Is this a good investment for your agency?
You’re faced with a problem in your agency:
- You need more leads
- You need more capacity
- You need more visibility
- You need less client churn
Before we evaluate solutions, let’s remember that some problems aren’t worth solving (yet). There are more valuable places to invest time and money.
If this problem deserves attention now, let’s look at a few ways to evaluate solutions, and then unpack a few examples:
Fit-to-purpose: ask the questions to get beyond symptoms and pinpoint the exact problem you want to solve. Then take a critical look at the options you’re considering to see if they match up. Also, have you done the due diligence to discover the best available solutions?
Investment shape: on a timeline, compare each option’s investment (time and money) required, expected return/value, and risk level.
Opportunity cost: consider other ways to invest the time and money you could spend solving this problem. How might the return compare?
Now, let’s take a look at a few examples using some of the evaluation approaches above:
- Increased delivery capacity: you have more quality, sustainable demand than you can fulfill. So, you decide to hire another senior developer. You expect to bill $300k/year and budget $150k/year in total cost (salary, benefits, paid leave, tools/training, etc). With a 25% operating cost in the firm, you’re spending roughly $3 to earn $4. Typically, we are quite pleased with a return like this. It’s not risk-free (a hire could not work out well or client work may decrease), but if done with care, the risk is modest.
- Increased marketing reach: you want to increase your qualified leads, so you decide to invest 1% of AGI (gross income) in a new marketing channel. If this investment increases your AGI 10%, and you have a 25% operating margin, you’re spending $1 to earn $2.50. However, an investment in a new channel may carry a lot of risk; it may have a long delay in returns or no returns.
- Increased delivery margin: you want to improve your delivery profit, so you invest in people, software, consulting, or training. For every $1 spent, how much additional operating profit is a good return? And how does risk factor in? You’d want very low risk if you spend $1 to get $1.25. But spending $1 to get $5, even with more risk, may be reasonable.
- Passive investments: if you don’t see any great ways to invest your operating profit back in the firm, you might put the money in an index fund and get a 7% annual return. In this case, you’re essentially spending $1 to earn $1.07. There is still some risk, but if you buy and hold, that risk is likely limited; your capital is just tied up.
We can save ourselves a lot of money, time, and disappointment with a careful look at:
- Fit-to-purpose
- The expected timeline of investment, return, and risk
- Opportunity cost
Our investment capital is not unlimited, and it’s the fuel for our future. Let’s use it wisely.