[Guide] Adding new services at your agency… profitably

Written by: Karl Sakas

Adding new services can be a great way to grow your agency. In addition to serving new markets, you can better serve (and better upsell) your current clients as well. But it can also be a great way to lose money fast, if you don’t approach it strategically.

Here’s my guide to strategically adding new services at your agency, once you’ve chosen a service to add—what to consider beforehand, how to equip your team, and how to price and sell your new services.

This is 3,000+ words, so pour yourself another cup of coffee and let’s dive in! [Updated: May 2024]

Before you add new services

An agency owner in Houston asked me for advice on how to add new services to his agency. He was looking at adding two new services. One was a service he’d previously outsourced—video production. The other was one he hadn’t offered before, but that closely related to his team’s expertise—sales enablement.

He wasn’t sure how to approach adding new services in a smooth, profitable way. He wondered about how to decide when to hire new people vs. using his existing team, how to price new services, and how to sell new services.

Article scope: You’ve already validated market need

In this article, I’m focusing on what to do when you’ve already identified the service to add. That is, I won’t get into evaluating potential services, testing market demand, and building the business case for the service—I’ll discuss that in future articles, but for now, I’ll assume you’ve already validated the baseline fit.

For example, one of your current clients has asked you to add a service that expands on something you do already, you know they have budget for the work, and you know other current or prospective clients would buy the service, too.

Questions to ask yourself before you proceed

Before you commit to adding a new service, be sure to test the market and ensure there’s a need, and your team is equipped to deliver.

Any time you add a new service, there are certain implications. They vary by agency and service, but it’s usually a combination of the following.

  • You have to market your new service. Is it a service that your clients are already requesting, or do you need to cold-pitch it?
  • You need to figure out pricing. If it’s something you’ve never sold before, how do you price it?
  • You need a sales process. How do you qualify prospects, and scope the work? Is the work custom or productized?
  • You need qualified staff to deliver the work. Who’s going to do the work? Can you provide the service with your existing team? Where will you find subject matter experts (SMEs) in the new discipline?
  • You need to work out project management for this new service. If you’re doing work you haven’t PM’d before, you likely won’t have a project plan or even a detailed list of the tasks involved. Who’ll ensure things get done on scope, on time, and on budget?

Lack of foresight and planning can get dangerous, especially if you haven’t thought this out. A few years ago, I heard from an agency owner who’d sold a $20,000/month retainer… without a plan for how to fulfill the new services. Not surprisingly, he was struggling when he called me a few months after closing the deal. You can adapt after the fact, but it’s easier when you plan ahead—preparing for the expected gives you time to improvise the unexpected.

The benefits to adding new services

The agency benefit is clear when you add a new service—your clients want and need your help, and you can make money providing it. It strengthens your relationships and promotes client retention, and you can add to your agency’s skillset. Plus, if your new service is aligned with something your team is already used to doing (such as a training package, when your team already provides non-billable training to current clients), you help boost your billable ratio—which helps boost your profit margins.

Look for “next step” and “last mile” opportunities—things your clients need to take full advantage of the services you already provide. For instance, I met the owner of a marketing agency for gyms and fitness centers. One of their clients struggled to convert the hundreds of sales leads his agency had sent to the client. In this case, adding a sales consulting program—to help the client’s sales team close more leads—would help the client. And it would help the agency boost client retention and satisfaction, since the client had been blaming the agency for “bad leads” when this was primarily the client’s fault.

Make it a win-win for your team, clients, and agency

We’ve already discussed how a new service should be a win for your agency and clients. The next step is making sure it’s a win for your team. Get your team enthusiastic for a new service by making sure they’re fully trained and they feel capable in providing this new service. It wasn’t on their original job description, so the key to maintaining a satisfied team is to make it a win-win for your team.

In general, highlight ways they benefit from providing the service. For instance, maybe it helps them build their portfolio of skills. Maybe it helps them boost their billable ratio. Maybe it helps them deepen their relationship with a client they like. The exact reasons will vary, but it’s up to you to figure out each team member’s win-win alignment.

How will you price your new services?

Stepping back, it’s tough to price something you’ve never sold before—much less that you’ve never even delivered before! But I have some frameworks and other guidelines for you to follow.

Pricing models for new services

Remember, there are three agency pricing models—hourly, milestone, and value-based. You’ll pick one of those (or a combo of them) for your new service.

Hourly is good when you’ve never done something before, because you likely can’t estimate accurately until you’ve done a few engagements. An exception? If you’re using an outside contractor who gives you a flat (milestone-based) price. In that case, milestone can work—if you’ve scoped things sufficiently.

Eventually, you want to shift toward milestone-based or value-based, because those typically are better for your margins. But I don’t recommend starting there when it’s a brand new service; there’s too much risk. You can also use value-anchoring to charge more.

Here’s more on my pricing philosophy for agencies.

Want to improve your chances at having enough budget? Take your team’s estimates and double or triple them. That padding is not always doable—it may create a price that’s far above market demand—but it’s likely closer to reality than the optimistic estimate.

If needed, you might frame a portion of the work as strategically free—or, preferably, “strategically discounted”—if you expect some quality issues.

Adding to an existing retainer

Need to integrate the service into an existing retainer? Ideally, handle the new service as a separate add-on at first. This helps you avoid burning-up the entire retainer budget if things run over—your client wouldn’t be happy to find that they aren’t getting their usual deliverables because you didn’t estimate well.

If you use a points-based pricing system—a la Paul Roetzer at PR 20/20—how many points should you use for a new service? Estimate high and plan to change the points values after each engagement or two. If you have a standard pricesheet, consider keeping the new service on an addendum so you can update it more frequently for the first year or so.

Expect to break-even (or even lose a little) at first

Your first few engagements will likely not be wildly profitable—and that’s OK. (That’s also why it’s a risky business choice to do “never done before” work every time for your clients.)

Do a debrief afterwards—you, your PM, and your salesperson—to see how you need to adjust next time. This is why you shouldn’t send a million proposals for new services, because you’ll be learning a lot—do one, adjust. Do another, adjust more.

Selling a new service

Most often, I find agencies sell a new service because a current client requested the service. In that case, the sales process is artificially easy. (Well, easier.) Your client already knows and likes you, and they’re likely to buy something.

It’s harder when you’re selling your service to a “cold” prospect, but your usual sales process should apply. Qualify people for fit, fast-fail ones that aren’t, and shift from “free” to paid discovery as soon as it is practical. Even if you don’t fully know the new service, odds are good that fundamentals apply.

Sales for a new agency service

Do you have a salesperson or sales team, or are you selling things yourself as the owner? Either way, the salesperson needs to feel confident about what they’re selling. Confidence comes with experience.

To jumpstart feeling more confident, get to know the new service—and improve your skills as a salesperson. If you’ve been leery of sales, I recommend the book Selling Professional Services the Sandler Way. Targeted at lawyers, accountants, and other professionals, the subtitle is “Nobody Ever Told Me I’d Have to Sell!” That is, you didn’t study to become a salesperson… but now you need to sell.

Sandler focuses on consultative sales—partnering with prospects to see if there’s a fit—instead of more traditional “transactional” sales. In selling new services, this translates to make it OK to say you need to regroup with your team—which buys you time to evaluate what’s possible.

Your salesperson (you or someone else) should be more involved than usual as you deliver a new service. They don’t need to be involved directly in day to day delivery, but they need to be learning from your delivery team. Odds are good that you’ll learn something new—to make the sales process easier and more profitable—every week. Create a process to get that info to your salesperson so they aren’t selling yesterday’s version of things.

Getting your team and clients on board

Plan to spend some time on change management activities—the new services aren’t rinse-and-repeat yet.

Set expectations

How will you manage client expectations and keep clients happy along the way? When you’re selling an intangible service, it’s hard to describe what people are going to get before they get it. If someone is buying a website or video, there’s a defined deliverable. However, if you’re selling something like an audit, they know they’ll get a report but not how detailed it will be, or what your research will turn up. The more intangible it is, the more expectations management you need to do.

If you haven’t done the work before, you don’t know what to warn clients about. And if the client hasn’t bought the service before, they don’t know what to ask about.

For example, I was a digital PM at a web development agency. We were “almost done” with a website and had given our client a rough estimate of when we’d finish our development work. The client scheduled a public launch party for the new website based on that rough estimate—they assumed it was a binding date when it wasn’t. That didn’t go smoothly, but I made sure it never happened again.

Tip: If your new service is something that can or should be revised from client feedback, be sure to set expectations for that as well. For more on this, see my article on what to do when indecisive clients request free revisions.

Motivating your team

When you add new services, you need to get your team on board and aligned with doing the service(s). In this section, we’ll talk about skills, outsourcing, motivation, and compensation.

You want your team on board with the new service, because you’re trying to maximize their productivity. If they can get equipped and handle your new service, it means you can move it in-house without hiring too many additional people.

The more cross-trained your team is, the more you can sell their services to clients as experts. For every agency, whether you charge hourly, milestone or value-based, the team’s time is your inventory.

Ultimately, the overarching theme to motivating your team is finding win/wins, or incentive alignment. How does adding a new service benefit them?

  • If you have a team member who loves helping clients, frame the new service as something that your clients can benefit from, and if we address the need we’ll be helping them succeed.
  • Another team member may be interested in learning new things, so you can pitch the new service as an opportunity to learn something new.
  • You could have someone on your team who is career-driven, so you can explain how the new service will help add to their skillset and resume.

What skills do you need to add to your team?

What are the must-have skills for the new service? What is nice-to-have skills? Is there someone currently on your team who can do it, or will you have to hire someone else? Do you need someone full-time, or could a freelancer handle it?

Outsource vs. full-time

Finding the time and capacity to add to your services can be tough on your team, especially if you don’t have enough demand to justify another full-time position to handle it.

If your team doesn’t have the time or skill to manage and deliver your new service just yet, consider outsourcing to a contractor. For example, if you want to add video production to your marketing services lineup, you might have a freelance videographer on-call so you can tap him when needed.

My rule of thumb for staffing is once you’re consistently outsourcing 15 to 20 hours a week to a freelancer, it makes sense to hire a full-time employee, because you typically pay a freelancer about twice an hour what you would pay an employee.

Of course, some skills are going to be more or less expensive—but once you hit 20 hours a week, you’re typically paying the same amount to a half-time independent contractor as a full-time employee. At that point, you might as well hire full-time employee to get twice as output for the same expense.

That only works if it’s a consistent job that someone can do all aspects of. For example, if you’re outsourcing 20 hours a week but half is design and half is copywriting, most designers aren’t amazing copywriters, and most copywriters aren’t amazing designers. In that case, it doesn’t quite work.

If you hire someone full-time, you have to think about what happens when they’re waiting around. At large consulting firms, being in-between client assignments is called being “on the beach.” On one hand, it’s less pressure than usual. On the other hand, being on the beach too long means you’ll eventually get laid-off because you’re not billing.

Manager vs. technician

Consider whether you need more managers who can coordinate the work, or technicians who can do the work—or both. For example, if you hire a videographer, they could handle plenty of work—but you’d still need to hire freelance video assistants or video editors as the workload picks up. Be sure to determine to which extent your hire (either a freelancer or full-time) is a subject matter expert (SME) versus a manager.

Stick to your core competency

I have a friend who does project management at a digital agency; they specialize in web development and online marketing. One of their long-term clients loved working with her agency, and said “We’re moving to a new office. We want you to do the interior decorating of our new office!”

My friend works at a digital agency—not an interior design firm. Her agency wasn’t equipped to do any physical work—yet they said “yes.” One day, my friend the digital PM found herself at the fabric store looking at upholstery swatches.

It was something she was interested in, but not the agency’s core competency—so from an agency business perspective, the new service didn’t make much sense. They weren’t going to start offering interior design to other clients and no one is likely to come to a digital agency for interior design.

Be careful about dead-end services that you’ll only ever do once—one hit wonders, so to speak. They’re hard to deliver and hard to price… be careful.

Shortcut for adding new services: Hire a trusted contractor

Want to jumpstart your progress? Work with a trusted, experienced contractor at least the first few times. They can help you sell the work, scope the work, create a PM process, and set the stage to do things in-house in the future.

Here are a few tips to make adding new services go more smoothly:

  1. Be honest about your intentions. Don’t promise that you plan to hire them forever, as you write down everything they do. Professionals recognize that you need the type of relationship that works for you.
  2. Negotiate the right approach to budget. For you, the ideal is paying them on a fixed-bid (milestone) basis, because that caps your total expense. But if the work is open-ended, you’d likely need to charge clients (and pay contractors) on an hourly basis… or be prepared for constant change orders.
  3. Enlist them to help you propose the work. They have a strong incentive to close the deal, if they’re the one fulfilling much of the work. They should recognize you’re marking-up their fee and adding a PM budget, of course. (But don’t abuse this—be loyal once you find the right person instead of shopping for bids each time.)
  4. Pay them to train your current team. Your existing team won’t learn everything in a few sessions, but even a few hours of training will help them do better. This is especially important for your PMs and account managers, since they need to know the problems and opportunities they’re likely to encounter.
  5. They can help you hire full-time people. If they’re a full-time freelancer, they likely don’t want to become your employee, anyway. Your full-time hire(s) can still benefit from the senior freelancer’s guidance in the future.

Applying this to adding new services at your agency

At this point, you have insights on pricing, selling, and delivering a new service. You can start evaluating if a service is a fit, and improve your chances at delivering the work profitably.

Question: What’s next, as you weigh adding new services at your agency?

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