In this brief dialogue, the owner of an SEO and PPC agency (Speaker A) shares that the business currently generates $7 million in revenue with a 50 % gross margin and aims to double revenue to $14 million and eventually sell the company for about $20 million. The advisor (Speaker B) points out that service businesses typically target an 80 % gross margin and challenges the feasibility of that target. He suggests that much of the agency’s work is automatable with AI and that implementing automation (and potentially nearshoring) could raise margins toward the 80 % benchmark, enabling the desired growth and exit valuation.
I sell SEO websites and PPC. We do $7 million in revenue. I would like to do $14 and sell for $20. Thing holding me back right now, I think, is margin. I'm at like 50% gross margin.
Yeah, that's probably why. So if I run service businesses, my rule of thumb is always 80%.
Yeah, I know. That's what you said. I feel like that's a little crazy in our business, but I would love that.
I just don't— I would just challenge that because I'll bet you that 80% Today, what you guys do is automatable.
I think I've been thinking of that as a threat, but I think I'm just trying to—
Oh, why? Imagine like from heaven there was this tool that they were like, hey, I can 10x the productivity of your entire staff and the rest of your competition aren't going to do it because they're lazy. Would you be like, I want that? It's available. Almost everything that your team does right now, minus account management, can pretty much be done by AI. That would give you the margin back that you need. So there's no reason why you shouldn't have an agency that runs 50% margins. Zero. There's tons of SEO agencies that run 50%+ net margins. And with AI and nearshoring, there's, for fuck's sake, for sure you can run better margins than that. And so I say that just because I want to break this belief. I'm being a little bit crude, but the business you have right now, you could get to 12 with $6 million in margin, and then you could sell for 20 for sure.
