An agency owner recently asked: “Is there an ideal number of clients for an agency? I’m trying to determine if we need to eliminate some.”
According to his PM system, he had ~45 billable clients. Many of them were retainer clients, but a lot were one-off clients.
For maximum profits and minimum headaches, most agencies should have 10-20 active clients. That is, 10-20 is the ideal client count for agencies, unless they’ve successfully implemented a “pod” structure.
- Less than 10 active clients? You’re bound to have a Client Concentration problem (with huge clients you’re afraid to say “no” to). You might be profitable, but you’re living a shaky existence. If a client fires you—or threatens to fire you, or you want to fire them—you’ll face layoffs.
- More than 25 active clients? You end up with a Client Dilution problem (lots of little clients who demand excessive attention). For most agencies, it’s hard to be consistently profitable—without making significant structural changes, like a pod structure.
Cautionary Tale: The Agency with 80+ Clients
Here’s what happens when agencies have too many clients. A few years ago, I went into a 15-person agency with 80 clients.
A couple years before that, they’d had 25 employees and 100+ active clients. The CEO told me he wished he had 100+ clients again. I discovered all kinds of PM and client service problems.
In the most extreme case, a client had cut their retainer spend… but no one told the PM. For two months, the agency averaged charging a mere $5/hour! The agency owner assumed “more clients” meant “more revenue,” but that’s not always true. And in his case, “more clients” meant “lower profits.”
Whew. Let’s look at how the 10-20 count works.
Agency Target: 10-20 Active Clients
If you shoot for 20 active clients to produce a total of $2 million a year in revenue, that’s an average of $100K/year in revenue apiece—or $8-9K/month per retainer client (not counting printing and media buys).
Of course, having more clients that are well above that average means it’s easier to serve them with [relatively] less effort.
T-shirt Sizes: Think About Client Size Tiers or Bands
I recommend thinking of clients in terms of size “tiers” or “bands”: Small, Medium, Large, and XL. Eventually you can add XXL and perhaps XXXL.
The revenue in your size bands will depend on your goals, but I recommend you dream big. Your largest current client is probably only a “Medium” when you think 2-3 years from now. Always shooting for bigger clients means you can be picky about the smaller ones.
For example, here’s a potential “distribution” of 20 clients (with some placeholder revenue averages):
- 1 XXL retainer clients [$60K/month]
- 3 XL retainer clients [avg: $40K/month apiece]
- 6 L retainer clients [avg: $25K/month apiece]
- 4 M retainer clients [avg: 12K/month apiece]
- 1 S retainer client (that you love) [$3K/month]
- 1 XL website client (at once) [$150K apiece, and you can handle 3 throughout the year]
- 2 L website clients (at once) [$30K apiece, and you can handle 8 a year]
- 1 slot for small one-off clients you decide to continue serving [$50K total over the year]
Get that client lineup and you’ve got $5.2 million in annual revenue with ~20 active clients. If you drop the $50K annually in small one-off clients… you still have $5.2 million in revenue!
Going back to the client who asked the question, his current $2 million figure probably is more like one XL, a few Larges, more Mediums, several Smalls, and a combo of web development “slots.”
With the “no more than 20 clients” constraint, you’ll start always thinking about “which one do we drop next?” (This is especially helpful when there’s a toxic client, because otherwise you’re telling employees, “this revenue > your happiness.”)
Conveniently, I’ve created a Client Ranking tool to help you make those “drop vs. grow” decisions—read on.
Rank Your Clients to Help You Decide
As a next step, I recommended my client put his agency’s current 45 clients into a copy of my Client Ranking spreadsheet template.
Try it yourself! You’ll evaluate each one based on “Current Value” and “Future Potential”—this is a mix of qualitative and quantitative. Here’s more on that, including potential ranking factors to consider.
Think Hard About Small Clients
For any client producing less than 2% of your revenue, think about whether they deserve to be part of your future.
They aren’t committed to you (or at least, not to your agency’s aspirational goals). If they aren’t committed to you, should you be committed to them? (Answer: Probably not, unless there’s a special situation.)
I rarely want to fire clients—I like my clients. By raising prices over time, people self-select to drop—this makes room for new people at the higher prices.
When you commit to an optimal cap of ~20 clients, you’ll keep bringing in new clients as a way to “fire” your smaller clients. (If the small clients are otherwise good clients, you’re technically “referring them away” rather than “firing” them.)
Question: How many clients do you want at your agency?
