by Are you tired of the feast-or-famine business cycle in your agency? Want to sell based on the value you provide rather than the time it takes?Â
In this article, you’ll discover a proven strategy for implementing a monthly recurring revenue model that can transform your agency's growth and success.
The Pitfalls of the Feast-Or-Famine Cycle
Many agencies find themselves trapped in the feast-or-famine business cycle. This cycle is characterized by periods of high cash flow and project overload, followed by periods of low income and uncertainty about the next project. The root cause of this issue is that agency owners often stop marketing and seeking new projects when they are busy, leading to a drought in business when current projects end.
Mike Schmidt and AJ Rivera, co-owners of Anchorwave and founders of Agency Coach, experienced this cycle firsthand in their own agency. Despite landing a six-figure casino website project that took seven months to close, they found themselves back where they started just a few months later. This experience led them to reevaluate their approach and focus on building a more sustainable business model.
The Power of a Monthly Recurring Revenue Model for Agencies
Adopting a monthly recurring revenue strategy (MRR) is the key to breaking free from the feast-or-famine cycle. Agencies can achieve stability and financial freedom by selling services that generate consistent, ongoing income. Mike and AJ emphasize that an agency is stable when its monthly recurring revenue stream exceeds its expenses.
To illustrate the power of MRR, AJ shares a story about an orthodontist who had been paying their agency $2K per month for 4 years. This client, along with an HVAC company paying $1,800 per month and a dentist paying $1,500 per month, proved more valuable than the one-time casino project. Agencies can build a stable foundation for growth by securing ongoing contracts.
Transitioning to a Monthly Recurring Revenue Business Model
For agencies looking to shift to an MRR model, Mike and AJ recommend starting by assessing their existing client base. Many agencies have completed one-time projects for existing clients who could benefit from ongoing services like search engine optimization (SEO), reputation management, pay-per-click advertising, and social media management. By proactively reaching out to these clients and offering additional value, agencies can convert them into recurring income sources.
Mike and AJ advise leading with recurring services rather than one-time projects when approaching new clients. This may require a shift in mindset from being an order-taker to becoming a strategist.
Instead of always starting with a website redesign, agencies should focus on services that provide ongoing customer activity, such as SEO and social media marketing services. By demonstrating the value of ongoing support and optimization, agencies can secure long-term contracts that provide a steady income stream.
#1: Price for Profitability and Stability
Determining the right pricing for MRR services is crucial for agency success. Mike and AJ stress the importance of selling based on value rather than time. Agency owners should focus on the return on investment they provide their clients, not just the hours they put in. As Mike puts it, “You deserve to be paid based on the value that you provide and not the time that it takes.”
To ensure profitability, agencies must account for delegation and outsourcing when setting their prices. By breaking down services into smaller components and partnering with subject matter experts, agencies can maintain healthy profit margins while delivering high-quality work. This approach allows agency owners to shift from day-to-day operations and focus on growth.
For example, AJ convinced Mike to bid $20K instead of his usual $6K on a neuroscience project without changing the scope of work. The client accepted the higher price because of the value Anchorwave demonstrated. This experience taught Mike that agencies should price based on value, not just time or fixed amounts.
#2: Leverage Service Partners for Scalability
One key to scaling an agency with an MRR model is leveraging service partners. Instead of hiring full-time employees for every skill set, Mike and AJ recommend outsourcing specific tasks to trusted partners. This allows agencies to be more agile, only paying for the resources they need when they need them.
To make this model work effectively, agencies should create productized service recipes that clearly define the scope of work for each partner. For example, an SEO partner might be responsible for completing five citations, writing two blog posts, and performing monthly on-site optimization. By being specific about deliverables and expectations, agencies can negotiate favorable rates and maintain control over the quality of the work produced.
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Think of it like a general contractor overseeing the construction of a custom home. Just as a contractor brings in specialized plumbing, electrical work, and carpentry subcontractors, agencies should partner with subject matter experts for specific digital marketing tasks. This allows agencies to offer comprehensive services without overextending themselves.
#3: Measure Success and Adapt to Change
As agencies transition to an MRR model, tracking key metrics to gauge success is essential. Mike and AJ recommend focusing on the number of weekly sales conversations or “initial discussions” (IDs).
By setting a target for these conversations and monitoring progress, agencies can ensure a consistent pipeline of new business. As Mike puts it, “IDs get playbooks, playbooks get closed, recurring revenue stacks and stacks until monthly recurring revenue is greater than expenses.”
On the service delivery side, agencies should monitor client retention and satisfaction closely. By continually delivering value and adapting to clients' evolving needs, agencies can minimize churn and maximize the lifetime value of each contract.
Embracing the MRR Playbook
Mike and AJ have developed a comprehensive playbook for agency owners looking to implement an MRR model in their own businesses. This resource walks through their proven two-step sales process, teaching agencies how to sell based on value, generate recurring revenue streams, and achieve the desired growth and stability.
The playbook includes strategies for breaking down services into smaller components, partnering with leverage service providers, and creating productized service recipes. It also covers techniques for selling recurring services, such as leading with quick-win products like reputation management before stacking on additional services like SEO and pay-per-click advertising.
For example, one of Mike and AJ's clients was a former rock star drummer who transitioned into the agency world to spend more time with his family.
He started by offering a reputation management service, which helped clients get more five-star reviews on platforms like Google and Facebook. This service proved an effective foot-in-the-door offering, allowing him to quickly onboard new clients. He then followed the Agency Coach Playbook, stacking on additional recurring marketing services like SEO and pay-per-click advertising.
Within a few years, his agency hit $1 million in annual revenue with just one full-time employee and a few leverage service partners.
By following the strategies outlined in the playbook and adapting them to their unique circumstances, agencies can transform their operations and build a sustainable, thriving business. The path to success may not always be easy, but with the right mindset and tools, agency owners can overcome any challenge and achieve their goals.
Mike Schmidt and AJ Rivera co-own Anchorwave, a digital marketing and web design agency. They also founded Agency Coach, which teaches marketers how to build profitable agencies. Additionally, they created Funnel Hub, which helps businesses and marketers create, design, and manage their sales funnels. You can find Mike on Instagram. Check out more resources here.
Brooke B. Sellas is host of the Marketing Agency Show, a Social Media Examiner production. She is founder and CEO of B Squared Media, an agency that helps people connect, converse, and convert on social media. Her book is called Conversations That Connect. Find her on X and LinkedIn.
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