Digital Agencies are amazing businesses. They are creative, fun and you often get to work with great brands.
But… whilst fun, project based work is such a damn hard way to make money, and even harder to grow an Agency sustainably.
As an advisor to 30+ Digital Agencies and Startups, we’ve been working together on a super simple model that can help Digital Agencies get to £1M in recurring revenues.
20 * 5 * 1K
What does that mean?
20 clients paying for 5 services @ £1000 per service per month
That gives you a £1.2M potential turnover which gives you space to lose a couple of clients along the way and you still come in at £1M per year (every year).
But what recurring services can I offer my clients?
If you’re short on ideas of recurring services you can sell, don’t worry- see my post here on generating recurring income (there are 14 of them)
A quick example:
A Digital Agency could offer the following 5 monthly recurring services to 20 clients in the Entertainment niche @ £1000 per service.
- Design discounted retainer
- Development discounted retainer
- Support contract
- Conversion services
- SEO services
So how can you do it?
Here’s some tips to get you started;
Start with a list of 200 prospects in a given sector. (Ideally one where you already have a case study – it will be much easier to sell to more of them).
Make sure all the prospects have a turnover of £2M+
Why? You will be asking them to part with £60K+ per annum so they need to have a decent turnover to allow a marketing budget of that size. (£60K is 3% of a £2M turnover so therefore affordable)
Side note – This is why it is difficult to get recurring revenues from startups or small businesses! (unless they are well funded)
Companies with £2M revenues are not huge businesses and therefore very approachable (typically 20 – 40 employees) and there are 1000s just in the UK. (Many more in the US!)
All you need to do is make 10% of the 200 prospects on the list your customers – Simples.
For clarity, I’m not saying that you start at £5K per month for each client.
I would suggest finding 5 clients @ £1K per month, providing an amazing service, building a great relationship with them and then expanding the relationship to provide additional recurring services to them.
Remember the 20 * 5 model is just a guideline.
For example, 40 clients @ £2.5K per month also works but remember you will need more staff to deal with the additional project management overhead of managing more clients. (In plain english – you will take less cash home at the end of the year).
So far so good?
Here are some things you need to consider next;
- How you find clients that need recurring services
- How you price recurring services
- What you say to prospects to sell recurring services
Article by Steve Penfold. You can find out more at http://www.smartdigitalbusiness.com/