Eric Deeran explains why agencies fail to scale: they don't know their numbers. Most need 70-80% gross margins before expenses, but poor tracking lets margins drop to 50% or lower. He recommends reviewing your P&L monthly and allocating 10-15% of revenue to ads, 20-25% to team, and 2-5% to operations.
One of the biggest mistakes I see with business owners and agencies and video agencies trying to scale and hire other people is that they don't know the numbers of their margins, their P&L. They don't track numbers like that. And that's ultimately what doesn't give them the confidence to actually scale. So like, if you're going to be scaling and hiring team members and hiring other people to do things for you, you really need to have at least 70 to 80% margins, and you need to make sure that you're, you're, uh, accounting for that within the packages. Because when you sell something, let's say, of 80% margins, well, what isn't included in that is salespeople commission if you hire salespeople to sell it for you. And then what also isn't included is any sort of ad spend or any sort of spend to get that client, like customer acquisition costs, which I think a lot of agencies don't think about because they don't have customer acquisition costs right now. So like everything's referrals. So they think every client is going to be free forever. But when you really want to scale, you pay for customers, you pay for leads, you pay for calls. And so you have to factor that into your margin to make sure that you have enough. So then you're not putting yourself in a place where, uh, you know, you have 20, 30, uh, or 20 or 10% margins overall in the business. Cause like if you start at 80, let's say a salesperson gets 10% commission. And then you pay another 10% in acquisition costs. Well, now you went from 80 to 60, and then you have other just operational expenses, and then maybe you land at like 50% margins, which is still insanely respectable, um, as an agency. But like when you're pricing retainer-based packages, you have to make sure that you have, uh, enough room and margin for error. So you're not putting yourself in a tough position. So a lot of people just don't know their numbers. They don't understand that. I would encourage you. As like a piece of homework after watching this video is understand your P&L. Like 99% of agency owners have no idea what the P&L says. They don't know it. They don't track it. They don't look at it month to month. They only look at it at the end of the year when it's time for taxes. Like, look at that thing every month. And I promise you, by just looking at it, you're gonna say, oh wow, like I'm spending too much here, or I'm, I'm not spending enough here, or whatever. Like you should be looking at that and seeing what that looks like. And to give you a good rule of thumb, um, typically I look at like, I look for 10 to 15% of ad spend, of revenue goes to ad spend, and then 20 to 25% goes to team, and then another like 2 to 3 to 5% goes to operational costs. If you can nail that, like, you will have a business that is very, very profitable and pays you tons and tons of money. So, um, just note today, hopefully that helps. See you in the next one.
