Matthew Larson breaks down three scaling models for agencies: factory (high-volume retainers), ultra high-ticket (few large clients), and performance-based profit-share. He argues picking one and sticking with it matters more than mixing them. Larson draws from selling agencies and consulting 550 agency owners monthly.
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There are three main ways and models to scale an agency, and it's unfortunate because I would say that 99% or more of agencies don't fall cleanly into one of these three categories. I deal with about 550 agency owners per month, and I can count on one hand how many agencies I deal with, like, fall into one of these three categories in the way that they need to. So let's get started. I'm going to talk about all three of these things and the pros and cons of each. And I'm going to go over how you may choose one of these three things. And if you don't know who I am, this is the first time watching my channel. My name is Matthew Larson. I've grown and sold three agencies in the past 12 years, and I consult with about 550 agencies every single month. So there's three main approaches. The first is you're either going to do an agency as a factory, which is you sell a productized intro offer and then you upsell into more or less a productized recurring service. And you just do a lot of that. I'm talking, you're going for 100, 200, 300, sometimes even more clients. This is usually at a lower retainer, for example, and you just have more and more and more clients. The second way is going ultra high ticket. A lot of the times, if you get those Fortune 500 or Enterprise clients, you're charging so much more for the exact same thing, and you just only need a few clients to scale really high that way. And the third is you're going to be doing an agency on a performance model with a very clean either profit share or revenue share. So let's go through the pros and cons of each. So I'm going to start with the one that I like the least. And this is kind of the one that I was doing on the first end, somewhat. Even the second agency that I sold, the first for sure, but even at a little bit on the second. So that is the super high ticket, the enterprise. The you're charging $500,000 for a project and you're just doing that five times a year, 10 times a year, and so on. This has its pros and cons. The pros, of course, you can divide, like, put a ton of time and effort into each client and really work with some cool companies. And it's an amazing form of social proof when you have those log on your website. The cons of this are the sales process is very long. You have a Ton of competition. If you're not good at networking and building relationships, this is probably not the one you're going to choose. And I really just don't like it because you are very reliant on one or two or three or four or even five clients. And if they leave, it's just a huge portion of your revenue dropping off. The pros of it are, like I said before, you get very, very cool work, you get very, very cool reputation and that easier to get those kind of clients in the future. And it's just very good for your career. But for me personally, the cons outweigh the pros. I know that because for me I'm not an insane level networker. I'm not out there building relationships. I'm kind of like a prickly personality and easy to anger and I rub a lot of people the wrong way, especially in the corporate world. So it's just not for me. And then I'm going to go to the other two models that I like the best. So I'm going to talk about the factory model first. And this is the one in the third agency I sold. This is definitely an example of what we were doing. So I had a conversion rate agency for e commerce stores and we charged between eight and $15,000 per month. Most of the time it was eight. But then I raised prices as I got more and more of a reputation, more and more clients and that kind of stuff. And then I sold a one time service which is landing Pages, which is one landing page for 2,500 or three for 5,000. And this is a perfect example of you're thinking sweatshop, you're thinking assembly line, you're thinking just factory, you're thinking the industrial revolution applied to an agency. Probably shouldn't say sweatshop in there, but it's just where you are basically have your processes, you have your templates, you have your systems, you get a client, those templates, processes and systems are applied to every single thing. And then you just keep churning out and churning out and churning out clients and building up that MRR 4,000, 8,000, 12,000, 15,000 at a time until you just get a monstrous level mrr. So there's pros and cons to this too. The pros I would say are you have a much bigger total addressable market than the enterprise clients. There's just obviously in general more smaller companies than there are larger. Another pro, another pro is you can get really dialed in. You know, you get a ton of different reps and you can apply your learnings to future clients a lot easier than the enterprise level clients. Another pro is kind of the opposite of the pro and con. For the enterprise level. If a client leaves, you just have so many clients that that doesn't really mean that much to you. So you don't have to make concessions, you don't have to go off your scope of work, you don't have to do X, Y and Z. The cons of this are it's very, very unfulfilling work. It's very, very boring. It's you're mostly, you know, not doing anything that is learning like and kind of developing your skills as a person. You're much more like a manufacturer than you are anything else. I think that if you're trying to make a lot of money, this is one of the best ways you can do it. Because people who are trying to buy your agency also really like that because you have so many clients, it's a lot less risky than you having all of those enterprise clients who in general are a relationship built off you. It's a lot easier to sell the factory approach in terms of if you're trying to exit a company and then the final one is the revenue or the profit share one. I think this is either the best one or one of the worst ones. And it kind of depends on a few things. The first thing is almost no client in some niches, such as the startup niche or the E commerce niche is going to give you like revenue or profit share. It's just if they have investors, it's almost a no go. If they have a board of directors, it's almost a no go. If they have normally what's really thin margins in E commerce, it's normally a no go. So this can be the best model or it can be the worst. And it's very, very niche dependent in my opinion. It's also very dependent on either you have a very strong reputation and or personal brand or if you don't, you have worked with them on a kind of traditional retainer model, proven yourself and now they're willing to do that. Of course, if you're in the right niche here, you have the right authority, you have the tools that you need to succeed and you have something like a 10, 20, 30% revenue or profit share you can make a lot of money for from a very few clients. Like you can have 10 clients, you get a 10% rev share, you help them get a million dollars per month and you're getting 100k per month each times 10. And you can really scale an agency that way with very few people. I think that the pros of this are if you are extremely talented, you are going to make a lot more money than you would in all of the other models, as well as a lot more profit. But if you are not very talented and you're going to know this better than everybody else, like let's say you're earlier in your career, you probably won't have the skill set needed to do this and you'll probably make less money than the other two. But you really have to, in my view, have one of these three things. You're not really going to get a huge agency if you try to mix these things together. In my opinion, if you just have an agency that has a few enterprise whale clients and then 1 revenue share and then a bunch of retainers that are smaller, you just aren't focused enough and you're not having the, how would you say, the mindset enough reps at what you're doing in your core business model to scale it. But if you're trying to scale past, let's say, a million dollars per month as an agency, you're really going to want to have one of these four things and go all in on it and focus on it completely like that. So that is all for this video. I just made this video as the answer to one of the questions I got in my mastermind and it's what is the best agency model to scale? And I hope it was valuable and I will see you in the next one.
