Starting a business is, no doubt, a massive endeavor. However, something larger looms ahead of the young start-up: scaling the business. It is frequently said that moving from zero to $10 million in revenue is easy; it is the step from $10 million to $100 million where the real sweating occurs. Over the past decade or so, search engine marketing firms and their clients have certainly felt these very natural growing pains. The good news is that the industry is stepping, one foot before the other, into a new phase of maturity.
For the most part, clients have been willing to go along for the ride. Unlocking the treasure trove of consumer searches was well worth dealing with a new, unknown vendor. The success in wooing so many Fortune 1,000 companies is perhaps an unprecedented event in vendor-client history; even the largest SEM agency is quite small when compared to its clients, and the most renown search thought leader is but a big fish in a small pond.
Operational ups and downs are the outsider’s most frequent observation. Like any small business, the firm will do its best to sell hard, and then focus on delivery. Unfortunately, if the staff is not in place to execute, things tend to get a little hairy. Account executives, SEO specialists and PPC managers end up with far more clients than they can handle. The best case scenario is a bottleneck. The worst-case scenario is the loss of a client. This is not unique to the service side; even Google received frequent complaints a handful of years back during a growth spurt.
The more successful agencies moved up the operational learning curve by hiring talent with more experience in the business basics than in search. COOs and VPs of operations now dot the executive ranks as a reminder that we are now out of the Wild West days. Just a few years ago, hiring the 100th employee was a remarkable statement of growth. Today, hundreds of employees frequently function across the country, if not the world.
People management is the greatest challenge with scaling an agency. With a limited talent pool, acquisition either takes more time or money. Sometimes, firms take the “grow your own” route and train ranks on the intricacies of search. This herculean task is aggravated by an extremely competitive hiring environment. Talent is frequently swayed by any number of factors. Higher salaries frequently talk, but now that the industry is maturing, many seek out the firms with the most professional environment or better health benefits.
On the flip side of operations sits sales. Scaling revenue can take many forms. For most, it is more interesting to serve a select number of very large clients. Few prefer to have hundreds of very small clients. The reason is simple: small accounts don’t necessarily require less time. The “immediate and guaranteed” claim of paid search is immediately struck down when clients realize that keyword research, copywriting and set up can take a full week or two, and rightly so.
Pricing has also evolved over the years as SEM agencies learned the cost accounting ropes. Today, it is not uncommon to see minimum requirements of $20,000 per month in either search engine optimization work or pay-per-click spend. For SEO, price is usually based on time and materials. For PPC, the client is usually charged a management fee that in recent years, has dropped considerably.
Whereas 25% was previously the standard, 5%-12% is more common today, contingent upon spend level. To accommodate for the many hours of PPC preparation, many agencies have recently started charging a set up fee. For those clients that love to squeeze, be forewarned that one percentage point down frequently means one less person on the account. A wise, maturing agency will learn to say no to the client that asks it to be unprofitable.
