing investments as a fixed cost, and those are going to become smaller percents of revenue as you build your top line revenue. And essentially, once you get to a certain size where you’re seeing diminishing marginal returns on the capital, you’re deploying to your sales and marketing, that’s when you stop deploying more capital and you put yourself in EBITDA mode because you’ve now captured the most market share you can with your current strategy. That’s when you pivot to EBITDA mode. Another way of looking at this is you pivot to EBITDA mode 2 to 3 years before looking at an exit or a capital event. So you want to grow your business as hard as you can have, as little as EBITDA as humanly possible until you’re ready to have a payday. And then when you’re ready to have a payday, you put yourself in EBITDA mode. You start diminishing those investments. You lower top line revenue growth. You pump the bottom line, and then you’re going to get that 8 to 12 x multiple. You’ve always dreamed of on your EBITDA. So we talk about how to grow your agency first. It’s your niche, then it’s your ICP and your TAM, and then it’s time to get your buckets right.