The Acquisition Strategy for Scaling Your Digital Marketing Agency (and Keeping Your Top Talent)
Life as an agency owner is tough. It’s an exciting journey that pushes you to become your best self, but finding potential clients and talent as well as keeping them on board is a hard slog, as referrals and inbound marketing can only get you so far.
Most agency owners start feeling all the headaches of the agency business model at around 10–20 clients. This is also where diminishing returns begin unless you start to accelerate the scaling of your agency, which brings its own unique challenges for business owners. It’s hard enough trying to keep your core clients and talent without having to worry about scaling.
But what if, instead of trying to break through the wall, you could divert around it?
Whatever your digital agency does, whether it’s social media advertising, SEO, PPC, content marketing, or something else, its core function is to optimize and scale businesses. Right now, your agency is likely set up to acquire clients and scale their assets.
While clients are the lifeblood of your current business model, every marketing agency owner knows the difficulties that come with offering marketing services to clients — the pressure to hit target performance metrics, the potential for conflict in the process of building relationships, and the fact that your reputation is on the line every time you take on a project. And that’s after you’ve spent all of that time and energy finding and onboarding a client.
However, there is a straightforward solution that not many marketers know about. With a business model shift, you could remove all of these problems by making the asset the client.
Centering Your Business around Assets
Right now it’s likely that, when you scale a client’s asset, you earn a percentage of the profit increase or a base commission with bonuses for growth. But, if you acquire an asset, you earn all of its current profits, plus the profit increases. This is why investors buy online businesses — because they are one of the few asset classes that allow an investor to own 100% of the asset’s income.
As digital assets, online businesses are getting more and more attention in the investing space with institutional-level interest. The value of online businesses is increasing dramatically. For example, eCommerce businesses have increased in market value from 2020 to 2022 by 41%!
This state of the market is another benefit of centering your business model around assets, as it offers you an opportunity to earn more than working with clients. You can take full advantage of the eCommerce, online business market, and online business investing booms.
Imagine the earning potential of acquiring online businesses. Few asset classes offer a higher and faster ROI potential and that is a focus of this new agency business model.
One of the key players at the institutional level are private equity (PE) firms, which are companies backed by huge sums of capital that they invest in assets. The way that they operate their online business portfolios is how you can efficiently and successfully scale your marketing agency.
What You Can Learn from PE Firms about Scaling Your Digital Marketing Agency
PE firms hire online business operators to acquire and grow digital assets — i.e. online businesses — to grow their portfolios.
The operators act as the business owners and, after executing a growth plan, they sell the asset for a lump-sum ROI. This concept of scaling and selling digital assets is termed the “Asset Flywheel,” and it’s a much more effective scaling strategy than a traditional client-acquisition funnel.
With the client-acquisition funnel, you invest a large part of your agency’s energy into acquiring clients but, with the Asset Flywheel, your clients produce more assets for you at increasing rates. Once you’ve scaled and sold one asset, you’ll be able to invest more capital into multiple assets, so your scaling processes will become more effective and you’ll be able to generate an ROI faster, building the flywheel momentum.
This growth model can also be used to build assets. The more efficient your team becomes at scaling businesses, the higher their capacity to scale a portfolio of assets becomes and the bigger your agency can grow.
As a digital marketing agency owner, you already have a team of professionals who know how to scale online businesses with SOPs and templates to follow, and they will collaborate like clockwork on digital initiatives. All of these skills are needed to ensure the success of your projects.
You and your team know what does and does not work when scaling a business because of your experience working with various projects and niches. You can see the growth opportunities that an entrepreneur running just one business may never see.
The mindset behind the Asset Flywheel is to acquire assets and treat them as if they were your client’s businesses, and you can do this all in-house. Building this lead generation machine will offer you a new approach to scaling your agency and, when you understand how it works, you’ll be able to see the potential of this business model shift.
The Four Steps to Onboarding an Asset for Agency Growth
Step 1: Identify the Asset
Decide what kind of business model makes sense to add to your portfolio with the in-house team you currently have.
This will be one that is within budget, that your agency has worked with before (e.g. ecommerce, SaaS, or a mixture), that is preferably within a niche you’re familiar with, and that would be within the target audience for your agency if it were a client’s business.
You know which types of businesses your agency can work with best, so choose a model that you already have the processes and resources in place to scale.
However, there is the option to expand to new business models and niches when you scale your team and solidify your agency’s operational structure.
Step 2: Decide to Build or Buy the Asset
You can start your Asset Flywheel by building a business from scratch using your team, but this consumes a lot of resources and is only recommended for agencies with a low budget. Although, your team should have the experience and resources to grow the business pretty quickly and they will learn a lot from running an actual business, which they can then apply to other assets.
Otherwise, your best option is to acquire an asset. You should write out what’s called a due diligence framework. With this, you set out your acquisition criteria to ensure you make a safe investment.
To that point, your team will need to learn how to acquire assets. This will require a whole branch of your new business model and it is very different to acquiring business owner clients, so be sure to prepare your team before moving forward with this client acquisition shift.
Step 3: Create a Business Plan
Here is where you plan out how much capital and what resources you’re going to dedicate to this acquisition, as well as the project management systems and marketing strategies you’re going to put in place to run and scale the asset.
You will already have an SOP for creating business growth plans that you’ve used for your clients in the past. The key difference here is that you also need to account for the acquisition cost of the asset and the potential return on investment. You wouldn’t want to go and acquire a million-dollar business if your acquisition budget is $900,000, for instance. Also, you need capital to be able to scale the asset, as the success of your business model still hangs on the success of your clients.
Step 4: Assign the Account Manager
If you have a large agency, you’ll have account managers (AMs) that manage client relationships and communicate the client needs to the rest of the team.
You can parallel this setup with your asset, which is now the client. The key difference is the loss of the middleman, as your AM will be handling the asset directly. This will make your operations a lot faster and easier, as you have more freedom over how you control the asset.
You might even consider making your AM the person in charge of acquiring assets for your agency and having them train in this area so they can go out and find assets you have the highest chances of being successful with.
You might notice that this process is similar to your current client acquisition process, so you’ll already have some operating plans for executing this strategy in the short and long term in place.
Setting up Your Agency Like a PE Firm for Infinite Growth
Even though you have some of the processes already in place, you’ll need to make some changes to your agency’s operational structure to set up for the next level of Asset Flywheel growth.
The following steps are needed to operate like a PE firm.
Create a Search Fund
PE firms create search funds for operators to find and scale digital assets. The operators act as CEOs of the businesses they’ve acquired and are paid profit-share or equity in the business.
The motivation for the PE firm is that they can deploy their capital into a digital asset and have a trusted operator to manage it, which allows investors to passively invest in assets they wouldn’t be able to run.
When it comes to your agency, you can dedicate a fund for new or current talent to go off to find assets to acquire and scale.
Promotion Opportunities: AMs to CEOs
When your AMs are successfully acquiring and scaling assets, you can reward them by making them CEOs of the businesses they’re in charge of, with a percentage of that business’s income added to their wage.
This is a great way to keep your top talent.
Most of the time, the best talent of an agency leaves because they feel there aren’t any prospects for further growth within the agency. But, by giving them the freedom to scale to unlimited heights, you will keep them motivated.
Over time, your portfolio may get big enough to warrant other layers of management. You will be able to create a management team for an asset or a group of them.
By rewarding your talent with performance-based incentives and promotion opportunities, you will be better able to keep them on board. This, coupled with having multiple layers of management, is one less critical point of failure for your business that you need to worry about.
The key benefit of this new business model is that it is much more scalable than that of your current agency model. Once you kickstart the Asset Flywheel and it generates the perpetual growth momentum, you can expand horizontally into larger contracts and vertically into new niches. Best of all, your agency will not be subject to the inherent challenges and limitations associated with working with business owner clients, offering you more freedom and growth potential
Finding Your First New Client
This scaling strategy can work at many levels, even with a small business as your first new client. As long as your team has the skills to scale a business, they will be able to transfer those skills to scaling their own business.
Depending on your budget and resources, the first step to executing this strategy is to build or buy an online business.
Your team will likely have the skills and experience necessary to build a business, but they may need to learn how to buy one. The best way to buy your first business is through a broker who can guide you through every step of the process. There are many resources online that you can learn from, but we’d recommend getting advice from a professional before making any moves.