Why most agencies make no money (the $15,000 LTV rule)

An absolute ton of you guys are targeting clients that will make you go broke and you don't even realize it. So I had a conversation the other day with a new student of mine inside of AI Assisted Agency who wanted to work with supplement brands. And I specifically told him not to do this. Not because supplement brands are bad businesses, but because the economics will destroy his agency. So if you're working your ass off signing clients, but still struggling to make actual substantial profit in your agency, the problem might not be your skills or your lead gen or your work ethic. The problem is you're working with clients who have impossible economics. And because their economics are impossible, your economics become impossible too. Today I'm going to show you exactly why this happens. Which clients you should never work with, which clients will actually make you rich, and how to use AI to deliver premium services to high value clients. So because the difference between a struggling agency and one that actually makes you profit comes down to this one factor that almost nobody talks about, let me paint a detailed picture of what most agency owners lives actually look like. Because I've seen the story play out like thousands of times. So you sign a client and you're excited, right? So finally some revenue coming in. But maybe it's like a local business or an e commerce store selling cheap products, or a supplement company, you think it's going to be all rainbows and butterflies. You start doing whatever it is you do for them, ads, email marketing, cold email, whatever. But then the reality of life hits. Their business model sucks. They're selling a $50 product with $20 in cost. They already have no profit margins, leaving pretty much zero room for both acquisition costs and your fees. They can't afford to spend much in advertising or really anything at all. And every single dollar they spend has to work perfectly or they start losing money immediately. So now you're under massive pressure. You, you can't test anything, you can't optimize, you can't take any risk, you can't try any new creative angles. You can't screw up even a single thing. Everything has to be perfect from day one or your client goes broke and fires you. So you're checking their ad accounts every hour. You're stressed out of your mind because you know that if the cost per acquisition goes up even slightly, they can't afford to keep working with you and you're going to lose a client. Meanwhile, you're working 60 hours per week trying to make their impossible economics work. You're staying up till 2am staring at the ads manager or writing emails. You're constantly on edge because their margins are so thin, there's no room for error at all. And at the end of the month even, even if you do everything perfectly, even if you hit all of the targets, they can only afford to pay you $1,000. Because their profit margins are so thin, they literally can't afford to pay you more even if they wanted to. And because their cash flow is terrible, they're constantly late on payments, they ask for discounts, they question everything and they micromanage everything because they're terrified of losing money. Justifiably. This is the reality for most people running a normal agency. They're working with clients who have a terrible business model which makes it impossible for the agency to succeed in the first place. They're trapped in the cycle of working harder and harder for less and less money. This is the reason why everybody says to sell high ticket. It's because the economics any other way are on hard mode, it's too difficult to make money. And there is absolutely zero reason at all why you need to relegate your life to playing on hard mode. Simply stop doing that and do what's easy. Here's what most people don't understand. The same rules that apply to your business also apply to your clients businesses. And if you ignore this fact, you will not make any money in your agency. Now, if you don't know me, my name is Daniel Fazio. I run a software company called List Kit and a coaching slash consulting company called Client Ascension. I've personally collected over 25 million across my offers, probably 26 now. And I'm currently over 1 million per month in revenue with very high profit margins. And I've personally worked with over 1300 agency owners to help them scale their agencies inside of client ascension. So let me explain the economics part of this conversation. There are two numbers you need to understand. So client lifetime value, which is ltv, and cost to acquire a customer, which is cac. LTV is how much money a client makes from each customer over their entire relationship with the customer. So if someone buys a $100 product and then buys another $100 product again six months later, and then buys a $200 upsell after that sale and then never purchases again anything ever again. Their LTV of that customer is $400. So to find the average LTV, you take every single customer the business ever acquired and divide that by the total amount of revenue collected ever by that business. And that's the LTV of the business. CAC is how much it costs them to acquire that customer. So if you're running ads and this is just a cost per purchase, but from the client's perspective, this includes ad spend, your agency fees, and any other marketing costs, everything. For any business to work, LTV needs to be higher than cac. So this seems obvious, but here's what most people miss is that it needs to be much higher than you think. So like ideally at least five times higher than the CAC and you really actually want it to be like 10 times or more. Why? Because you need wiggle room. You need room to test, optimize, and occasionally fuck shit up without the client going broke. This is super important. So let me give you a real example. So assume there are no cost of goods sold. So if the client's LTV is $500 and their CAC is $400, they're only making $100 profit per customer. So we're assuming no cost of goods sold. What happens when the market gets more competitive and the CAC goes up to 450? Now they're only making $50 per customer. And then what happens when creative stop working and the CAC goes up another hundred? Now they're in the negative. Literally nothing can go wrong. There's no wiggle room. Any small change in the market, any optimization that doesn't work perfectly, any external factor and the business becomes completely unprofitable. But if their LTV is $2,500 and their CAC is $500, they're making $2,000 profit per customer. Now CAC can double and they're still profitable. So you have massive wiggle room to test and optimize and grow. For some completely insane reason, it doesn't compute to about 20 to 30% of you guys that has cost to fulfill their offer. They have to pay the ad cost you and then their team to actually fulfill a service. So you must account for the client's gross profit as well. Now we get into the conversation of LTGP instead of ltv, which is lifetime gross profit. So to find this, you just take the average gross profit margin the client has a multiply that against their total revenue collected. Then divide that number by how many customers they have. The client is in business so they can make money in profit. You make as a service provider are simply somebody who scalps a share of growth that you can execute for them. If you cannot drive profitable growth, then you will be fired and your client LTV will drop. Both your client and you need profitable economics for either of you to Win. Now, if you're running ads for clients, there's a standard rate for customer acquisition in most industries. So this isn't something you can control, much like the market determines these rates. It's just like an average for agencies targeting digitally rendered service based companies under $10 million per year, your CAC is typically going to be around $3,000 plus or minus 1500. So anywhere between 1500 and 40, $500 in most cases. This obviously isn't always the case, it just Is in about 90% of cases. So this is assuming it's an offer sold through a sales call. This means if you're in this situation, your client's LTV should be at least $15,000 for the economics to work properly, ideally more. So this is where the catastrophic up is. You choose to work with clients who have an LTV of a couple hundred dollars. Let's say you're working with that supplement company I mentioned earlier in this video. All right, so their average customer might be worth $400 in lifetime value. Their cost per goods sold are 20%. So $100 cost per good sold, their CAC is $180. That's $280 in cost to make $400. The math doesn't work well. There's no wiggle room. Everything has to be perfect or they lose money. And when your client loses money, you lose money. They can't afford to pay you, they can't afford to increase their budget, they can't afford to test. Two things. You're stuck. But it gets even worse when you factor in cash flow. Even if their LTV is $400, their average order value might only be $60 upfront. And after the cost of goods sold for the 20%, that's only $48 in gross margin plus the $180 in CAC. So that's neg and you haven't even been paid yet. So they spent $180 to acquire a customer. Make $48 gross margin immediately and you have to wait months or years to see the rest of the $400 of LTV. This means they need to have massive amounts of cash on hand just to operate. Most businesses don't have this. So they're constantly stressed about cash flow and constantly asking you to reduce spending or constantly worried about every dollar just doing fuck shit. So compare this to a high ticket service or high ticket product business. So let's say a business Coach. They charge 15,000 DOL program but their cost to deliver might be $2,000 so they make $13,000 in gross profit per customer. If their CAC is $3,000, they're still making $10,000 profit per customer and they collect that $15,000 immediately. So their cash flow is positive from day one. Which client would you rather work with? The supplement company that's stressed about every dollar and can barely afford to pay you, or the business coach who's making $10,000 profit per customer can afford to pay you a lot of that? This is why working with low ticket clients is financial suicide. The economics just don't work. It's literally just too hard. You should just not do that because you don't have to. So let me give you some detailed examples of what I mean because I want you to really understand the difference. Okay? Bad clients, supplement companies, e commerce stores selling cheap products, restaurants, local service businesses with low prices. Anyone selling products under $200, dropshipping stores, affiliate marketers promoting low ticket products. These people have thin margins, low ltv, and cannot afford to pay you a lot of money. It's useless. Now let me give you some examples of good clients. Executive coaches, cosmetic surgery practices, custom home builders, enterprise software companies, wealth management firms, high end business masterminds, luxury dental practices, private health care clinics, management consulting firms. There's literally thousands of these. These businesses have high ltv, high profit margins, and in our easy mode to work with because you can fuck hella shit up and they still make money. I want to take another example. We're to take a cosmetic surgeon. A typical procedure might cost like $15,000. The surgeon's cost might be $3,000 for the facility, equipment at the time and the other people they need to be there, whatever. So they make like $12,000 in gross profit per procedure. If it costs $3,000 to acquire that customer through advertising, the surgeon is still making $9,000 in profit. So they have massive wiggle room, barely know what you're doing. Fuck up half the entire project and they'll still probably make a bunch of money and you're still gonna get paid. So because they're making so much profit per customer, they can afford to pay out agency prices like eight grand a month and still be happy. This is the kind of client that only takes 5 to 10 hours of work per month because it's just abnormally easier to service them. And this isn't just about money, because clients with shitty economics are actually just total nightmares to deal with at all. They just act poor and annoying all of the time. When you work with people who make a lot of Money. They're just happy people so they don't bother you with shit. They let you fuck around, do whatever you want. That's because they also know that the wiggle room is massive. So if you have a client that's losing money after $40 in ad spend, they're going to freak the fuck out when they don't make a sale after $40 in ad spend. That's literally how this works. So why do so many people make this mistake? Why do they choose to work with low LTV clients when the economics clearly do not work? There are several reasons and I want to address each one because you might be making these same mistakes. Mistake number one, you think lower prices means more clients. This is the biggest misconception in business. People think that if you target clients with cheaper products, those clients will be easier to acquire. They'll think of themselves as some kind of venture capital funded business that can afford to acquire as many customers as possible and beat everybody else on price. Do not do this. You are not a VC backed company. You're some dude who wants to make 50k per month in profit and not have a boss. That's it. Act like it. Mistake number two, you're afraid to target high end clients. A lot of people feel intimidated by high end clients so they think, who am I to work with the cosmetic surgeon? I'm just a guy with a laptop. These people need marketing help just as much as anybody else. They're not some fantasy level of human who's going to look down and scoff at you. A cosmetic surgeon who goes from 10 procedures per month to 20 procedures per month just made an extra $150,000 in that month. They'll happily pay you $10,000 of that regardless of who you you are. Mistake number three, you don't understand the economics. So most agency owners have never run a business themselves, so they don't understand ltv, cac, profit margins, cash flow, or any of the fundamental economics that determine whether a business can afford to pay marketing at all or make any money in any capacity. So they choose clients based on other things like what you're aware of or how much you like the industry, or how easy it is to contact them or what they think has high demand without considering whether the economics actually work. Don't choose clients with bad economics just because you think they're easy to contact. Okay. Mistake number four, you think you can fix bad economics with better marketing. You see a shitty business and say, I can help them, I'll just optimize the campaigns. And improve their conversion rates. But you can't optimize your way out of fundamentally broken economics. If somebody is selling a $20 product with $18 in cost, no amount of optimization is going to make that a good business model. You're not a magician. Stop trying to save people. This is not a humanitarian crisis, it's a fucking business. You're trying to make money. Mistake number five, you focus on your own skills instead of the client economic. Come to the sunk cost fallacy and say, I only know how to do this, so I'll keep doing this. You refuse to change to another type of business because you want to remain comfortable and not have to do something new or try something new. You need to choose clients based on economics first, then figure out how to serve them. So here's what you need to do. Stop working with clients who have shitty economics. I don't care how much you like their product. I don't care if you think you can take on the challenge. And I don't care if they seem nice, and I don't care if you have experience in their industry. Business is about making money and you can't make money helping clients who can't make money. You need to specifically target clients who sell expensive, high profit products or services. This applies no matter what thing you're offering. Advertising funnels, content marketing, cold email, ghostwriting, YouTube, LinkedIn, whatever, it doesn't matter. Everything applies. Okay, so here's my framework for identifying good clients. What are you looking for? First, they need to have high LTV. So ideally $15,000 plus per customer, but at a minimum of $5,000 plus and even then you could still get fucked up at 5,000. You really want it to be $15,000 more? Okay. Second, they need to have high gross profit margins at least 50%, ideally 70% plus. It just makes everything so much easier. Third, they need to have good cash flow. They should collect most of the revenue upfront, not over time. Not that shit where the LTV realizes over the course of 10 years like you want the upfront. That might involve helping them get financing options for some of their customers. Fourth, they should understand the value of marketing in the entire concept of purchasing customers. Right? They should already be spending money on marketing and getting results. Normally people who aren't doing this fundamentally don't understand the concept that you need to spend money to acquire new business. Fifth, they should have budget. They should be able to afford to pay you at least $3,000 per month without it being a significant stranger giant fucking deal to them, right? This is normally just the case if they already have a high client out to be in a high profit margin. So it kind of like plays in hand in hand. Now if you're thinking, but Daniel, I don't have a good offer to sell these high end clients or I don't know how to fulfill these services for these types of businesses. That's exactly what I help people with in my AI assisted agency program that we just launched. That's an amazing offer and I tell you about it right now. Right now we have three proven business models that work perfectly with these high LTV clients. And we show you exactly what to sell. First, ads and Funnels Agency. So you build sales funnels for clients, you write all the copy, you run all the funnels, you advertise them. It's all created with AI so these clients can afford to pay 5 to 10k per month because they're making hundreds of thousands from the funnels that you build. Right. When you build a Funnel that generates $500,000 in revenue for a client, they're happy to pay you 120 grand per year of the $500,000 you just made. Second, content agencies. So you create content strategies and content pieces for the client. So this includes like social media content, email sequences, blog articles, video scripts, everything they need to attract High value. Project, LinkedIn, post, Twitter post, ghost writing, all that kind of shit. And this works because content literally works to generate sales calls and make sales. So therefore if you make the client money then that you make money to Third, cold outbound lead generation. So you send cold emails for clients who sell high ticket services. So this works for consultants, agencies, professional services, anyone who sells expensive services to other businesses, literally anything high ticket, B2B, any of it. But here's the thing, with the AI assisted agency you don't need to know how to fulfill these services. To start, we provide you and show you how to do it with pre trained AI tools that do 90% of the client fulfillment work for you. So we're talking about AI agents that can build entire funnels, write sales pages, create email sequences, generate content strategies, write cold emails, everything you need to actually get clients results. So we have pre built tools like the funnel strategy agent that can create complete funnel strategies based on the client's business model and target audience. The multi platform content factory that can generate months of content across all platforms based on the client's expertise and upload material that you give it. The sales page generator that can write actual sales pages for any offer in any industry. The webinar funnel builder that can create full webinar funnels including the presentation registration pages, follow up sequences, the VSL creator that can write video sales letters that convert cold traffic, cold email writer that writes personalized cold email scripts, and dozens of more specialized AI agents for literally every aspect of client fulfillment. Now we obviously teach you how to be an AI expert inside of the program, but if you just want to use some pre built tools and not have to do all that stuff where you need to become an expert at AI, that's okay too. The goal is to get you your first high value client within 30 days. So not some $500 per month client who's going to stress you out, a real client who can afford to pay high prices. You also get complete training on how to identify and approach high LTV clients, how to position yourself as an expert, how to price your services properly, and how to deliver results that keep clients happy and actually paying you. Plus you get access to our private community of hundreds of agency owners, weekly group coaching calls, direct access to me and my team, we need help and one on one calls. So if you're tired of working with clients who have terrible economics and you're tired about stressing about every single dollar that is spent for them, and if you want to work with clients who can actually afford to pay you a lot of money, then click the first link in the description down below to start an AI assisted agency. Watch the full explainer video on that page and then book in a call with us after that. Now before you leave, understand this. You can be the best marketer in the world, but if you're working with clients who have shitty economics, you're never going to make any money. Literally ever. You can work 80 hours per week, but if your clients can't afford to pay you, you're going to be broke. If you're selling an offer with no front end cold traffic demand, then you'll never book any calls. And if you're spending 80 hours per week manually trying to fulfill for all of your clients, then you'll never be able to scale. The only way to make this agency thing work right now is by making an AI assisted agency stop making your life harder than it needs to be. Stop working with clients who can't afford to invest anything and start working with clients who have the economics to make you rich. The opportunity is there. High LTV clients, the marketing help just as much as anyone else and they're not harder to work with with, they're easier to work with. But you need the right offer and the right fulfillment method. And that's what we provide in the AI Assisted Agency program. So click the link below. Let's get you started working with clients who can actually make you money. Peace.