How to Differentiate Yourself
Episode 42: How to Differentiate Yourself, with Jon Morris
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How to differentiate yourself? Learn from Jon Morris in this podcast. Make your agency stand out by knowing how to differentiate yourself.
Jon Morris is the founder & CEO of Ramsay Innovations and a serial entrepreneur. Prior to Ramsay, he established Rise Interactive in 2004 with prize money from his second-place finish in the University of Chicago’s prestigious New Venture Challenge. Over the next 16 years, he grew Rise from a one-person shop to one of the largest independent marketing agencies in the world. After selling Rise, Jon pondered his next move and realized he was most energized when connecting and helping fellow entrepreneurs grow their businesses.
Want to know Jon’s secret on how to differentiate yourself and your agency? Here’s a bit of history.
Ramsay Innovations is the product of this inspiration. Like at Rise, Jon developed a proprietary, tech-enabled approach for surfacing hidden financial insights that drive critical business decisions. Ramsay Innovations’ mission is to transform marketing agencies by providing them with world-class, agency-specific financial management and strategic planning at a fraction of the cost.
What you will learn in this episode is about how to differentiate yourself:
- Jon’s innovative framework around how agencies can fuel growth with a system of financial planning
- The core philosophy of Jon and his team
- How to differentiate yourself and why differentiation is crucial for agency growth
- The four different concrete goals Jon highlights for growing agency revenue
- Why agencies should believe in marketing as well as prioritize it for the greatest impact
- How Jon helps other agency owners grow by applying the analysis process he built
Resources:
- Read about how to differentiate yourself and your agency by checking out this blog from Jon Morris’ EngineBI
- Website: https://ramsayinnovations.com/
- LinkedIn Personal: https://www.linkedin.com/in/jonmorrisramsayinnovations/
- LinkedIn Business: https://www.linkedin.com/company/ramsay-innovations-llc/
- Facebook: https://www.facebook.com/RamsayInnovations
- Twitter: https://twitter.com/RamsayInno
Additional Resources:
- Visit our newly expanded “Resource Library“
- Join us in our free “How to Fill Your Sales Pipeline” Facebook Group
- LinkedIn: https://www.linkedin.com/in/stephenwoessner/
- Listen to a similar podcast about how to differentiate yourself, with Karley Cunningham
How to Differentiate Yourself: Full Episode Transcript
Welcome to the Sell with Authority podcast. I’m Stephen Woessner, CEO of Predictive ROI. My team and I, we created this podcast specifically for you. So if you’re an agency owner, a business coach, or a strategic consultant in looking to grow a thriving, profitable business that can weather the constant change that seems to be our world’s reality within you’re in the right place, do you want proven strategies for attracting a steady stream of well-prepared, right fit prospects into your sales pipeline?
How to differentiate yourself in the midst of competitors? Yep. We’re going to cover that. You want to learn how to step away from the sea of competitors so you actually stand out on the ground you’re standing on? Yeah, we’re going to cover that too. Do you want to future-proof your business so you can navigate the next challenges that come your way? Well, absolutely. We’ll help you there as well.
I promise you each episode of this podcast will contain valuable insights and tangible examples of best practices, not theory. From thought leaders, experts, owners who have done exactly what you’re working hard to do. So I want you to think practical and tactical. Never any fluff. Each of our guests have built a position of authority and then monetize this position by claiming their ground, by growing their audience, by nurturing leads, and, yes, by converting sales.
But all the while, they did it by being helpful. So every time someone from their audience turned around there, they were given a helpful answer to an important question. So their prospects never felt like they were a prospect. I also promise you every strategy that we discuss and every tool we recommend will be shared in full transparency in each episode.
How to Differentiate Yourself: Jon Morris’ Introduction
So you can plant your flag in authority. You can claim your ground and fill your sales pipeline with a steady stream of referred clients who never were made to feel like one of your prospects. Okay, so I’m excited for you to meet our very special guest expert today, Jon Morris. In case you’re meeting Jon for the first time, he’s the founder and CEO of Ramsay Innovations.
Now, prior to Ramsay, he established Rise Interactive in 2004, in over a six-year trek, he and his team grew the agency from a one-person shop to one of the largest independently owned marketing agencies in the world. Jon then sold Rice Interactive. Amazing. And while considering his next move, he realized that he really, really enjoyed helping other agency owners grow by applying the financial planning and analysis process that he built from the ground up while he owned his agency.
Why? Because all of the hard work, all of the scaling, all the blood, sweat and tears that you and your team invest in building your authority position and then scaling the agency, all of it is for naught. If it doesn’t connect to your financial goals and help you move further faster. Jon felt inspired when working alongside other agency owners because it was a great way to show them how growth for the sake of growth isn’t actually growth.
You need a tangible plan. You need the right analysis and the tools to get there. So Ramsay Innovations is the product of that inspiration. Jon developed a proprietary tech-enabled approach for uncovering hidden financial insights that drive business decisions inside agencies just like yours and mine while providing agency-specific financial planning and analysis tools. I promise you. Taking and applying what Jon shares during this conversation will help you design a more profitable 2023 for you and your shop.
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How to Differentiate Yourself: Growing Your Agency Amongst a Sea of Competitors
Okay, so without further ado, welcome to the Sell with Authority podcast, Jon Morris. Thanks so much for having me here. Really excited to have a great conversation with you and share any insights to anyone listening to this podcast that can help them grow. I’m excited for the conversation to be before we dive in with what I’m sure is going to feel like a barrage of questions coming your way to take us behind the curtain.
And obviously I shared a little snippet about some sort of bad pun about your rise and what you did with your shop. But take us behind the curtain and give us a little bit more context around your path and journey and then we’ll dive in. Sounds good. So in 2004, as you mentioned, I started Rise. I went to the University of Chicago for business school in a business planning competition called the New Venture Challenge $10,000, which was my seed money to start the company.
And had a long-term horizon. My goal was to create the world’s largest independent digital agency. That’s what I set out to do as an individual working out of my home and I had a very long-term timeframe. I was looking to do it in 20 years, and if it did take longer than 20 years, I would keep on going.
And what people don’t realize and people get blown away when they hear this stat, there are 120,000 agencies just in the United States. And so when you think about it, you think about how you are going to grow and how to differentiate yourself and how are you able to actually scale your agency? All of us only have time or money, and it’s how you choose to spend your time and money relative to your competition that is really going to determine your outcome.
And so we invested very aggressively in our annual planning on how to spend our time and money as intelligently as possible so that we could ensure that every year we had a great year. We were able to scale relative to the previous year. And so the whole thing that you were just talking about in the introduction, that’s a big part of our success was we had a system of planning to ensure we spent our time and money really intelligently.
How to Differentiate Yourself: Know Your System of Planning
Okay, so let’s dive in there with respect to the system of planning. Give us a couple of highlights as we start to slice that apart. So give us a couple of highlights. When you say system of planning, let’s go high level and then we’ll go high level. Okay. So today’s January 5th. Yep. Two days ago, January 3rd was the first business day of the year.
Yeah, I call that game day. Okay. Because the game of the year has officially started. We generally would start in June or July planning for game day. And you know, you start thinking about, okay, we want to have a big growth year. Well, what do we need to do to make sure that we have a good growth year?
Are we going to invest in sales? Are we going to invest in marketing? How are we going to ensure that we keep our customers? What are the things that we need to do differently? What were the things that didn’t work this year so that we could plan accordingly? So we took a very long time frame. The other thing is when you think about it, your agency generally has a 30 to 60 day sales cycle.
Depending on the size of business you’re trying to win. So that means that if you want a client in January, you have to generate the lead in November or even October. And so the year starts well before the year actually starts. And so one we always in the second half of the year to prepare for the beginning of the next year.
The second thing is that our core philosophy is that our number one sales goal is to never lose a client due to performance. And if you think about it, many agencies—there are different types of agencies—have retained relationships. And you work really hard to grow those relationships and win that business.
Well, if you have a leaky bucket and you’re losing those clients, well, then you’re just on a treadmill where you have to replace all that revenue. So, you know, as you talked about, you know, understanding authority and having differentiation. We invested very heavily in differentiation. And I’ll give you an example. I always tell people that you have to pass the second question to determine if you have a true differentiator.
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How to Differentiate Yourself: Identifying What Makes You Unique
Okay. So the first question is, what makes you great or what makes you unique? And I don’t really care what your answer is. Your answer might be we have great customer service, or it might be that we’re data-driven, or it might be that, you know, we can provide more senior people. Okay. So my follow-up question is, I just met with 49 other agencies that had the exact same answer.
So how are you more data driven than those other 49 people, or how do you have better customer service or how are your senior people more senior than their senior people? And if you can answer that question, then you have a real differentiator. If you can’t answer that question, then you’re on the journey to a differentiator. But you have not achieved that differentiator yet.
So, I’ll give you an example. Okay. I’ll use Rises’ vision to be the leader in leveraging data to help brands make smarter marketing investments. They launched into saying we’re data-driven. So the follow-up question is: I just met with 49 other agencies. How are you more data-driven than the other 49 agencies?
Well, the reality is data is a broad term. There is media data, there’s customer data, there’s competitive data, there’s pricing data, there’s inventory data, there are all sorts of different types of data. What Rise focused on was media data. And we had two different ways that we were able to leverage media data to provide better outcomes. The first thing is, in order to get a job at Rise, you had to take an analytics exam and have a 22% pass rate.
So you’re not allowed to even interview if you don’t pass the exam. Wow. So having people that were more analytical we thought was crucial so that they could actually dive into the data, make decisions. But the second thing is we built a proprietary tech platform, eight figure investment, where we are connected to all of the major media data sources, you know, the Googles, the Amazons, the Facebooks, you know, etc..
And we’re able to identify waste in media, spend faster than anybody else, and redeploy that waste to areas that are scalable, that are generating a positive ROIC. So that’s an example of how you’re able to answer the second question. But when it comes to budgeting, it can’t be a goal unless you put a budget against it. So, you know, for a long time, you know, there were incremental investments in that technology, but, you know, it wasn’t as impactful yesterday as it was today.
And, you know, I thought, I’ll just use another one. Let’s just say you want to be the best at customer service. What does that mean? Do you want to offer 24/7 support? Do you want to have a technology solution that offers answers to all those questions? You know, so if you can say, you know, look, we have the best customer service and what we’re really focusing on is response rate.
We’ve developed bots that can answer questions. We have a team across the globe that can respond to you at any moment of the day or night. You know, then you can actually have meat around the bone in terms of that being your differentiator. But it all goes through the budgeting process.
How to Differentiate Yourself: Mapping Out a Plan to Take Care of Your Clients
So let me give these. Let’s see if I’m correct here in my notes, and please let me know if there’s some holes here. So when we think the system of planning loves the game day thing, that is so cool. So a system of planning. I got three big pieces out of there. But please tell me if I missed something. So first is getting ready for game day by starting that process number one in June and July, we’re getting ready for game day.
The first day of business in the New Year, whatever that is this year, like you said, January 3rd, whatever date that is, we’re starting in June and July. So that’s the first ingredient in the recipe. Second is that we’re realizing the fact that our number one sales goal is to never lose a client due to performance that was behind its rise.
But the fact that we’re essentially planning our business, realizing that we have a 30 to 60 day process to, you know, the sales cycle. So we’re getting that into sort of the cognitive reality, if you will, in step number two where we’re planning. So I would separate out the 30 to 60 days sales cycle.
Okay. The never lose a client due to performance in reality is there’s 120,000 agencies and if you’re a paid search agency, there’s tens of thousands of paid search agencies. Okay. And so what you have to do is, first, you have to be highly competent. Okay. But that just puts you at a level playing field with everyone else.
And then the second thing is you have to think about what is going to make you great and provide better ROIC for the service that you’re providing, you know, so that you don’t lose your customers. So, you really want to analyze your retention rates. Okay. And you want to analyze your retention rate both on a revenue basis and also on a customer basis because you might lose one customer, but that could be 90% of your revenue, okay?
Or you could lose 50% of your customers, but it’s only 2% of your revenue. So understanding, you know, are you holding on to your clients and are holding on to your revenue? My VP of Counting had a great comment to me, which is on January one you’re handed a baby and that baby has ten fingers and ten toes.
And think of that baby as your client. Okay. The client services team’s job is to hold on to that baby for the entire year and make sure that by the end of the year, that baby has all their fingers and all their toes. And if you’ve done your job really well, they’ve grown a little. But if you’re losing customers, then you know that your baby is not you’re not doing a good job of holding on to your baby.
And so, you know, how do you ensure that you are making the investments so that you are keeping your customers? Okay. So let me give that piece back to you then. It sounds like in my notes, the way that I should have captured it is all of that and did it together is the game day plan. So I’ll give you all the elements of the game day plan.
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How to Differentiate Yourself: 4 Key Elements of a Perfect Game Plan
So, okay, a perfect game day plan has four different key elements. Okay. There is a revenue goal. Okay. The revenue goal is broken up by your existing customers and your new customers. Got it. You have to have a plan to keep your existing customers. And you have to have a plan to win new customers. Okay. The second one is a profit goal.
The third one where I do not believe there is enough emphasis on this is a cash goal. Nice. We want our clients to grow their cash in two reasons. One, you can have a rainy day fund so that if another COVID or big pandemic hits, you can weather the storm. And the second one is you can just do really cool things if you have a lot of cash now.
And then the third or sorry, and then the fourth goal is an infrastructure goal. And these are the investments you are going to make to make your business better. And those investments might be in a differentiation like I was just talking about. And you might want to build technology. It might be to improve your recruiting so that as you win new clients, you can add for them at a faster, more effective rate.
It might be investing in your sales and marketing. But you want to be able to say that at the end of the year, your business is better than it was at the beginning of the year, and you want to be able to say why these four ingredients are really, really great. Let me give this piece back to you.
I’m here to make sure my notes are correct. Then, I want to go back into the second ingredient of the overall system of planning. But I think I heard you say revenue goal, profit goal, cash goal, and infrastructure goal. Yep. Okay. So, I think the correction that I’ve made to my notes here is if we’re going again, a 30,000-foot view system of planning.
If the first pieces got to get game day right and then you just gave us the four subs of that which is awesome. Then the number two piece in the overall system planning, I think, but correct me if I made this correction wrong, is to invest heavily in differentiation. Absolutely. Okay. But that would be part of the infrastructure goal.
How to Differentiate Yourself: Invest In Technology and Services
Okay. So, the infrastructure goals are the investments you’re making in your business. Okay. And, you know, your differentiation could be a few things. It could be a sales and marketing differentiator. You might have a product that is just as good as everyone else, but you market it better than everyone else. It could be that you have, you know, a secret sauce that’s hard to emulate in that you have a moat that’s built around it.
Learning how to differentiate yourself is really important. You know, we only focus on Ramsay and helping agencies. Yep. The reason why we do that is because we have a service development group and a product development group that are all focused on building solutions that are better only for agencies. So, I have to differentiate status in my mind.
The differentiator number one is that if I go up against a generalist firm, I should be able to have a really solid story of how we only work with agencies here, case studies of how we do a great job and why we’re better than them. But what about someone else who comes along and says, Hey, I’m only going to focus on agencies as well?
Why am I better than that company? My answer is that we are constantly investing in technology and our service. So our service development team works on training processes and tools, and our product development team is, in a way, we are about to launch in a few months a budgeting software specifically for agencies, and it comes up with an organizational system inside all the things that are unique to an agency to solve their problems.
We have benchmarking data that’s incorporated into this so that you can understand how you’re standing out against other agencies of similar size and service offering. And so by narrowing and niching down into one specific audience, I believe that we are building a very strong differentiator within that audience. So when you’re having those conversations, I get those first two points of differentiation and see how that is strong.
Yeah. How often when you’re conversing with owners when they’re considering Ramsay you say and you incorporate or sprinkle in however you do it? The story about Rise, how often does that add additional credibility additional differentiation into the overall recipe? I think it adds a lot of credibility. You know, I mean, look, our business is two years old.
You know, it’s just a young company. Yeah. And so I think a lot of the people who have taken chances with us, it’s been less on the case studies of Ramsay and more on the case study of rise, because I’ve personally been there. I’ve personally done it. Now we’re getting to the point where, you know, we have enough volume of customers, enough business.
And I can point to the successes we’ve had with our clients, you know, But earlier on, it was more about my story, you know, that really got people to take a chance with us. Okay. So I want to rewind into the story here in just a second, but I want to go back to the differentiation. I just want to push on that a little bit more for our audience because, as you well know, so when you just gave us the reason, like your points of differentiation for Ramsay, I love this question, this litmus test question that you ask just met with 49 others.
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How to Differentiate Yourself: Providing A Better Customer Service
I think it’s such a brilliant litmus test question because, like, for example, our mutual friend Drew McLellan from Agency Management Institute, we were just attending his Money Matters workshop and it’s always fascinating to sit in the room and hear 50, 60, whatever other agency owners say, like introducing themselves in front of everybody. We’re a full-service, integrated marketing and advertising agency, and it’s like how, how everyone introduces themselves.
It’s like welcome to the Sea of Sameness, right? Yeah, It’s horrible. Horrible. So I love this question that you just gave us in this recipe, this litmus test question, because everyone, if we’re slipping into the well, I’m a full service integrated marketing and advertising agency, and you ask yourself this question that Jon just gave you. Well, I just met with 49 other full service integrator marketing and advertising agencies.
The tests and fails, right? Yep. And that’s where budgeting comes into play and having a long-term view comes into play. Okay. I’m going to go back to what I generally think of, you know like we provide better customer service as a generic differentiator. I’ve heard a lot of other people say that we provide better customer service.
So if you have a long-term view and your view is that we probably have very similar customer service to other high-quality agencies, how do we actually have better customer service? And you then start budgeting for it, and I’m just going to go with 24/7 support. Okay. Well, how do you get 24 seven support? Right. You know, you’re not going to have people in the United States working at midnight.
You’re probably going to have to have people in different markets. So you’re going to have to think about incorporating in different countries. You’re going to have to think about the people you might hire in all those different markets. To do so, you might want to invest in technology that can speed up the answering of questions.
So you might want to either vet out tools that exist or build your own technology. But if you think of it as a journey and say, you know what, I want our customer service to be better by the end of this year than it is today. And I want in two years time for our customer service to be better than it is in one year from today.
And so you start budgeting to be great at customer service. Now, you can turn that into a real differentiator. But it’s a journey. It’s not a light switch. I can tell you that the list of things I want to build from our technology team is this long. You know, and that’s going to take five years to probably get through just that list.
And by the way, when that list is done, I am going to have a new list this long. And, you know, but the reality is, because I’m making those investments today and no one else is making those investments a year from now, I’ll have something better than anybody else in the market. And then if someone starts trying to catch up with us, well, then we’re going to be focusing on the next thing and the next thing.
And so we will continually build a moat around helping agencies with their financial planning and analysis that allows us to do it better than anyone else. And that’s a great metaphor for building a moat that gets wider, that it gets deeper. All of those things that go along with it because you’re creating a defensible position. That’s what building an authority position does and investing in the differentiation is a really smart way to do it.
How to Differentiate Yourself: Invest Some of Your Profit Back into The Business
So let’s let’s rewind back to Rise and the discoveries that you made along the way. Like, can you take us through that journey and those series of discoveries, gold nuggets. Moments of like, wait a minute, we can run our business from a using a financial planning model and, and pieces of analysis and tools. Take us through that piece.
Yep. So, there are a few things we did from a financial perspective. The first one is I’m going to talk about gross margin. Okay. A lot of people don’t know what gross margin is, even though they shut and it’s actually different. So, Drew is very into adjusted gross income. Yes, I do my numbers a little bit differently than he does.
But the first thing is I’m going to give a few definitions here. The first one I’m going to talk about is net revenue, okay? Net revenue is all of your revenue when you take out anything that has passed through it. So if you say that you do 10 million in revenue, but 7 million of that is media, we take out the media and we say that your real net revenue is $3 million.
Okay. So taking out the cost of goods or passing through is just getting our terminology in place. Okay, Perfect. Got it. Okay. The second thing we do is we call it cost of service. So, okay. Take anything that is a cost as it relates to doing client work so that it includes payroll, that includes tools and technology. That includes any travel and entertainment, as well as any gifts that you give your clients at the end of the year.
Anything that is related to doing client work. We look at that as an element of the cost of service. Okay. Now, I can tell you that I want our clients to be at 50% or greater to achieve other investments that you can make. And I’ll explain why this is such an important number in a second. Okay. I want you to imagine that you have $1,000,000 in revenue.
Okay. And your cost of service is $500,000. Okay. That means that your gross margin, which is net revenue minus the cost of service, is $500,000, and you’re at 50%. But if you don’t have 50%, like I’ve had clients in the 20 and the thirties for gross margin. So, I’m just going to keep on using that million dollars as an example.
$1,000,000. You have $500,000 left in gross margin. That gives you $500,000 to put in your pocket and to invest back into the business. So that’s the remaining $500,000. That’s where your operations, your finance, your sales, your marketing and your profit all reside, where if you only have $300,000 in gross margin, well, that means that you have $200,000 less to put into sales, marketing, innovation, profit, etc..
And so by focusing on how you deliver a great solution to your customers, but do it with the highest gross margin possible, you have more money to invest back into the business and also have money left over for profitability. Wow. Okay. Well, let me make sure that I’m getting definitions correct here. So revenue minus pass through is which.
And, you know, I kind of ran that through my head. I’m like, okay, the cost of goods. You mentioned the media and that kind of stuff. So we’re out of our gross revenue. We’re taking the cost of goods and the cost of service, which I actually haven’t heard that term before. So that’s new. That’s why I want to go back through it, and make sure I have it correct in my notes.
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How to Differentiate Yourself: Analyze The Cost of Doing Work for Your Clients
So we’re taking two main things out of the dollar that we sell the million dollars using as an example, the $500,000 that includes cost of service and cost of goods like media spend, or you just putting all of that into one term cost of service. So let’s break it up into a few different buckets. So the first one is we’re going to talk about how gross revenue was billions of dollars.
Revenue is $10 million. That is your fees plus media. Okay. Got it. Then we’re going to take your pass throughout, and we’ll say, listen, say that $7 million for this example, and you’re going to have $3 million left over. We’re going to call that net revenue. So we now have the definition of gross revenue as services plus pass-through revenue.
Net revenue is just your service fees. Okay. Then, after that, we are going to have your service cost. Got it. That is going to be all of the people and all of the tools and any other costs that it relate to doing work for your clients. You’re going to subtract net revenue from the cost of service and that is going to be gross margin. Subtracting cost of service from net revenue. Okay. Your net revenue is 3 million and your cost of service is 1.6 million. Okay. That means your gross margin is 1.4 million. Okay. And out of the gross margin, the 1.4, that’s where we’re funding. You said, “I think I heard you say operations, sales, marketing innovations, profit.” Yep. I’ll use another term.
That’s where you use to fund your book sales, sales, selling, and general administrative expenses. And I’ll give you four categories that every agency can group their way into these four categories. The first is sales and marketing. Okay. The second one is operations and finance. Yep. And operations. And finance is finance. Legal, corporate I.T., H.R., and general administrative expenses.
How to Differentiate Yourself: Improving Your Gross Margin
Once you know how to differentiate yourself, it’s not that bad, right? Okay. The next one is R&D, which is if you are investing in improving your service or your product in any way. Yes. Then, the last one is your executive team. It’s funny, as we’re breaking down these four categories and we went through and and I’m like, holy bananas. It’s been since business school since I heard that term.
So thanks for the introduction to that and the breaking down into four areas. I’m like, Okay. I like it. And so what I have found is there has not been a single agency that we have not worked with yet that can’t fall into one of those four areas. So no matter what their expenses are, no matter what they do, every agency I’ve been able to take their DNA and move every single transaction into one of those four categories.
Okay. So final and then the final thing is as you get to profit. Okay. Which is gross margin minus a desired ratio. So, yes, it’s actually a great question and a great lead to what I wanted to talk about next. Okay. So the first thing to consider when you think of your gross margin as a percentage of revenue,
The higher that percentage is, the more you can invest in or the more you can have as a product. Now, my mentor, which is a person named Jack Kraft, the former vice chairman and CEO of Leo Burnett, used to comment to me, which is that if your gross margin is too high, somebody is getting screwed, either your clients because you’re not giving them enough work or your employees and you’re burning them out.
Okay. Now, the trick is how do you improve your gross margin without screwing over your client and without screwing over your employee? Okay. Okay. So the second thing is, you asked what the profit number, percent, or ratio that people look for is. So typically, a holding company agency wants you to be at 20% of your event relative to revenue.
So if you have $3 million in net revenue, they would want you to have $600,000 and give it up. Okay. This was a big trick that I did at Rise. I targeted a much lower number. My target was between zero and 5% for many years. Why? So I thought of myself as my own private equity company, and I look at it as, you know, rather than having profits of $600,000 with 3 million revenue, I decided to have a profit of $50,000 and take $250,000 and invest it back into the business to make myself and to make Rise better than the competition.
So one of the things that we did, which was a differentiator, is we probably spent more as a percent of revenue on sales and marketing than anyone else in the industry. Okay. So what was that percentage? That was probably hovering around 15%. It’s my guess. I don’t remember the exact numbers. What I benchmark is where my portfolio of customers is.
Today. The median is around 7 to 8% of revenue spent on sales and marketing. Okay. So let me take this back to our fictitious example here to make sure that I’m understanding the 15% correctly. So in the $10 million top line, the 15% genie would be essentially 1.5 million. Then we’ve got to do it all off of net revenue.
So 3 million. so 15% of the net revenue? Yep. 50% of the net revenue was just spent on sales and marketing, not operations and finance. Not executive and not R&D. got it. Okay. So of the four sub buckets of SGMD, where you were investing, 15% of net revenue into sales and marketing. Yep. Got it. Okay.
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How to Differentiate Yourself: Building A Loyal Marketing and Sales Group
We’re doing analysis, spending about half of that. So what, $450,000? Exactly. $450,000 was going into sales and marketing because you realize that’s what feeds the beast, that that grows the agency. Exactly. Okay. And, you know, I find it really interesting. A lot of agencies don’t spend any money on marketing. You know, they tend to grow to the size or scale of what the founder can sell and rely on referrals.
Yep. And I always used to joke around like, how come the only marketing agency that actually believes in marketing? Well, but seriously, though, given our industry, there should be no one better at doing it for ourselves than us, right? Yep. And there’s a couple of things I learned. Now, one of the things is not to trust your client service team to do marketing for you.
Okay, so tell me. Because that’s typically how most agencies do it, and then it never gets done. So why do you believe that to be true? Because no matter what you tell your client service team, they will always prioritize you relative to your clients. Okay. So you can tell them this is just as important. Treat them.
Treat us just like you would treat any other client. Yup. But when there is a deadline for you and there is a deadline for a client, they always prioritize the client over you. And so you get subpar marketing. Even if you’re great at marketing because of that. And so, you know, you really have to build out your own marketing group and your own sales group that is dedicated to you.
How to Differentiate Yourself: Testing The Waters
If you really want to get the impact that you’re looking for. Okay. I’m sure many of our listeners are thinking, okay, does that mean I outsource it? Does that mean that I’ll hire people who are just our agency’s kind of marketing team, treating us as their only client? How did you guys do it at Rise? You know, you start with the head of marketing, you know, and you and you have a vision and then you start thinking about what are the plays that we want to do?
And then you determine what plays you will do internally and what plays do you think that you need to outsource, just like our clients do. And so, you know, I’ll give you an example. You know, we hired a firm to do analyst relations. We hired a PR firm. We had you know, we hired a lot of different people, you know, to do different things.
We hired web development companies, so there were many times when we used outside vendors. We also had internal designers, copywriters, and email management people. We also had a fairly decent-sized internal sales force. Okay. So that lets me go back to the way you would laugh if you saw my desk right now.
I’m currently working on five pages of notes and writing stuff in different categories from our conversation. So in what you’re saying about essentially building out the marketing function inside Rise. If I go back to the system of planning and the ingredient number one being game day, this is all in bucket number four, infrastructure goal, right? Yep. I’ll give you an example.
Just yesterday, I announced the plan for Ramsay. Okay. To the whole company. Okay. We plan on winning 40 new customers, you know, in 2023. Okay. I don’t know if we will, but I can tell you that I think we have a really solid sales and marketing strategy to do so. We are increasing our investments in sales. We’re increasing our investments in marketing, and we know exactly how many customers we won last year.
We know what our cost per acquisition was in terms of acquiring a new customer. We believe that our methodologies are scalable and that by putting more resources into proven plays, we should be able to grow. But you know, we are doubling our sales and marketing budget, and now that doesn’t mean it’s going to work.
It just means I’m going to swing for the fences and hope it works, you know, with a well-thought-out plan. Now, I can tell you that there was a year at Rise when we increased our sales marketing budget from $1 million to $2 million and generated the same revenue as the year before. You know, some of the things that we thought would work didn’t work that year.
There were years when we increased our sales marketing budget. We had a huge home run. So, you know, I explain to people that until you actually implement your plan, you won’t know if it’s going to work or not. But if you don’t, you know, if you say that growth is important to you, then it better be in the budget.
You know, this is another saying that we had it Rise and we have it. Ramsay: Which is it can’t be a goal unless you put budget against it. And I really believe that you know, that if you want to create a differentiator, but you don’t budget to have a differentiator, you’re not going to have a differentiator.
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How to Differentiate Yourself: Go After Right Fit Clients
If you want to invest in growth but you don’t put any money to grow, then you’re not going to, you know, or you might grow. But it’s by luck, not by design. Okay, So help me because I’m sure you guys are very specific about this because of how meticulous your planning processes are, which I just love the 40 new clients.
What makes a right fit client for Ramsay? So we go after agencies. Between 2 million and about 20 million in revenue is our sweet spot. We are only targeting agencies in the United States, but we do get leads from international organizations and we do take clients from other markets if they reach out to us. Okay, But we’re not marketing to them.
So we’re marketing to the United States. We market to the agency owners. There tend to be the decision makers who end up hiring us. As I mentioned before, we really work with all types of marketing communications firms. So it can be a digital agency, a PR firm, a web development company, a video production company, a branding company. But it has to be in the marketing communications firm.
Part of the reason why is that we, everyone who agrees to be a client of ours, agrees to allow us to use the aggregated rights to their data. And this allows us to do benchmarking in terms of the size of the company, the type of agency they are, the market they’re in, the services they provide, you know, etc..
And if we started taking clients from anywhere and everywhere, we want to be out to provide that benchmarking data. And so there’s value to our concentration in that area. Well, candidly, being the aggregator of that data, in my opinion, further strengthens, deepens or widens the moat. It absolutely does. You know, and we have everyone’s budgeted data.
We have all of their actual data. So, you know, we’re able to get, you know, further insight. I mean, I can tell you all ideas we have down the road are to be able to tell you, you know, hey, the amount you’re paying for this vendor is more than what other people are paying for this vendor right now, or you’re spending more on legal fees than other people are spending on legal fees.
So, you know, when do we get to that point where we can provide that level of granular insights? Brilliant. That is 2 to $20 million in revenue. Just again clarify for my notes and for our audience that total revenue is that net revenue is net revenue. Think about it this way. Our fees generally start at around $5,000 a month and they can go up to what you say, 12 to $13000 a month.
How to Differentiate Yourself: Importance of Investing in Sales, Marketing, and R&D
Okay. And so you have to be of a large enough size that you could absorb that cost, you know, because if you’re much smaller than that, I personally would rather you be spending that money on sales and marketing and spending it on financial at all expense and so on. So I think what I’m hearing you say is that you would probably encourage our audience to to get their SGI and a like the sales and marketing piece of the way to 15% of net revenue.
And if they’re clicking along at that and they’re in your sweet spot, then it sounds like your team could probably be helpful because they’re already making the right amount of investment in the growth of the agency. So I would take it a step even before that, I’m going to really focus on understanding what your gross margin is. Okay, because a lot of companies that come to us, their gross margins in the twenties or thirties or low forties, and we find that it’s you know, if you think about it, I want you to spend between 30 and 35% of your revenue on your DNA, okay?
And 50% of your service cost. But if you’re spending 70% of your cost of service, then you don’t have any room to invest in sales and marketing. Right. And the other thing I want you to invest in is in your R&D. So if you think about the four buckets when you take executive and operations and finance, in my ideal scenario, I want that to be as low a percent of revenue as possible.
And I want your R&D and your sales and marketing to be as high a percentage of revenue as possible because those are the things that help build your moat, fuel your brand and fuel your growth. Okay. Hang on a second. Let me make sure they get this right here. Okay? Because you just break, you’re breaking down ESG. And so I think I heard you say you want operations to be as low as possible because that would give you the room to double down in sales and marketing and R&D.
Exactly. Yep. Brilliant. Okay. Love this. I know that we have to come in for a landing because we’re quickly running out of time. But holy bananas. This is awesome. I can’t wait to meet with you in person just because we live so close to one another. To. To do that in the next several months. Can’t wait for us to meet up and build a better agency.
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How to Differentiate Yourself: Spending Your Time & Money Properly Will Fuel Your Growth
The summit the Druids hosted was in mid-May in Chicago. Right in your back door. This is amazing. So before we close out, before we say goodbye, is there anything you think we might have missed? Any final recommendations you’d like to make? And then please tell our audience the best way to connect with you, Jon. So, you know, the main thing I would just say is, once again, all we have is time and money.
There’s 119,999 other agencies out there, and all they have is time, money. And so how you purposely spend that time and money is what’s going to help you learn how to differentiate yourself and fuel your growth. Take budgeting very seriously and be comfortable looking within. Okay. If things don’t go well, try before you blame macro factors or forces beyond your control.
Try to look and see what you could have done differently so that you can learn and enjoy the journey. You can follow me on LinkedIn. I do posts all that are focused on helping agency owners grow. Okay, everyone, no matter how many notes you took or how often you go back and listen to Jon’s words of wisdom, which I sure hope that you do, You have to take what he so generously shared with you.
Take it and apply it. And when you do, you’ll accelerate your results. Just like we talked about in the introduction. If you want a great 2023, he just gave you the roadmap. Now take it and apply it in. We all have the same 86400 seconds in a day and I’m grateful that you chose to share some of your valuable time with us.
We were talking about time and money, sharing some of your time with us to be our guide, to be our mentor, to help us move our businesses onward to the next level. Thank you so much. Wonderful, wonderful talking. And I look forward to getting to know you better.
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