The search for a design agency business model
First off: this post is written mostly as a round-up of status quo in the creative industry, design and advertising included. While rethinking the business model of the Bureau itself and looking for the possible directions to pivot – which is a difficult decision to acknowledge for now – I have researched the subject to see how other entrepreneurs in the industry look at the future of this business field.
The regular & gloomy part
Unfortunately there is not much out there about the subject in pure figures, accounting or other raw data to help understand the theory. I’d recommend “Corporate Design: Kosten und Nutzung” for the german-speaking audience here. Also, we might act on the premise, that an hourly rate normally swerves between 80 to 150 Euros an hour or 640 to 1200 Euros a day.
Project based involvement
Basics. Hard earned basics. Every young designer or an agency is doomed to go and get individual projects: get things done, get paid, move on. Last year we have done 6 projects like that which stood for about 30% of our net revenue. One of them will bring us publicity when published in two books later this year, and most of them are one-time shot and until now have brought us no additional business. Obviously enough this model of operation can not be seen as sustainable (excuse my french), although it may have side positive side effects. Certainly, no agency will turn down an offer to work on a project or two, but everyone just wishes those projects come on their own and do not need extensive acquisition efforts. Those, who figure out how to have this model work on its own are quite bright entrepreneurs, I should say.
Big client. Structured workflow. Steady cash flow. Blue skies… While it is clear that a retainer contract is one very lucrative earning method (with its pros & cons, certainly), it is also the most difficult thing to acquire. My feeling is that no agency starts without one big client on a retainer (the other option would be a big chunk of cash) - and that client is normally a long-time partner or friend. This very agency, the Bureau, has got two such retainer contracts signed last year. Both agreements were thought of as a solid ground for developing client projects… with both of them being canceled within less than a year. The first retainer has been cancelled after two months running. The second one – after 9 months of bringing steady cash flow. Basically, if both agreements were still running, the Bureau’s business would be a nice and easy way of living. With 30 and 25 hours pro month respectively, it was enough to pay the overhead costs and have some cash set back for gloomy times or future investments. Unfortunately, both agreements were cancelled – and done so without any financial disadvantages for the client. Good for the client, bad for the agency.
Certainly, we’ve learned this lesson well now. The question which still hangs in the air is: was this kind of cooperation beneficial for the client? Was it beneficial for the agency? As we are talking about business (and not personal, intimate relationships), it is about money first and foremost, and yet was it the money what made those both contracts feel so uncomfortable in the end?
Another question to ask is why those retainers have not incorporated any security features to stop the client from abruptly canceling the agreement without losing a penny?...
The answer is on the surface and has been articulated by virtually everyone already: a good client-agency relationship is based on mutual trust. This is it. An agency believes that the client’s business will flourish and so will its business, too. For a client “trust” is another word for “relevance”, “fresh insights” and other standard “bullshit bingo” phrases which managers use to describe their preference for one partner over the other. They cannot use the word “trust” (it is not quantifiable), but this is really what they have in mind (managers are people, too). Trust, that these agency people have enough tools, skills (and drugs) to solve the problems. Trust, that their account directors have a reach vocabulary to present their work to the next level executives. Trust, that this will fly.
The other part
So to find a business model for a design/ad agency I am asking a simple question: how to gain client’s trust?
Deep involvement with the client’s business
Yes, risk your reputation, your resources, your cash and get paid for the ultimate results – not the hits and clicks that may prove a lot (or nothing). This model is said to be applied by Anomaly but, as I said, it is hard to prove the theory with raw data.
Barriers: you have to have enough cash to invest into your business and client’s business. And you have to have enough patience to wait for the actual results in terms of cash flow.
Prospects: as this model implies self-confidence in your skills and trust in client’s business, the latter will most probably be more open for cooperation and, well, trust.
This is actually a very welcomed scheme among industry professionals – no manager would initially turn down an offer like that. However, there are not so many agencies to offer such method out there, too? Why?
Freelancers pool sold as controlled crowd-sourcing
Actually, it sounds very reasonable at first. And when reading an article by the founder of Victors & Spoils, it seems reasonable even more. Why rent a huge office, bare huge monthly overhead costs and care for social benefits, if one could use the internet and Skype and whatnot to hire someone from anywhere in the world on a project basis?
Barriers: you have to find and make sure that your distant co-workers (not employees anymore, nope) are there and won’t set you up. NDAs, deadlines, payments to Nigeria (sorry, Nigeria) – the amount of managing all this setup should not be underestimated.
Prospects: the costs of running this setup are small. And this is a dream come true for a lot of people involved.
At the core it is basically the old model – “trust me and I will deliver” – with the stuff costs cut to the minimum. Does it help to gain trust from the client’s side? Would love to hear about that.
A strictly defined product for the masses
Why, a logo for 100 bucks is a proven business model. Do you need more examples? It all works just fine. Want to have better executed examples? A logo, a website, an online shop? Well, all of them aim at some kind of creative business. Some of them offer more superior product than the competitors, but they all abandon the principle of “upper premium” pricing for design services, which lies at the heart of the traditional model. Focused on the tools, cost efficient and transparent, this kind of business may prosper quiet well, too.
Barriers: you have to build the tool first. And constantly improve it. It is mostly a service for creatives and less a creative service. Well, except for the logos silo.
Prospects: keeps your cash flow steady and dramatically reduces the consequences of losing one client. Or two.
This is a business model aimed at very different group of buyers. It is ultimately not “elitist”. And it is a mammoth undertaking for a single designer (even if it is about selling T-shirts or silkscreen prints). Trust? I am sure there are a lot of people who will pay 20 bucks and not think a lot about trusting a business. Maybe 50, too. If done right, maybe even as high as 200. For now it looks a bit “dead-end-ly” for me, though.
[to be continued]