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How do world-class agencies continue to grow profitably and hit their goals, even through the choppy waters and challenges of agency life?
How do leaders like Tiffany Sauder, Marcus Sheridan, Jay Acunzo, Shama Hyder, David C. Baker, Nikole Rose, and Zeb Evans think?
Join Agency Journey host Jakub Grajcar as he interviews agency operators and leaders to share insights, actionable tips, and hilarious stories from the builders who live in the agency trenches.
Each episode focuses on crucial aspects of growing an agency like building the right team, delegation, project management, client success and retention, and operating frameworks like EOS.
Brought to you by ZenPilot: we help lead your agency through the final project management implementation you’ll ever need. Book a call to learn more at ZenPilot.com/Call.
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00:00
All right, welcome back to Agency Journey. This is your host, Gray MacKenzie from ZenPilot. And this week I've got the pleasure of bringing on my friend and longtime friend of the podcast here, Karl Sakas. Karl is the author of Work Less, Earn More, How to Escape the Daily Grind of Agency Ownership. He also wrote Made to Lead. He wrote The In-Demand Marketing Agency, more than 400 articles. Karl, that's a lot on agency management. Karl's a tremendous help
00:30
We're looking to scale profitably. So Karl, welcome back to Agency Journey. Great. Great to be here. I'm super excited to dig into the latest book. I did three reads of it. The first one was just skimming kind of the chapter like quick, quick glance through. And I was like, hey, let me just understand the structure here and where Karl's going. Probably a week later, had a weekend away. And so that was one of the books that came with me. And actually read the whole thing. But right before last, I was going to say last weekend, but we had a team off site.
01:00
Actually, it was the day before heading out, but skimmed through it for a third time. With any of these books, you pick up something new every time that you digest or read it. But tell me a little bit about the motivation for Workless Earnmore. Where did it come from? I've got some specific questions around the book itself that are run by you as well. In my work as an agency advisor, I noticed a theme.
01:30
agency owners that I was working with ultimately wanted to work less and earn more. I mean, I suppose everyone does, but agency owners should earn in a unique position to make that happen. The challenge is it requires a change from business as usual. And so based on my work directly with hundreds of clients all over the world, I was looking for patterns, looking for tools and steps and techniques to help people get there. And I put that into the book.
02:00
became work less or more. Yeah. For some of those, like the main patterns or principles, how do you, like someone says, Karl, okay, that sounds great. How do I work less or more? What's the answer? Start by getting clear on where you want to go. For instance, if we think of a continuum lifestyle agency is at one end, equity doing an exit as of the other, where do you fall on that?
02:30
of the continuum, lifestyle, or equity, or somewhere in the middle, it's especially important if your goal is to do an exit because the more optional you can make yourself, the better a deal you're likely to negotiate because you could walk away. Of course, it still applies if you lean toward the lifestyle side of things. When you're optional at a lifestyle agency, you are doing the things you want to do rather than all the things you have to do. So then, in clear on where you want to go is helpful since that impacts a lot of the other decisions.
03:00
So, that would be the starting point. Yeah. I think in the book, you talk about the four, is it stages of day-to-day involvement? Yes. Yeah. So, one of the keys, if you want to become more optional, which is stage four, understand where you are today. So, here are the four stages. And keep in mind, for people who are listening, think about where are you on these stages today and you can be in more than one. So, stage one is mandatory.
03:30
We have sort of the fuel gauge concept. Stage one, your mandatory, you can never get away. It's basically you and a team, but you're stopped doing most the work. Stage two goes up to necessary. Your team's handling some things, but not always making the best decisions. You have a lot of firefighting to do. When you get to stage three needed, not necessary. Stage three, you can go on vacation, you can get away, your team's making generally good decisions, but you're also not gonna disappear
04:00
And if you choose, you can pursue going from stage three needed to stage four optional. That would be the full tank on the fuel gauge. And in that case, you are just that. You're choosing to do what you want to do. And if you want, you could do an exit. So within that, of course, some people might be, for instance, maybe mandatory for closing sales opportunities, but maybe they are optional or needed stage three on the initial screen. You can be in more than one place.
04:30
But there were specific things you can do to move up if you choose. Right. That makes sense. You've worked with hundreds of agency owners and leaders. Yes.
04:43
when most folks come to you, what stage are they at?
04:48
Usually, they have grown past mandatory and they are in stage two necessary or sometimes stage three needed. For instance, a client came to me a couple of years ago. They had heard me speak at one of my inbound talks and they were doing a lot of things really well, but ultimately the owners wanted to sell and they weren't in a position to do that. They were still serving as CEO and COO.
05:18
up, but there is still sorting through that. And so in that case, for them it was going from needed to optional. With several years to do, you're not going to make that jump right away, but ultimately I help them outline a succession plan and I'm currently taking them through that now. Other people may be more of a kind of hair on fire situation, where they're in stage two and they're necessary and they're trying to get to needed stage three.
05:48
and might involve building systems. Hopefully they have their project management, agency management system at that point, kind of thing. So usually people have moved past mandatory to either stage two or stage three. Yeah.
06:06
You talk a good amount in the book about growing your support team and listing your team as part of this mission, kind of all this stuff. And I'm sure you hear or sense the objection from people that were on my team might help me work less, but how does that make me earn more at the same time? Yeah. How do you deal with that friction as agency owners can process that it's possible to have
06:36
in and create more wealth for themselves while at the same time they're working less. Some of the reluctance I hear about delegation is, as you mentioned, around people saying, well, I'm having to pay people more, there's more money out the door. The assumption is that if you're hiring more people, they are either highly billable and so you're billing them out for far more than you're typically paying them or they're in a role that serves in a multiplier effect. Like the first time an agency hires a project manager, they should be profitable, but they
07:06
but they may not be enormously profitable, except, congrats, now they can coordinate five or 10 other people who are way more available. That's the multiplier effect. Same thing is true, for instance, if you have someone that you're promoting, maybe they're not going to a miniature role, but they're going to a lead role, like a lead developer, lead marketing strategist, that kind of thing. Part of their time is to now mentor the more junior team members. So although their senior volables
07:36
that they're helping improve the billability of everyone that they're supporting. Same thing is true about adding middle management, right? You don't wanna overdo it. You don't wanna make the agency top heavy. But if you think about span of control, how many people are reporting to each person? The ideal is in the neighborhood of five to seven people. So, you know, for people listening, if you've got 10 people reporting to you and you're stressed out, that's part of why. And it may make sense to start adding some hierarchy
08:06
super flat in terms of the org structure, that can be a big factor. Generally, if you're hiring people, they should either be directly profitable or indirectly profitable. Say if you're hiring you're for a salesperson, they're going to be billing nothing, but hopefully they're producing hundreds of thousands of thought millions of dollars in revenue that you as the owner didn't have to personally generate all of that yourself.
08:36
So, the book, I didn't mention, the website to go get the book is WorklessEarnMoreBook.com, right? Yes. So, if you go to WorklessEarnMoreBook.com that has all of the links to Amazon sites worldwide, you can get it in your choice of Kindle, paperback, or hardcover. That website, WorklessEarnMoreBook.com, also it has a way to download a free chapter. If you want a preview of the book, as well as get the free companion workbook, 40 plus pages to help you implement
09:06
what you're reading about.
09:09
I want to shift to the coaching side. We'll come back to the book as well. Yeah, but your first step is like, get really clear. What do you want? I think so much of life is figuring out what do we really want? Yeah, see I'm curious how much as you're coaching agency owners and leaders, how much are you having to help them kind of calibrate what they want? I remember feeling like, first year, 13 years ago,
09:39
our agency, then my goodness, if I could make $100,000 a year, that would be incredible. Yes. Which, you know, if I told you, hey, look, we're on this marketing agency, we've got four people, our goal is to get to 10, and boy, I'd be thrilled with $100,000 between salary and distributions. You know, internal car will be chuckling. Not naive, great. There's a lot of opportunity, but how often are you going to recalibrate what their goals are or just understand what's even possible?
10:09
Sometimes that starts when people reach out to me at the very beginning to see are we matched to work together. And there are usually a couple categories. Some people will get an email and it's like, Karl, I saw you speak at such and such where I read your book, where I did this and that, I've been following your emails and I need help. And usually in that case, it's sorting out the particulars because they're already familiar with my book. So also some people might be shopping around, but considering different options kind of thing.
10:39
And either way, part of my intake process is to ask about where have they been, where are they now, and where do they want to go using my pre-intake questionnaire, which I am very happy, by the way, when my clients steal a version of that. Yeah. I don't think people say in sales conversations, even if we don't work together, like just going through that process was helpful. So all I ask, where do they want to go? And also not just where do they want to go, but what's the timeline?
11:09
So sometimes it's, for instance, they might be 2 million a year in revenue now, and they want to get to 5 million in 5 years. That's dual. And it requires work to get there, to get there smoothly kind of thing. It would not be the case, say several years ago, an agency manager in Canada reached out and said, I want to go from 1 to 5 million in revenue in one year with great team retention.
11:39
from one to five million in one year is not likely, and it definitely would not be associated with strong team retention. In fact, he apparently had the team working for four months, 100 hours a week to double the annualize from half a million to a million. He was wondering why people were quitting. That was an unreasonable expension. Or another unreasonable, I was at an event in Colorado a few years ago, speaking about work less or more, it is sort of the
12:09
model and afterwards an agency said, okay, I want to become fully optional. She was mandatory to stage one necessary now, stage one and two. She wanted to go to stage four. She was like, I want to be there within a year and I want to make it so that I am optional and I only hear from someone, I don't know, I define someone to run the agency and I only hear from them three times a year.
12:39
I said, oh yeah, she said, Ian, I want someone who is like a promising rising star, but I will want to pay them $75,000 a year. And my diplomatic but blunt feedback was, you're probably not going to go from stage one, stage two, to stage four, optional in a year, especially if you don't have that number two on board already. And you're probably not going to get them for $75,000 a year.
13:09
to call you once every four months. I mean, this is more like a $200,000 plus person with some degree of profit sharing. And it's going to be hard to find someone from the outside to do that anyway. When you're asking them to take on a huge amount of responsibility, when you hire some extra money for that role, you don't know their character. You don't know if you can trust them. You're trusting them with your business. More, you know, the
13:39
if you have someone existing, get them promoted up, we can build a ramp up plan, things like that. That's doable, but ideally that takes a few years. So yeah, sometimes I am the realloting check that people may not always want to hear, but need to hear. Well, I think it could work both ways as well. So I feel like I have this conversation probably less frequently than you do, but still a good amount where
14:09
People are just thinking too small. So, we're class-erring more, feels like, oh, maybe I can go from 60 hours to 45 hours a week, and maybe I could make an extra $50,000 a year. And that might be, what's right for your situation, that might be realistic in a certain time period. But there's also just a lot of folks who think too small about what's possible. Not your Canadian friend. No, no, I was unable to go up too high, but I could went both ways now.
14:39
I think you're right. Sometimes I'll see people have smaller goals. For instance, if someone is planning to grow, say, 10% a year out into perpetuity, that's relatively easy or straightforward to do. You don't need my help to do that if the goal is 10% kind of thing.
15:09
20% annualized, 30%, 50%, which is hard to sustain, although you can easily do that for a couple years kind of thing. The thing is, of course, it's their business. So maybe someone is like, say I'm working 40 hours a week now, I'm gonna get that down to 15 to 20, and I'm okay growing only 10% a year as long as they can keep the workload. That makes sense. But if you think about it,
15:39
an independent agency, where you are the owner and operator and you're maybe one of one or two or three owners, the agency is your number one or number two financial asset. What else in your portfolio is producing six figures in annual salary plus other comp, distributions from 20% to 30% net profit margins, and the potential of a multimillion dollar future exit? Probably nothing else in your portfolio unless you're one of five owners of the agency.
16:09
splitting things, kind of deal. So, take care of your biggest financial asset. You wouldn't just look at your retirement account once a year and see how it's going. You wouldn't just leave it to chance. You would hopefully have some sort of a strategy, whether that's hiring a financial planner or something else. It's too important to leave your agency's success to chance when your family is
16:39
No, it makes sense. It's somewhere like middle-ish of the book. There's a chapter where you talk about strategies and tactics to grow. Yes. And then you talk about choosing your growth strategy. And I'd love it if you could just share a few words about what that... What are the growth opportunities? What do you mean by choosing your growth strategy? In the book, I've identified 25 different tactics for growth.
17:09
So those are different. Some are more work-less oriented, others are more oriented. For instance, one is hiring a second in command. If you'd already have someone. Another is around clarifying everyone's job responsibilities. Another might be digging in on clarifying your positioning, where maybe you're internally clear, oh, what your positioning is, but you're not broadcasting that sort of world. Like sometimes I'll hear from people and they'll say, we focus on this, this, this,
17:39
I'm like, that sounds great, but that is not for us on your website. Your website sounds like a generalist agency, like, claim being a specialist. So there are 25 of those different options. And the idea in the book is to turn that into a 90-day plan to help you start working on the highest impact things. So the idea is you're going to pick two out of the 25 tactics. And I elaborate with additional details on each of these in the book. The key, though, is by picking one.
18:09
work too, you've made a bite-sized commitment to move things forward. You're not making a lifetime commitment, you've got to do a million different things, and also you're not having to commit five years in advance, you know where you want to go. But what can you do in the next 90 days to get you quick wins and or progress toward high impact results or perhaps a bit above? Yeah, that's awesome. What does the ideal client look like for you from a coaching perspective?
18:39
Typically, they're the owner of an independent agency digitally oriented with between 20 and 100 team members. I've worked with agencies anywhere from one, just getting started person, up to as many as 700, typically though they're in that 20 to 100 range. They've grown, they may have been in business anywhere from a few years to 20 or even 30 years.
19:09
Maybe it's them as the sole owner and they don't have a strong sounding board. Maybe they have a business partner, but they're both kind of in the same situation sort of deal and they're wondering what to do next. As one agency owner put it, he's like, all right, I'm up to this point. It's like I'm standing at the end of this road looking across this field and I can see where I want to go off in the distance. Like I'm imagining like the Emerald City and the Wizard of Oz, right? You can see it off the distance.
19:39
need to know where do I lay the asphalt to extend the road to get to where I want to go as smoothly as possible. And that's right. Yeah, that's awesome. Well, I want to I want to agree with you with some surprise kind of quick hitting questions. All right. Really about agencies. But first I would just say, I get descriptions helpful for people. The book, I definitely recommend buying a copy of the book. And if you're interested
20:09
Karl or having a conversation with Karl, go to sacusandcompany.com. I think karlsakas.com redirects there. If I'm not mistaken. He will, yes. Yeah, but he gets the other. The easier one. Yeah, that's right. Karl and Sakas is S-A-K-A-S. And go learn more about Karl's agency training and consulting there. But plus tons of free articles, you know, for a million resources.
20:39
resources up there. Yeah. It is, you know, like our internally, so we run on EOS, which relates to a question I'm going to ask you. Yeah. One of the, but one of the things on our three-year vision is trying to build as we grow, or part of our growth strategy is expert content. Doesn't, that doesn't mean we're the experts, but we talk to the experts and we want Zemp Pilot to be a trusted and known leading authority in the agency ecosystem. Yeah.
21:09
What you have on your site is, yeah, I think of you, David Baker, Blair Ends and the Win Without Pitching Crew, like there's a handful of folks in this space who've done such a good job of putting together those types of resources and you're definitely one of those. So there's a whole wealth of knowledge for free from Karl there. Okay, so I'm going to make a hard pivot here. We're making a hard right turn. You talked to a lot of agencies.
21:39
This is like the rapid fire round answers don't have to be super rapid. Sure. But I want to give you some questions that the reality is almost all of these questions matter less. They certainly matter way less than the frequency with which they're asked. So the one, the first question as an example here, the first question is, what's the, what's your favorite of the operating frameworks for agencies that you see adopted me like EOS,
22:09
system and so all these types of methodologies. And do you have anything harsh or gracious to say about whatever your favorite or least least favorite is? I love EOS, but I hate this about it. The most common is EOS, the entrepreneurial operating system. It's widely used by a lot of agencies. And you can find someone to help run the system versus some of the other options, which are
22:39
more niche. The downside, of course, is that EOS is not agency specific. So oftentimes, if clients are on EOS, I'm helping them with the agency pieces that EOS doesn't cover. Clients also made an interesting note reading the book Craction. It's like, okay, I have read all of these different other systems and options and I put them together to make EOS, but don't you dare look at anything else.
23:09
Just look at US. That was what the agency owner described about it. I think the US is a good option to explore. It will not solve all of your problems by itself. You still have work to do, but that's true of anything in life.
23:28
Other than scaling up, is there anything else that you see? I see those two the most frequently for sure. Is there anything else that you see at similar frequency, but is there a clear third place framework? The client used the great game of business, GGOB, which has a lot around transparency about financials and things like that. So that might be one to consider as well. Yeah, that's awesome. I think,
23:58
and feel free to disagree if you disagree. Obviously, we're running on EOS. Part of that is, hey, this seems like a good fit for our situation. Part of that is that way more clients who we work with use EOS than something else, and boy, it would be awesome if we were running on a similar framework and could help blend into some of those obstacles. And that's what we'll through, but I really think similar to some of these other questions I'm going to ask you,
24:28
scaling up like get the base, they all have this and you just think they're not a longer burden than the specific system. 100%. Alright, well that's a perfect segue to the next question, which is what's the hottest tool that you hear people talking about or asking about in the agency ecosystem right now? Or set of tools? Currently, Chad GPT. Everyone's talking about it. You know, I see their version 4 of the model just came out.
24:58
There's also a question of, okay, well, how do we apply this? Yeah. There's a generative AI and things like that. So I'm like, the way I'm using it, you know, I've got the 400 plus articles, I've been additional 700 drafts that I've not fully expanded out in articles. Some were just, you know, a sentence or two, other a few hundred words, others could be even longer. And, you know, part of my writing process is it helps to be able to talk things through,
25:28
through ideas with a client on a call, and then I'm able to identify that as a framework, or with my team. And AI has given me a bit of a writing partner. I've also used Lex, Lex. I think Lex.page, which is an AI work processor. And so between using the two of them, it basically gives me an AI writing partner, which is helpful. It doesn't solve everything. I still have to
25:58
and some of the stuff that it comes up with is not right, but it's always easier to edit than create from scratch. Is chat GPT going to put agencies out of business? No, but you better be looking at ways to use it because it can make your life easier. Why do things the hard way if you don't have to? Right.
26:28
That really makes sense. I think there's more buzz there. And we'll get Jasper, that a lot of agencies are using, or newer one like Content at Scale. Lex is kind of a fun one for writing. I would get more integrated into tools. Let's click up or Notion, or I use this tool for daily journey called Reflect. And as they all build out their AI integrations.
26:58
to see how much of our stuff stays in standalone tools like we're doing now. We're going to chat.openai.com or we're going to Jasper Content Scale or Lex versus how much of that just gets integrated in. And it's just, oh, we're in Google and we're just using Google's AI or the AI that's embedded in app natively in our tools as well. I do expect most things or most types of things to get integrated into Google Workspace and other Google products.
27:28
Think about, you know, they use Boomerang, the email plugin. Gmail has a lot of that built in now. Not quite as good, but built in. Things like automated transcription of yourself and things like that. So, Google is likely to scoop up or suck up or acquire or what have you, kind of thing. And so, I'm not sure I want to start a startup that is focused on something that Google is going to decide
27:58
We're gonna do that now. Yeah. Right.
28:03
Okay, the next question, this one actually does matter a little bit more than just like, hey, what tool is, you know, should we use ClickUp or should we use Monday or should we use a sub-spot or should we use PipeDrag? That's what I mean. But is there one, two, or three, a handful of metrics that you look at and care about more when you're assessing where an agency is than anything else? Whether that's, hey, I look at earnings for FTE right away or I compare their utilization with their average billable rate.
28:33
Are there, what are the key things you're looking at right away to just get a, hey, this is not the whole picture, but this gives me a good sense of where an agency is health-wise? Sure. So first would be net profit margins, ideally 20 to 30% net. If it's below 20%, there are probably some profit leaks, which could be a range of places. So I'd want to dig into that. That would be starting my process.
29:03
sign that the agency is understaffed. Years ago, an agency owner in Australia reached out and said, you know, he was overworked, but his net profits were 65%. And at first, I assumed he had miscalculated it. No, that was true. It was. But he was doing all of the work himself. He just sold, for instance, a $20,000 a month retainer, and he planned to do all of that work personally on top of our agency. And it wasn't working. So, you know, if you are well above 30%, net net net.
29:33
and you're feeling overworked, hire people, eat up some of that margin, get to the 20, 30% range, and you'll be a lot happier. So net profit margin is number one. Next one would be revenue per FTE, or per capita billables. The metric wise, it depends on if you're a specialist agency or a generalist. Generalist is gonna be lower. So just to calculate this, take a look at your services revenue divided by your FTE count,
30:03
year. And if you're a generalist agency, my benchmark is $180,000 per person. And if you're a specialist, 250,000 per person. And I've increased that over time, right, thanks to inflation. Like, if you're listening to this, you know, it's 2023 now, if you're listening to this in 10 years, the numbers will certainly be higher. Kind of saying. But it's also important to take a look at how that changes over time. Every time you
30:33
the revenue, the rev per FT is going to go down. So, that's a good starting point, but we also need to take into why. Same thing with profit margins. If you are running most of your comp through shareholder distributions, those aren't hitting the profit and loss statement, but if you sold your agent city and they needed to hire a CEO, they would be paying them through the P&L, through expenses, through salary and bonuses and such, kind of thing. So net profit
31:03
percent. Revenue per FTE, ideally at least 180,000 per year for FTE. If you're a general estate agency, 250,000, you know, or a hire if you're a specialist. In terms of the third KPI, a lot of that will depend on the owner's goals, right? Maybe they're happy with the money they're making, but they're overworked. Okay, for them, it's how do we reduce their overall workload and where they're billable workload? Sometimes I'll assign coaching
31:33
clients based on their goals, maybe they've been doing 20 hours a week of billables and the goal is to get them down to 10. That's a sign that they've delegated out. That doesn't fix everything, but it makes it a lot a lot easier. So the third one really will depend on the goal, or it might be, for instance, getting their recurring revenue up. A lot of the agencies I work with already have a very high percentage of recurring revenue, but clients several years ago had reached out. I had a case study about this.
32:03
my website where they were about 10% recurring, wanted to get that up. Over the course of about a year, they managed to get it from 10% to 90% recurring. One of the things I dug in with them at early on was, okay, what are the services they could sell that were matched for recurring, can withstand those, and focus on recurring across the whole agency. In the sales process, it's not just here's the initial project, but framing here's
32:33
the agency could help after phase one, the account managers and the project managers doing the same thing so that everyone at the agency was aligned around clients benefit from ongoing help, that is through MRR monthly recurring revenue retainers, and that's how they did it. They could not have gotten there without a strong focus of everyone rowing in the same direction. Yeah.
33:01
I think that's great. The follow-up question to your point about margins. Have you seen any firms that you'd say, hey, this is a healthy firm. They're healthfully staffed with margins that are 40%, 50%? The person out there, usually though, I'd leader see them struggle in different ways where maybe they've got in there without a
33:31
there, and they've had enough momentum to get there, but then they struggle to keep it up. Or maybe they brought in a lot of clients, but there isn't always the quality of the clients, and so client retention is bad. If you're focused on retainer-based clients, ideally you're keeping 80% to 90% or more of your client base each year. In contrast, I did a project several years ago with a very large agency.
34:01
And we were focused on something else, but I casually mentioned that target, ideally keeping 80 to 90%. So no more than 10 to 20% will turnover. And the COO just started laughing. And I was like, what was that? They said that their turnover was 100%. They had some clients they kept long term, but others left within a year. And the issue was they were basically bringing in low quality opportunities.
34:31
to get short-term revenue and they weren't able to sustain it. That's not a good way to run a business. Right, right, that's a challenge. I do wonder, so the most profitable agencies still operating metrics will always tend to your point about specialist agencies always tend to have deep expertise in a very specific area. Yes. And, you know, I think that's a good point.
35:01
The part of the challenge of sustaining that is that the ecosystem is dynamic. So today if you say I'm an agency, I want to get the most out of our project management and I want to use this tool called ClickUp. There's a super obvious choice when you start doing the work. Like ZenPilot stands out and obviously I represent ZenPilot so hopefully I'll be biased for as long as I'm associated with this company. But it's not close if you're an agency.
35:31
a ZenPilot 2.0 that's not quite as good, but they're close to the same thing. But as that ecosystem matures, five years from now, to hopefully we've innovated and we continue to be the clear cut favorite, but the gap will not be, this is the largest the gap will likely be. The ecosystem will get more competitive. Not necessarily,
36:01
that can certainly have downward pricing pressure as well. But there will just be a lot more options in the ecosystem unless the income implodes or whatever. And we've seen the same thing happen in a number of different industries. So do you think that's like, what's the fundamental reason? Cause it seems like 30%, 35% shouldn't be an artificial cap on this.
36:31
reason that I'm missing on why it's so hard to sustain higher margins than that. Because I've seen the same trend. It is really, really hard to run a business. But is that back to the limited thinking thing? Is that because we just don't see it and the farther you get and the more conversations you have, oh, am I doing something wrong if I'm at 45% or is the ecosystem, or is there another reason why it's hard to sustain those margins? Well, I'm in the part about, say, the 45%. If an agent's here or meets another agent's here, there is light.
37:01
I make it 45% in that merchants. The thing I'd be wondering is, okay, what is your annual compensation and what is the mix between payroll versus distributions? If it's 45% merchants but they're paying themselves 100,000 a year salary plus 150,000 in distributions, okay, well they're skewing their numbers, right? That's not really 45%. They need an Alice Compassion kind of way. The other piece to consider, and I talk a bit about
37:31
in the word plus or the word book is labor is the largest expense category for any agency. My metric is generally you're spending 50% to 60% of revenue going back out the door for labor. Now, that includes your own compensation as an owner or for the owners and ongoing freelancers as well. But if you're spending 50% to 60% on labor and maybe it's 20% for overhead, that's
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leaving 20 to 30% for that margin. So, you know, if you want to get to 40% sustainable net profit versions, if your team is based in developed country, you're underpaying people that's not sustainable. You might have a significant portion of your team based in developing countries. That's an option. But there are a lot of challenges to sustaining that model.
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a great outsourcing partner that does solid work and things like that. But oftentimes, it was like the third or the fourth or the seventh partner that they worked with over the years. And you know what? Even, you know, I see this clients that do a heavily outsourced model, you have to still keep looking because something, you know, quality might slip or they might keep raising your prices and that eats away at your margin. So, you know, it's a different.
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model. I talk about the idea of are you running a front-end agency, a back-end agency or full-stack? Front-end is you're doing the client-facing work, sales, brand building, strategy, and so on. Back-end is you're doing the fulfillment for the front-end agencies as a white label firm. Or full-stack would be the traditional model where you're doing all of that in-house. So I like the front-end agency model where you're doing the client-facing work and
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the right outsourcing. Right, right. That might sound... And I could ask you so many questions, but I've already kept to you right to time. And come back for, I guess, a fourth episode. And so let's keep it going. Yeah. This has been awesome. So, karlsakas.com, see services, work less, earn more, book.com for your most recent of the books. This has been really fun, Karl. I'll make sure that we get the links up in the show notes as well.
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spend another 40 minutes here back with us on agency journey. Absolutely. Thank you and good luck out there everyone.