How to Run Your Inbound Agency Like a Business

At the time of this episode, David C. Baker ran ReCourses out of Nashville (the firm is now Punctuation) and advised agencies on the business side of what they do: positioning, lead generation, staffing, processes, and financial performance. By this recording he had worked with 39 HubSpot partner agencies. Andrew Dymski hosted solo and asked David what he’d seen inside those firms. The short version: most inbound agencies aren’t thriving, and the fix starts with treating the agency as a business.

The agencies that survive make good business decisions

Andrew asked whether David’s first consulting clients had anything in common. David went back to 1994, when he still ran a 15-person agency in Northern Indiana, and said the pattern he saw then still holds.

“When you look around you at your competition, and then you think about the firms that are no longer there, it has virtually nothing to do with how creative they were or all the other things that we tend to concentrate on. Really it comes down to whether they were making good business decisions.”

(Listen at 05:57)

That’s the lens he brings to HubSpot partners. The 39 he’s worked with share three patterns. First, a gap between the promise and the work: clients find inbound harder than they were told, and the agencies “are discovering it’s not quite as easy as just pressing a button and making things happen.” Second, trouble attracting clients who can fund a retainer every month. Third, over-hiring: staff primed and ready, with not enough work to do.

Positioning is about control

Before David takes on a client he wants to know whether they’re open to being focused. The earliest certified partners had the market to themselves. Now there are thousands. “Being a HubSpot certified agency, it’s no longer a focus. It’s just simply a category.”

When he walks an agency through positioning, he frames it as control. The client exercises control every day, in small ways and large. The agency has one lever.

“The only control they have is to withhold their expertise… So the agency has to ask themselves, if I decide to withhold my expertise from a client, how long will it take them to find what they deem is a suitable substitute for me? And that’s the degree to which they’re well positioned.”

(Listen at 14:20)

Get off the train track and own your agency

This was Andrew’s biggest takeaway. David said owners who are all in on inbound are a different kind of entrepreneur: smart and eager, but waiting for a track to be laid out in front of them. “It’s almost like they bought a franchise,” he said.

Andrew asked how an owner works against that. David’s answer: the world won’t suspend the laws of gravity because you’re an inbound firm, whatever conference speakers say about accepting lower profit, overstaffing, and over-servicing early on.

“I’ve now worked with 39 HubSpot agencies and there are not many of them that are thriving, thriving as well as a typical agency would… I do not think you ought to tie your future to HubSpot, not because HubSpot isn’t a good product, because I think it is… but I don’t think you should tie it to HubSpot because I think you need to own your agency.”

(Listen at 18:32)

Three numbers that show whether an agency is thriving

Andrew asked which KPIs define a thriving agency. David pointed to the free utilization calculator on his site, then to the one you can do on a napkin: fee billings per full-time equivalent employee.

“So let’s say you have 10 employees and you have to add all of them up, not just the billable people… Let’s say your fee billings are 1.2 million, which means that you have 120,000 fee billings per full-time equivalent employee. That would be a high number for the typical HubSpot agency. It would be a significantly below average number for any other kind of agency.”

(Listen at 19:48)

The third number is what the owner takes home. In a five to eight person firm, he said, the principal should make $170,000, with another 15 to 30% net profit on top, of which they keep at least half. “Those are the three that are simple that most HubSpot agencies are really missing.”

Project managers keep accounts level. Account people grow them.

Andrew asked whether “not chasing growth” meant upselling current clients or making each engagement more profitable. Both, David said, and then raised what he called a big issue in inbound.

“Most of the time, the folks running the client relationships in inbound are not the classical account executive profile. They’re more project managers… I’m not going to screw up, I’m not going to lose the account, I’m going to manage them really, really well. As opposed to somebody who has more of an account executive mentality who will upsell the account… You look back and you realize, oh my God, we’ve kept them level, but we’ve not grown them.”

(Listen at 29:19)

He wants two roles: an account person who owns the relationship and a project person who runs delivery in the background. The same logic applies to pricing. Whoever manages the client has an incentive to set a price the client will accept, so pricing should come from someone more objective.

Why David dislikes retainers and outside money

Andrew asked whether retainers are the way to go. David’s answer cut against most inbound advice of the time.

“I hate hourly pricing. I don’t like retainer relationships. I would much rather you say, all right, this is a three-year program and when I look at what needs to be done, there’s going to be a minimum monthly fee and then it’s going to spike up and down based on what you need, what your marketplace demands.”

(Listen at 33:40)

Retainers had been declining for 15 years, he said, only the most sophisticated clients can handle one, and a retainer is a lightning rod once a relationship goes off course. He was just as direct when Andrew asked about seed funding or taking on a partner for cash.

“Getting outside money is the best way to ignore operational issues [that] should be solved in other ways… Instead of stopping and saying, if this is such a good idea, why don’t I have the money to do it? So I preach being profitable from day one, and I do not believe that we ought to chase growth.”

(Listen at 28:06)

He’d rather see a well run business at four people or 40 than a bigger one that needed outside cash to get there. His parting advice was in character: read the free material at recourses.com first, and don’t hire him right away.

Where David is now

ReCourses has since been renamed Punctuation. It has now worked with more than 1,100 independent marketing firms. David is still its practice lead for advisory services, and his son Jonathan Baker leads the M&A side.