"I'm a freelance designer and developer now and would like to run my own digital agency one day. But the gap between freelance and agency seems somewhat a stretch. What would you recommend for someone who seeks to grow into an agency?"
What would you recommend to a freelancer who seeks to grow into an agency?
This question was asked in the comments section on Designer News.
This is what you can expect to change once you start transitioning from a (web development) freelancer to an agency:
Shift in your mentality from owning a job to owning a business.
Solution: first you need to be ok with becoming a business owner. If you absolutely hate the idea of having to run a business and managing employees instead of designing and developing projects for clients, you may not be ready yet to grow into an agency just yet. That’s perfectly fine, as long as you’re aware of how you truly feel about it. There’s nothing wrong with working alone or even working for someone else.
But you need to be aware that your agency can survive (in fact, it can even thrive) if you’re not personally working in it as a designer and developer. But your agency cannot survive if the most capable person in the agency (you) is not working on growing the business. Employees can design and develop, but they can’t grow and manage your business for you. You cannot outsource this task to anybody else.
You will have mouths to feed.
Challenge: Having employees means putting certain processes in place which make sure that there’s enough money every month to make payroll. Your costs will grow proportionally to the number of employees and the number of clients you have. There’s a ton of hidden expenses an agency must pay for in order to be highly profitable, such as creating and enabling productive work conditions, educating employees, infrastructure costs, creating company culture and so on.
Solution: Becoming aware of those costs is the first step. The second step is to act on the necessity that you need to start charging more right now - much more. There’s a good article in our newsletter archive about how to go about changing how much you’re charging - subscribe to our newsletter for free and get instant access to the article.
You will also need to turn your services into recurring revenue streams if you want to drastically increase the chances of surviving. We’ve written extensively on this topic, in fact we even wrote a book about it: Recurring Revenue For Web Agencies. Read it if you want to cut back on the time and effort needed to build, implement, sell and profitable organize services which bring in money every month.
Learning how to sell and market yourself, and do it consistently, will become important. Relying too much on referrals from regular customers is dangerous because getting referrals out of your control. Sales and marketing are core functions of every business and you always need to fully control all core functions. Rely on yourself and your employees.
Working on only one project at a time will become a thing of the past.
Challenge: managing an ever-growing list of concurrently running projects and making them profitable. As a freelancer, you may be used to keeping everything that needs to be done on a project in your head, on a sheet of paper on your desk or in your email. When there are more people working on the same project, sharing information in (near) real-time is the key to removing obstacles to productivity.
Solution: you will need to organize your business processes and development processes in a different way. An agency needs to organize tasks so that everybody in the company knows at any given moment what needs to be done, how it needs to be done, when’s the deadline and how to access tools and resources needed to complete the task. You will need business productivity software to manage sales, projects and client support in your web agency. You will need to document your practices and educate your employees on how to apply those practices in their daily activities. You will need to first understand the importance of processes and protocols. Second, you will need to put in personal effort in making those processes a standard practice in your business. All of will require significant time from you and that’s what I meant when I said that your business cannot survive without you managing it.
Your clients will require that you provide an ever-increasing scope of services.
Challenge: as a freelancer, you are probably used to providing a very narrow scope of services which are totally under your control. For example, you now develop WordPress websites for clients and as soon as you deploy a website, you move on to another similar gig for a new client. You decide what you offer and how you offer it.
Clients have different expectations from agencies. Clients will expect you to help them grow their online businesses. Some clients will need you to figure it out for yourself that they need you to help them with business growth, because they won’t ask you to do it. Their problems will require a systemic, strategic approach that goes beyond installing a plugin or two every couple of months.
Also, agencies can hardly be profitable if they don’t capitalize on long-term relationships with their clients. One-time gigs are expensive and barely profitable.
Solution: Offering more recurring revenue generating services which add more value to your client’s business is one way of achieving high profitability. No matter how big or small your expertise is now, you need to start selling it to your clients because their online businesses need it. There’s a good article in our newsletter archive about making your agency irreplaceable by offering integrated services which grow your clients’ businesses; subscribe to our newsletter for free and get instant access to that article (and many others).