The 5 KPIs for Sustainable Agency Growth

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, Carl Sakis. Carl is the author of Work Less, Earn More, how to Escape the Daily Grind of Agency Ownership. He also wrote Made the Lead. He wrote the In Demand Marketing agency. More than 400 articles. Carl, that's a lot on agency management. Carl's a tremendous help to agency owners who are looking to scale profitably. So, Carl, welcome back to Agency Journey.

Gray, 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 Carl'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. So actually it was the day before. Yeah, before heading out, but kind of skimmed through it for a third time. And 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 work less, earn more. Where did it come from? And I've got some specific questions around the book itself that run by you as well.

In my work as an agency advisor, I noticed a theme which is that agency owners that I was working with ultimately wanted to work less and earn more. I mean, I suppose everyone does, but agency owners are 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 that became world class or more.

Yeah, for some of those, like the main patterns or principles, how do you like someone says, Carl, okay, that sounds great. How do I work Lesser and 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 is at the other. Where do you fall on that? Work Lesser and more is a match for either side 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 getting clear on where you want to go is helpful since that impacts a lot of the other decisions. So that would be the starting point.

Yeah. I think in the book you talk about, 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. And in the book we have sort of the fuel gauge concept. Stage one, you're mandatory. You can never get away. It's basically you and a team, but you're stuck doing most of 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 going to disappear completely. 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, the initial screen, you can be in more than one place, but there are 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. When most folks come to you, what stage are they at?

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 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. They had people who had potential to move up, but they know they were still sorting through that. And so in that case, for them, it was going from needed to optional. With several years to do it right. 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, you know, kind of heroin fire situation where they're in stage two and they're, they're necessary and they're trying to get to needed stage three. In that case that, that still involves delegation 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. 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 your team come 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 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 manager 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 billables may have gone down a bit, they're helping improve the billability of everyone that they're supporting. Same thing is true about adding middle management. Right. You don't want to overdo it. You don't want to 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 if things are super flat in terms of the org structure, that, that can be a big factor. Right. So generally, if you're hiring people, they should either be directly profitable or indirectly profitable. Like, say, if you're hiring your first salesperson, they're going to be billing nothing, but hopefully they're producing hundreds of thousands, if not millions of dollars in revenue that you, as the owner, didn't have to personally generate all of that yourself.

Yeah. So the book, I didn't mention the website to go get the book is Work less, earn more book.com, right? Yes.

So if you go to work lesserendmorebook.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, work less, earn more book.com also, it has a way to download a free chapter. You want a preview of the book as well as get the free companion workbook, 40 plus pages to help you implement what you're reading about.

I want to shift to the coaching side. We'll come back to the book as well. Yeah, but, you know, your first step is like, get really clear on what do you want. I think so much of life is figuring out what, what do we really want?

Yeah.

See, I'm curious, how much is your 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 running our agency. 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 running this, 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. Internal Carl would be chuckling like naive gray. 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?

Sometimes that starts when people reach out to me at the very beginning to see are we matched or work together. And they're usually a couple categories. Some people will get an email and it's like, Carl, I saw you speak at such and such, or I, I read your book or I did this or that. I've been following your emails and I, I need help, you know, and, and usually in that case, it's sorting out the particulars because they're already familiar with my advice. There Are also some people who might be shopping around, they're considering different options kind of thing. And, you know, 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'm very happy by the way, when my clients steal a version of that.

Yeah.

Kind of thing people say in sales conversations, even if we don't work together, like, just going through that process was helpful. So, you know, I'll ask where do they want to go? And also not just where do they want to go, but what's the timeline? So sometimes it's, for instance, they might be, you know, 2 million a year in revenue now, and they want to get to 5 million in five years. That's doable, right? I mean, 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 owner in Canada reached out and said, I want to go from 1 to 5 million in revenue in one year. Well, with great team retention, I said, going from 1 to 5 million in one year is not likely. And it definitely would not be associated with strong team retention. In fact, he apparently had had the team working for four months, 100 hours a week to double the annualized from half a million to a million. He was wondering why people were quitting. That was an unreasonable expectation. Or another unreasonable. Like was at an event in Colorado a few years ago speaking about work lesser and more. It is sort of the early days of developing model. And afterwards an agency owner said, okay, I want to become fully optional. You know, she was mandatory to, you know, 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, you know, I thought, I don't know. I had to find someone to run the agency and I'd only hear from them three times a year. I said, I don't. Oh, yeah. She said, and I want someone who's like a promising, you know, rising star, but I only want to pay them 75,000 a year.

Yep.

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. And you're basically expecting them 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. Well, you're asking them to take on a huge amount of responsibility. When you hire some externally 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 smarter approach would be if you have someone existing, get them promoted up. We can build a ramp, ramp up, plan things like that. That's doable, but ideally that takes a few years. So, yeah, sometimes I am the, the reality 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 people are just thinking too small. So work less, earn 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. It 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 idea.

Lift up too high. But it could work both ways.

No, 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. Like, you don't need my help to do that. If, if the goal is 10% kind of thing. Usually I'm hearing from people who want to grow more like 20% annualized, 30%, 50%, which is hard to sustain, although you can easily do that, you know, for a couple years kind of thing. The thing is, of course, it's, it's their business, right? So maybe someone is like, say I'm working 40 hours a week now, I want to 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 you know, if you think about it, if you own an independent agency, you know, 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. Like, 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 like one of five owners of the agency and you're, you know, splitting things kind of deal so you know, take care of your biggest financial asset. You wouldn't just, you know, look at your retirement account, you know, once a year and see how it's going. You, 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, or something else. It's too important to leave your agency's success to chance when your family is depending on that.

Makes sense. 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 and those are different. You know, some are more work less oriented, others are more oriented. For instance, one is hiring a second in command if you don't 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 on what your positioning is, but you're not broadcasting that to the world. Like sometimes I'll hear from people and they'll say we focus on this, this, this, these services. And I'm like that sounds great, but that does not put us on your website. Your website sounds like a generalist agency, like claim being a specialist. So there are 25 of those different, different options. And the idea in, 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 or two, 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?

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 and the owner is at an inflection point. 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. He's like I just 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 where I hop.

Yeah, that's awesome. Well, I want to, I want to grill you with some surprise kind of quick hitting questions about agencies. But first I would just say I think a description is helpful for people the book I definitely recommend buying a copy of the book. And if you're interested in working with Carl or having a conversation with Carl go to seikus and company.com I think carlsekis.com redirects there if I'm not mistaken.

He will. Yes.

Yeah but he gets the, the easier one. Yeah that's right Carl and Sika says S A K a S and you can go learn more about Carl's agency training and consulting there but plus tons.

Of free articles, you know for a.

Million resources up there. Yeah it is you know like our internally. So we run on eos which relates to a question I'm about to ask you. Yeah one of the but one of the things on our three year vision is trying to build as we grow. Our 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 Zenpilot to be a trusted and known leading authority in in the agency ecosystem for operational expertise. What you have on your site is you know, I think of you David Baker Blair ends in 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, you're definitely one of those. So there's a whole wealth of knowledge for free from Carl there. Okay, so I'm going to make a hard pivot here, making the hard right turn. Okay, you talk to a lot of agencies and I'm going to give you. 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, like EOS Scaling Up System and sol, these types of methodologies and do you have anything harsh or gracious to say about whatever your favorite or least favorite is? Hey, 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 know, you can find someone to help run the system versus some of the other options which are more niche. The downside, of course, is that US is not agency specific. So oftentimes if clients are on us, I'm helping them with the agency pieces that US doesn't cover. Client also made an interesting note. You know, reading the book Fraction, it's like, okay, I, you know, I've read, read all of these different other systems and options and I put them together to make us. But don't you dare look at anything else. Just look at us. That was what the agency owner described about it. I, I think the US is a good option to explore. It will not solve all of your problems by itself. You still have hard work to do. But that's true of anything in life.

Are there, other than scaling up, is there anything else that you see as like, I see those two the most frequently for sure. Is there anything else that you see at like, maybe not similar frequency, but is there a clear third place framework a client used?

The great game of business ggob, which has a lot around transparency about financials and things like that. So that, that might be one to consider as well.

Yeah, that's awesome, I think. And feel free to disagree if you disagree. Obviously we're running on EOs. Part of that is, hey, this is, this seems like a good fit for our situation. Part of that is like 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 run into some of those obstacles and have to go through. But I, I really think similar to some of these other questions, I'm going to ask you that who cares whether it's EOS or scaling up, like get, get the basic. They all have this and you just.

Think they're not important than the specific system.

100%. All right, well, that's a perfect segue to the next question, which is what's the mo? 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?

ChatGPT. Everyone's talking about it and I see their version 4 of the model just came out kind of thing. There's also a question of, okay, well how do we apply this in terms of generative AI and things like that? So the way I'm using it, I met, got the 400 plus articles. I have an additional 700 drafts that I have not fully expanded out in articles. Some are 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. So whether that's talking 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 perk. I've also used Lex, Lex Dot, I think Lex Page, which is an AI word processor. And so between using the two of them, it basically gives me an AI writing partner, which is helpful, doesn't solve everything. I still have to complete everything. And some of the stuff that it comes up with is not right. But it's always easier to edit than create from scratch.

Yeah.

Is ChatGPT 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. And you know, like, why. Why do things the hard way if you don't have to?

Right. That definitely makes sense. That's. I think there's more buzz there. And look at Jasper that a lot of agencies are using or a newer one like Content at scale. Lex is kind of a fun one for writing and it gets more integrated into tools. You know, that's ClickUp or Notion or I use this tool for daily journaling called Reflect. And as they all build out their AI integrations, be interested to see how much of our stuff stays in standalone tools. Like we're doing now, you know, we're going to chat.OpenAI.com or we go on to Jasper. Content at scale or lex versus how much of that just gets integrated in and it's just, oh, we're in Google and we're, you know, we're just using Google's AI or the AI that's embedded 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. Think about, you know, I 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. So I'm not sure I'd want to start a startup that is focused on something that Google is going to decide. We're going to do that now.

Yeah, right. 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 should we use HubSpot or should we use Pipetra? That's what I mean. But are, 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 per FTE right away, or I compare their utilization with their average billable rate or 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. If it's well above 30%, that may be a sign that the agency is understaffed. Years ago an agency owner in Australia reached out, said, you know, he was overworked, but his, his net profits were 65% and at first I assumed he had miscalculated it. No, that was true. Who 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 running the agency and it wasn't working. So if you are well above 30% net now 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, that depends on if you're a specialist agency or a generalist. Generalist is going to be lower. So just to calculate this, take a look at your services. Revenue, divided it by your fte, count the average over the 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, 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 thing. But it's also important to take a look at how that changes over time. Every time you hire someone new, if you don't also increase the revenue, the rev per FTE is going to go down. So, you know, that's a good starting point. But we also need to dig 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 agency 30% revenue per FTE, ideally at least 180,000 came, but they're overworked. Okay. For them it's how do we reduce their overall workload and or their billable workload. Sometimes I'll assign coaching 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 their goals. Or it might be, for instance, getting their recurring revenue up. You know, 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 have a case study about this on 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. And one of the things I dug in with them early on was, okay, what are the services they could sell that were matched for recurring and span those and focus on recurring across the whole agency. So in the sales process it's not just here's the initial project but framing. Here's how 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 referring 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.

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 healthily staffed with margins that are 40, 50%.

There are some out there. Usually though I. Leaders see them struggle in different ways where maybe they, they, they've gotten there without the middle management layer and they've had enough momentum to get there, but then they struggle to keep it up. Or maybe they've brought in a lot of clients but there isn't always the quality of the clients. And so client retention is bad. You know, if you're focused on retainer based clients, Ideally you're keeping 80 to 90% or more of your client base each year. I mean in contrast, I did a project several years ago with a very large agency 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% turnover. And the COO just started laughing and I was like, what's 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 to get short term revenue and they weren't able to sustain it. They're. That's not a good way to run a business.

Right, right. That's a challenge. I do wonder. So the most profitable agencies who still have operating metrics will always tend to your point about specialist agencies always tend to be, have deep expertise in a very specific area.

Yes. And.

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'm, you know, I represent Zenpilot, so hopefully I'll be biased for as long as, as long as I'm a sociologist company. Yeah, but, but it's not close. If you're an agency, there's not a Zen pilot 2.0 that's like, hey, this not quite as good, but they're close to the same thing. But as that ecosystem matures five years from now, 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 so I don't think that that, that can certainly have downward pricing pressure as well, but there will just be a lot more options in the ecosystem unless click them 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? Because it seems like 30%, 35% shouldn't be an artificial cap on this. Is there a different reason that I'm missing on why there has, 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 kind of 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 it the ecosystem or is there another reason why it's hard to sustain those margins?

I mean the part about say the 45%, if an agency owner meets another agency owner who's like, I make it 45% net margins, 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% margins, 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% in Alice got the actions kind of kind of way. The other piece to consider, and I talk a bit about this in the wordplus or more book, is labor is the largest expense category for any agency. You know, my metric is generally you're spending 50 to 60% of revenue going back out the door for labor. Now that includes, includes your own compensation as an owner or for the owners and you know, ongoing freelancers as well. But you know, if you're spending 50 to 60% on labor and maybe it's 20% for overhead, that's only leaving 20 to 30% for net margin. So you know, if you want to get to 40% sustainable net profit versions, if your team is based in a 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. Usually LC agencies find 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 price, raising their prices. And that eats away at your margin. So, you know, it's a different model. I talk about the idea of are you running a front end agency, a backend agency, or full stack front end as you're doing the client facing work, sales, brand building strategy and so on. Backend 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, you know. So I like the front end agency model where you're doing the client facing work and outsourcing the rest. But you better pick the right outsourcing partners.

Right? Right. That sounds, 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, let's keep it going. Yeah, this has been awesome. So carlsekis.com see services work less, earn more.

Book.com back for I guess a fourth episode.

And so let's keep, let's keep it going. Yeah, this has been awesome. So carlsekis.com services work less, earn more book.com for your most recent of the books. This has been really fun, Carl. I'll make sure that we get the links up in the show notes as well. But thanks for being willing to spend another 40 minutes here back with us on Agency Journey.

Absolutely. Thank you and good luck out there everyone.