Want to grow your agency? Industry expert Karl Sakas answers your top questions about business models, pricing, AI, and more

Q: How do you balance agency specialization and diversification?

It’s all about finding the sweet spot for your niche—specific enough to stand out but broad enough to find enough clients.

“B2B” is too broad to be useful, while “marketing for outdoor grill manufacturers” is probably too narrow. A good benchmark is 10-200 competitors and 2,000-10,000 prospects (per David C. Baker in The Business of Expertise).

But go beyond the numbers alone. Think about whether you actually enjoy working with that niche. Are they willing to pay for your expertise? Do they have a solid future as an industry? The right niche helps you build authority and keeps the agency pipeline healthy. For more on preparing, see my 2030 predictions for agencies.

Q: How can agencies become more consultative, not just service providers?

The shift from service provider to trusted advisor is a big deal; it’s a change in how you package yourself.

Start by hiring people who think like owners—because they naturally align with your business goals. Up-level client strategy skills across your team and emphasize the sales mindset, even in non-sales roles. Encourage employees to think about upsells and long-term client value.

Good communication is a big part of consulting. Send your team to Toastmasters or other training to build confidence and clarity. For more ideas, check out The Secret Tradecraft of Expert Advisors and Selling Professional Services the Sandler Way.

Q: What safeguards should agencies use when charging performance-based client fees?

Performance-based models can be great—when you do it right. But they’re best with clients you know and trust. If a brand new client wants a 100% performance-based deal, it’s often a sign of trouble. Maybe they’re cash-poor or have unrealistic expectations. That often suggests they’ll never hit their big goals.

Instead, blend a flat fee with performance incentives. For example, charge $5,000 a month plus a percentage of sales over a set amount, rather than going all-in on performance. This way, you share the risk but still (at minimum) cover your costs.

Keep in mind that most agencies can improve profit margins by doing a better job in their existing pricing model (e.g., getting better at managing scope creep in deliverable-based pricing).

Q: How can agencies maintain profit margins without falling into a pricing race to the bottom?

This comes up a lot! Healthy margins are what help you sustain and grow your business.

I recommend aiming for 20-30% net profit margins (after all expenses, including fair owner compensation). When your margins are too low, it’s hard to reinvest in growth. But they can also be too high; something like 35%+ net margins can signal that you’re understaffed (if your team is primarily in developed countries)… which leads to team burnout.

Compete on expertise and impact, not on price. Avoid low-margin work like RFPs and be careful about enterprise clients where your agency is a small fish in a big pond.

Watch your gross profit margins and manage scope tightly. If you’re struggling with scope creep, my scope creep workshop has practical tips to fix it. Assign work to the right people.

Q: Do any agencies do performance marketing models well?

Pure performance-based pricing is something that a lot of people talk about… but few are doing.

During my intake process, I ask about the agency’s pricing model (e.g., hourly vs. milestone vs. value-based).

A lot of people say “value-based”… but then share something like, “We charge a flat price based on the number of hours involved.”

That’s actually milestone-based (aka deliverable-based pricing). There’s nothing wrong with that—and it might be value-anchored, which is a good approach—but it’s not value-based.

For most agencies, it’s hard to measure impact in a way for pure performance-based pricing to make sense. And as I mentioned, you can boost profit margins by fixing your current model first.

Q: Will project managers become obsolete with AI and automation?

No way. Project managers (PMs) aren’t going anywhere—they’re too important. (Disclaimer: I’m a former PM.)

What will change is their role. PMs will spend less time on manual tasks and more on building and managing automated systems. AI and automation can help PMs get more done with the same headcount, reducing burnout and keeping projects on track.

The key is to maintain good data hygiene—because bad data equals bad automation, no matter how fancy your tools are. Unless your margins are amazing, you still need timesheets… but there’s automation for that, too.

Q: We are a broad-range services dev shop and it’s been a big part of our success thus far. Do you see that being a positive or negative model going into the next five years?

I notice [your agency has] an unusually broad set of services, which is its own diversification: web, mobile, software, home automation, and e-commerce. 

My guess is your team can solve more-complex problems than a typical agency. 

Based on that, you’re ahead of most horizontally-focused agencies (for instance, if you only did WordPress development).

Also, e-commerce tends to be one of the most dev-dependent industries—because you’re building the thing (their e-commerce site) that makes their business work.

That is, you’re very “close to revenue”… which tends to be good for pricing power and client retention. (Although e-commerce clients are especially unhappy about outages, which is reasonable.)

Something to consider: Do you prefer to work with “launch-based” e-commerce clients, or those who do a more continuous approach?

Almost everyone will have their Black Friday, Cyber Monday (BFCM) sale. But beyond that, do you prefer a big push for an event, or something less exciting but more steady?

Someone I respect in AI said they estimate 2-3 years of strong demand for “help us figure out AI” services. So, good to help when you can—but also building cash reserves and using a portion of your time exploring what’s next.

Q: How can we, as a community, improve the reputation of agencies? Can we learn from other trades? I feel like marketing agencies have suffered from a reputation of not delivering on promises, charging too much, and doing too little. 

Some of this is beyond your control. If a client worked with a shady agency, you’re unfortunately inheriting some of that experience. If they’ve been truly burned, you can share how you’re different… but consider how hard you want to go in “proving” that (because it may not work).

Get involved in local and national trade associations like AMA, AAF, or AIGA. Serving as a board member or volunteer shows you’re committed to the industry, not just trying to make a quick buck (even if yes, you wouldn’t say “no” to a quick buck).

They’re always looking for volunteers; most people join to find a job and then flake out once they start the job. It also gives you built-in networking opportunities—just be mindful not to overcommit yourself.

Q: How do you keep creativity alive with tight budgets and timelines? 

If budgets are tight, consider whether to shift to a front-end agency model where you focus on strategy and client management while outsourcing fulfillment to reliable white-label partners (and AI tools).

This model can help you stay creative and profitable without overloading your team. Keep in mind that finding the right outsourcing partners takes time, but it’s worth the effort.

My clients typically report that it took their agencies several tries to get it right. One option: have each potential partner do the same paid test (e.g., it’s not a live project). Or if it’s a live client project, be sure you’ve really buffered the schedule.

Q: What are useful AI tools for agencies beyond lead gen/content creation? 

Even if you don’t attend the live event, I recommend following the speakers at AI & Your Agency. They’re sifting through trends and tools already:

• Britney Muller: AI Consultant, SEO Expert
• JP Holecka: CEO, Founder of POWER SHiFTER Digital
• Megan Notarte: Co-Founder, AI Portland
• Mike King: Founder of iPullRank
• Sebastian Chedal: CEO, Fountain City
• Wil Reynolds: Founder/VP of Innovation at Seer Interactive

My team and I have built custom GPTs to handle complex and/or repetitive tasks. This lets us work faster and/or focus on higher-value work.

I created a custom tool to draft conference pitches. I created one for myself (focused on agency events) and then created a more generic version for my clients.

Keep in mind that tools keep advancing; for instance, building a “KarlGPT” in 2023 required coding skills—but by 2024, it was built into the paid ChatGPT Team plan.

Here are some off-the-shelf tools that clients and other agency leaders have mentioned at my events:

• Jasper.ai
• ChatGPT
• Google Gemini
• Perplexity
• Narrato
• Suno
• fireflies.ai
• Avoma
• SEOSurfer
• Claude
• ClickUpBrain
• Fathom
• Cassidy.ai
• Cora

Q: How much focus should agencies place on AI? 

Focus on AI where it can make a real impact. And of course, be careful about data privacy. AI is great for agencies but it doesn’t solve everything. And it also creates new problems.

Small gains are nice, but the real magic happens when AI helps you save dozens—or hundreds—of hours a month. Sometimes, simple automation tools like Zapier or Make can deliver huge efficiency wins without the complexity of AI.

Beyond AI specifically, my Agency Profitability Toolkit includes 60+ templates, trainings, and other resources. Categories include agency strategy, business development, AM, and more. I add new ones over time (at no charge), and you get discounts on other products.

The key is freeing up your best problem solvers to find those big opportunities. How can you give them space to work on this?

In my first job after college, I cut a process from 320 hours a year to 64 hours a year, while improving both quality and speed. That 80% savings happened because I saw I’d inherited an inefficient process and I knew I could make it better. That required 1) an optimization mindset, 2) hunches about where to find resources to help, and 3) time to explore and implement the changes.

Q: If you were starting a new agency today, what would it look like? How can we future-proof it for 2030 and beyond?

I love this “blank canvas” question.I’d build a front-end agency that focuses on client strategy, account management, and business development while outsourcing most fulfillment to white-label partners. That way, there’s flexibility for what might come in the future (e.g., what happens in 2040). I’d prioritize paid discovery, productized services, and a fully or mostly remote team.

Strong delegation is key—hire a #2 who handles day-to-day management so you can focus on thought leadership and strategic growth. The goal is a highly scalable, profitable agency that doesn’t rely on you to handle every little thing. That helps you get to Work Less, Earn More.

Q: What top three areas should agencies focus on to prepare for 2030?

Each agency is unique… but here are five places to consider:

1. Clarify your agency’s business model: Are you a front-end, full-stack, or back-end agency? If you don’t have the model you want, start making changes (with the help of a consultant, with your leadership team, or both).
2. Strengthen your employer brand: Few agencies prioritize this… but those who do have their pick of quality employees. Hiring tends to be cyclical; be ready for when candidates have the upper hand, even if that’s not true right now.
3. Experiment with AI: Create space for your team to explore new tools and to custom-build your own (starting with “no code” tools like custom GPTs in the ChatGPT Team plan). The more people involved, the more likely you’ll spot opportunities. Events like the AI & Your Agency event in San Francisco in August (I’m helping promote it) can shortcut things; you can learn from people who spend more time on AI than you do.
4. Add performance-based elements to contracts: Avoid 100% performance-based deals, but mixing in performance incentives can be a powerful differentiator. If you’re updating contracts, consider adding a “transferability” clause (which helps if you want to sell the agency in the future). Matchstick Legal created my MSA; they’re great.
5. Be active in agency communities: This is where you can keep up with trends before the rest of the industry, and where you can get an “is this normal?” reality check about things that you’re experiencing. An agency coach can help, but Grow Your Agency has an amazing ROI.

Q: How do you balance AI-driven efficiency with creativity? 

AI is great for automating routine work, but creativity and human insight are where your agency can add real value. Encourage your team to see AI as a helpful assistant, not a replacement. When used right, AI tools can free up time for the more creative, strategic work that clients love.

Be careful about how you frame live demos to clients. AI creates a great first draft in minutes or seconds, but then you need to tweak things. And how long did it take to write the prompt or custom instructions to get there?

Stay curious; events like AI & Your Agency are excellent for keeping up with what’s possible and what’s coming next. Consider: If you don’t have time to monitor [at least some degree of] new developments in AI, it may be a sign of larger problems—because if not AI, something new can help (or hurt) your business.

Q: What steps can agencies take to build niche expertise? 

This gets into positioning, ongoing marketing, hiring, and more. Consider:

Choose the right niche: Make sure it’s a space you enjoy and that it has a solid market future. For instance, legal marketing is lucrative… but lawyers often hate their job and are too busy to sign off on your marketing work.

Leverage your current expertise: Highlight it through case studies, blog posts, and videos. If you need examples of case studies, mine are pretty good… as are those by agency Viget.

Be visible where your clients are: Attend industry events, engage in communities, and offer real value. After he couldn’t afford a trade show booth, Kenneth Cole launched his company by filming a fake movie in front of the convention center. (I don’t recommend trickery but he was in the right place at the right time.)

Hire niche talent: Bringing in experienced team members can help your agency build credibility faster. For instance, the CEO of client Landscape Leadership previously worked client-side at a national and then regional firm in his industry; this helps in his credibility with clients.

Niching rarely works in a complete vacuum. That is, I see very few agencies pick a random [financially-driven] niche and become successful there. Most clients want at least some degree of prior relevant experience.

Q: How can agencies maintain a strong culture in a remote or hybrid environment?

Culture doesn’t happen by accident—someone needs to own it. In agencies with 50+ people, this might be a dedicated culture manager (e.g., the VP or Director of People, or a director/manager reporting to them). Smaller agencies often delegate this to an operations leader or even the owner. Being a smaller firm can be a plus in recruiting and retention, if you aren’t chaotic on a day-to-day basis.

Reward the behaviors you want to see and discourage the ones you don’t. Keep an eye on how your culture evolves, especially as new people join. For more on this, see my new book Calm the Chaos.

Q: How can the agency community improve its reputation?

Some of this is beyond your control. If a client worked with a shady agency, you’re unfortunately inheriting some of that experience. If they’ve been truly burned, you can share how you’re different… but consider how hard you want to go in “proving” that (because it may not work).

Get involved in local and national trade associations like AMA, AAF, or AIGA. Serving as a board member or volunteer shows you’re committed to the industry, not just trying to make a quick buck (even if yes, you wouldn’t say “no” to a quick buck).

They’re always looking for volunteers; most people join to find a job and then flake out once they start the job. It also gives you built-in networking opportunities—just be mindful not to overcommit yourself.

Q: How can growing agencies improve cross-department communication?

Someone needs to be accountable for agency-wide workflow. That’s usually the COO or operations director. That is, if it’s not going smoothly… they’re charged with fixing it. And ideally, fixing it before it breaks.

Weekly 1:1s and monthly skip-level meetings can surface issues early. I like the 30-minute format from Manager Tools: 10 minutes of whatever the employee wants to discuss, 10 minutes for what the manager wants to discuss, and 10 minutes on professional development and other longer-term initiatives.

Use the right tools for the right jobs. I was speaking with a new client who mentioned internal chaos. I asked what PM system they used. Answer: They used Slack as the PM system. Noooooo…

As you might imagine, avoid treating Slack like a PM tool—it’s great for quick chats but terrible for tracking work. Instead, consolidate into a proper PM system and set clear expectations for communication.

Q: How do you set client expectations when they’re seeing AI, offshoring, and claims of “cheap” projects at levels that are higher than ever? Any tips for getting people to realize you get what you pay for?

This is, in part, a “need versus want” problem. That is, you know every client needs your help… but only some want to pay for it.

Growing up (I’m the oldest of five kids) my parents knew all the restaurants with a loophole-ridden “kids eat free” policy. Those restaurants have all since gone out of business.

If you have a client who expects five free kids’ meals when just one or two adults are paying for food, that client is never going to be happy.

Consider: What differences have you noticed between the clients who need your help (everyone) versus those who want [to pay for] it? For instance, when I needed a recent medical procedure, I didn’t look for the cheapest provider. Instead, I went with the place my PCP recommended—which happened to have been in business for almost 100 years.

Get additional resources to grow your agency

Want more? Follow Karl on LinkedIn and check out the free resources for agencies at his website. He’s also available for private coaching and group training.

And then join Grow Your Agency for early access to our next agency AMA.