A typical agile agency is built upon the expertise of an in-house strategists, writers, designers, developers ect… These craftspeople are often mid or senior-level, drawing upon a shallow but broad pool of experience. They perform basics well, with potentially a few strong specializations. With a couple of these foundational employees, you have the ingredients for of stable profitability…
In-House: Stable Profitability, Fixed Costs and Proportional Risk.
Stable profitability sounds great, but the risks associated with operating costs are frequently overlooked. Some fixed expenses include: employee salaries, long-term leases for office space, computers and phones/phone plans, software licenses, group benefits, culture management, and the list goes on…
Scaling this traditional operating model requires additional fixed costs (and risk) in order to create capacity — It works until it doesn’t. Inevitability an agency might lose a client that was inappropriately funding their business, shortly after hiring two employees and resigning a 5 year lease. At this point, profitability is the least of the agencies worries. So, why not outsource?
Outsourced: Variable Profitability, Lower Costs and Reduced Risk.
Enter the Freelancer. Freelancers provide agencies a depth of expertise attractive to their clients beyond foundational employees. However, they introduce variable costs that can range from 1% of the total project revenue to 100+% in a worst case scenario. There are 5 types of variable costs associated with outsourcing that are seldom considered.
- Search costs: Search costs include the activity of hunting for the right type of freelance talent to suit clients’ unique needs. Search costs are often directly proportional to the complexity of the challenge — which is growing increasingly complicated as Brands evolve to connect with customers in meaningful ways.
- Selection costs: Selection can be simple if you have a ‘regular’ partner that you like to use, but regular partners don’t provide the diversity of problem solving or creativity that clients often require. Broad access to specialized talent provides the highest impact work — which means taking some chances on new talent.
- Bargaining costs: Bargaining has an indirect and direct cost to an agencies profitability on a project. The act of bargaining can regress the process back of outsourcing if a suitable price is not determined. When a suitable price is negotiated, it often comes at a loss (big or small) to an agency’s operating margin on the project.
- Enforcement costs: There is inevitably a difference in expectation between agencies and freelancers regarding projects terms. Discrepancies only increase proportionally to the complexity of projects. Enforcing a contract is costly, and potentially risks the entire project.
- Coordination Costs: Managing a vendor takes time and effort, especially if they’re in direct contact with your clients. These costs are further exasperated by an agency’s ability to effectively consult a client, scope a project, write a brief and plan/work a project schedule — and those are just the controllable variables . . .
In Summary: Blending the models
The best operational framework is one that makes the best use of all the resources available. Agencies that build their core product offering and positioning around foundational employees and outsource specialized skills to scale to satisfy new market opportunities. Agencies can optimize profitability and reduce risk to a degree — but it’s far from ideal.
That’s why we created Communo — by marketers for marketers.
Communo: Scaling an agency with confidence and convenience
Communo provides agile agencies the best of both worlds — our members have the deep focused niche expertise with the reliability of a foundational in-house employee. How? Communo members are distinctly different than freelancers and employees: instead of competing in a marketplace and they share an economy. They adopt a paradigm shift enabling different values, behaviours and allocation of resources. When competition is removed from the equation, the surplus of time and energy can be refocused onto work.
Furthermore, and most importantly, Communo members are Curated.
Communo members enjoy the piece of mind of working with a verified professional that is invested in the collective success. Our members apply for membership, are handpicked, and thoroughly vetted. They submit process framed case studies, validating a depth of niche expertise and Communo checks 6 professional references of companies/people they have worked with. After joining our shared economy of jobs, talents, and resources, they undergo constant review from peers in the network. Communo is a living, breathing organism that curates itself.
Join us: If you want to be one of the few agile agencies that benefits from Communo’s operating model, lets talk. We can discuss your operations and assess the fit. Email me to start the conversation.