An agency is growing fast and their ads are generating an abundance of new clients, but they ran out of cash for the month.
The traditional agency inevitably runs out of free cash to finance the purchasing of new customers.
This happens when an agency does not charge enough upfront to pay expenses, employees, take profit and pour enough back into ads to scale.
This puts a hard ceiling on an agencies growth, so how can we grow past this?
This model is called client finance acquisition.
You do not run paid ads but rely on organic growth by say referrals.
While referrals are an incredible stream of new clients let's assume the industries average referral rate is 10% and even fewer referred convert into paying clients and we take into account the average churn rate is 10%, meaning that even if you do manage to bring in new clients through the organic model, you'll likely lose some as well.
A marketing agency has 100 clients and 10% of them refer new ones. The agency gains 10 new clients this month but their churn is 10%.
That means they started and ended the month with 100 clients. Their stuck.
The paid ads model involves purchasing ads to bring in new clients. While this can be a faster way to acquire new clients, it can also be expensive and may not be sustainable in the long run.
Additionally, without the right offer and systems in place, it can be difficult to convert leads into paying members.
That's where client finance acquisition comes in.
This model involves increasing your pricing dramatically and offering financing options to clients to make it easier for them to join your program.
If you currently charge $2,000 per month, turn this into a one year payment of $24,000 and offer financing options.
By offering financing, you can acquire more clients and increase your revenue, while also reducing your churn rate. It's a win-win for both you and your clients.
So, how do you get started with client finance acquisition?
It's actually quite simple. First you will need need to partner with a financing company to offer financing options to your clients. Second, you will need to create a compelling offer and sales pitch to present to potential clients and lastly, you will need to have systems in place to follow up with leads and close them into the agency.
Google “Point-of-sale financing Partners”
https://www.fairstone.ca/en/contact/pos-financing#prospects
We will assume the cost to acquire (CAC) is $1,500.
Agency has 100 clients
Agency churns 0.67% per month
Average ticket $2,000 monthly.
Agency spends $15,000 on ads for the month and gains 10 new customers and collects $2,000 upfront.
10 x $2,000 = $20,000
-6.7 clients due to churn = -$13,400
Total profit this month:
-$8,400 ❌
Agency has 100 clients
Agency churns 0.67% per month
Average ticket $24,000 for year.
Agency spends $15,000 on ads for the month and gains 10 new customers and collects $240,000 upfront.
10 x $24,000 = $240,000.
-6.7 clients due to churn = -$160,800
Here we will assume they are refunded which is not the normal case as they paid for the year, this is due to failure to produce results. But for the given example we're having fun so let's charge back $160,800.
Let's break it down:
Spent: $15,000
Lost: $160,800
Made: $240,000
Total profit this month:
+$64,200 ✅
Even with the loss of $160k the financed model still produced $64k in profit with the same amount of ad spend and new clients added. Using the model allows you to spend more money to acquire customers as the ticket is much higher and the best part is the client finances your ad spend as you gain $24k or more the day they sign on.
You spend $2,500 they give you $24,000 which covers their cost to acquire and some. Opening the door to rapid growth.
If you run ads for businesses and want to automate client result tracking, we’d love for you to try ClientView, free of charge.
ClientView automates client result tracking, allowing you see all your clients and key metrics like leads and sales in real-time.
Plus you get notified on rising lead costs or broken back-end integrations.
