For episode 2 of Agency Talk Season 2, Marcus and Tim spoke with Alex Langshur, current Executive Vice President of Dentsu and a co-founder and former owner of Cardinal Path - one of the largest agencies in the United States.
With scaling your agency being a core theme at Agency Talk, Alex shared with Marcus and Tim his own thoughts on how to do this successfully. To Alex, scaling is built on two pillars: knowing your time and knowing your cost.
Pricing and scale are two opposite edges of the same sword. Without accurate pricing to support your operations, you cannot scale them to meet the growing demand for your team’s expertise. Check out some of Alex’s thoughts on this concept in the video below or keep reading for a recap!
Watch Alex’s Talk with Marcus and Tim Here:
Achieving Scale is Built on Knowing Cost
Alex: “Calculate your cost per hour to serve, because if you don’t know that, you won’t know what you need to charge your clients. [...] [Agency owners] don’t know that their margins are meager and there’s a certain level of fear and there’s competition out there. Unless you’re armed with the numbers to say ‘I can’t go below this’ - unless you have that knowledge - you’re kind of flying blind.”
As Alex said in the video, agency leaders must know what they are selling to their clients if they want to price their expertise and services accurately. Other businesses are paying your business for your team’s knowledge, which needs to be meted out in hours.
Time is a core factor of production. When threaded together with processes that optimize business hours, you can create a more accurate cost structure for your agency.
How do you evaluate your pricing and cost at your own agency? Alex recommends that you start with this simple process:
Calculate the cost per hour to serve a client
Calculate how long a specific task takes to complete for a client
In many cases, agencies are often surprised by how low their pricing might seem after doing these calculations. According to Alex, the cost of service should range between $140-180 USD before adding margins.
Why do agencies price their services lower than expected? There could be a number of reasons. For example, you may feel hesitant to price too high above your local competitors and risk losing potential clients to them.
Instead of worrying about competition, Alex advises instead seeking clients that are willing to buy at your price point because they believe in your team. When you have a true team of experts working to drive elite results for your clients, their faith and investment in your agency will prove more than justified.
Time Drives Cost
Alex: “The factor of production is people, and what we’re selling is knowledge, and that knowledge is meted out, basically in hours. The core unit that relates to the factor of production is time. There’s no way getting around this.”
Pricing your services is built on understanding what your team members are doing for your clients during the day and how much time is required to complete specific tasks. How do you determine these numbers, though?
The answer is simple, yet with one caveat. Timesheets are the most effective and efficient method for calculating average turnarounds for specific tasks.
However, the caveat is that agency owners have to adhere to the same timesheet process as their team. Nobody enjoys recording timesheets necessarily, but when you lead by example, others will join you.
The One Big Thing: Know Your Time and Know the Cost Behind It
Alex: “There’s two: One thing they need to do is understand what their process is. They really need to take a look at all of their numbers and figure out what is the hourly rate that it costs them to have somebody working for them. [...] Secondly, you need to understand what people are doing during the course of the day. Let me be clear, I hate doing timesheets, but I do timesheets. You lead by example.”
Agency scalability is built on knowing the cost of your team’s expertise and the time that it takes to perform specific tasks as an extension of that valuable knowledge. When you have these two pillars accurately distilled in terms of hours and cost, you can create an infinitely more scalable business model that allows you to grow your agency from startup to rockstar.
After you’re done reading this recap or watching the episode in full, make a plan to re-evaluate your agency’s timing and costs. You might be surprised by what the numbers tell you, but this also presents an incredible opportunity to further refine your processes and create a more scalable business model!