Ep 178: Why Profitable Agencies Still Lose Money on Their Best Clients

All right, into today's story.

It's an episode, it's a story.

I wanna tell you about the time that we had a client that we were paying to keep.

And this is one of those times.

Honestly, there was a number of clients that we paid to keep.

And I'm telling you this story because a lot of the agency founders that I talk to, that I meet, that I also work with one-on-one and also that I work with in my group, they're experiencing this as well.

So let's talk about it.

What do I mean by the client that I was paying to keep? Well, our most profitable clients ended up subsidizing our least profitable ones, this one in particular.

So this was a long-term client, fantastic results, excellent return on ad spend.

We were doing meta ads and Google ads for them.

They were a, I believe, a jewelry brand in the D2C space.

From the outside, it was a really successful relationship.

Behind the scenes though, I had this sense that they were draining our agency and I couldn't put my finger on what at the time, I did not yet have the data, but eventually I went on a fact-finding mission and I discovered that we were losing a lot of money servicing this client.

And even worse is we hadn't noticed for a really long time, so who knows how much money we actually lost over the long term.

Our newer, more profitable clients that had been priced better and scoped better were We're effectively subsidizing this one account that was bleeding us money.

And we eventually fixed it, but we fixed it far too slowly.

So I want to break down today how this happened, what we learned, and how you can spot the same problem in your agency and also what you can do about it.

So in the beginning, this client had so much potential, but ultimately they became a legacy client.

One of our earlier relationships and the original pricing that we brought them in on for Meta and Google Ads was a monthly retainer of $2,500.

And then we would charge 10% of ad spend above $10,000 per month.

So at the time, it seemed like a reasonable arrangement.

The base fee would cover the original initial work and the percentage would offer us a future upside as we scaled the account.

Now, what we believed here is that better performance would lead to more ad spend and thus better agency revenue, right? That's kind of what a lot of agencies do.

But the reality was not so good.

The client consistently kept their spend under $10,000 per month, despite having a really, really strong return on ad spend.