Organic Growth vs Net New Business
New business is the lifeblood of every agency, but does all new business have the same value to the agency? The source of that business can come from two places; existing accounts or new accounts. If you're faced with the choice of tasking employees to driving organic growth or responding to RFPs, which should you choose? Should you prioritize acquiring new clients or expanding existing engagements?
There are arguments for both and hopefully, your agency is sufficiently staffed to not have to make such a decision, but sooner or later you'll probably have to do so.
A Bird In The Hand...
The easiest path tends to be looking at existing accounts for growth opportunities. You already have a foothold there. You already know or have access to the decision-makers and you've already proven your capabilities (in some cases). So gaining new business there should be easy, right?
Except the client's other agencies are actively doing the same thing. In many cases, you're not only doing your assigned work for the client but defending against competitors who want what you have. In other cases, the clients involved may be openly hostile to you adding more business because it may decrease their personal control and influence over your agency. And in other cases, there is open hostility between departments or divisions within the client that make organic growth highly political and extremely time (and resource) intensive.
That's not to say it can't be done. Research supports the fact that driving new business from existing clients is significantly cheaper than winning new clients. But are those wins of equal value to the agency?
Too Much of a Good Thing is a Bad Thing
Agencies like to get as much business from a client as they can because the more work the agency does for the client, the more the client needs them and the easier the account is to defend. But it's a double-edged sword. If a client becomes too great of a percentage of the agency's revenue, the results can be disastrous for the agency. The client wields too much power in negotiations and should they move the account, the agency is at risk of going under. That's a thought that can keep any CFO or CEO up at night.
A diversified agency is a healthy, stable agency. No single client should represent over 10% of revenue. Agencies with that client:revenue ratio can weather a slew of client departures and still recover. Agencies with that ratio have the ability to negotiate from a position of strength with both existing and new accounts. And the key to achieving that ratio is new logos on the client roster.
Another good reason to focus on net new business is the reality that your existing client roster has a maximum potential value to the agency. If the agency has 10 clients and each client has a maximum ad budget of $5M, the maximum revenue for the agency is less than $50M (assuming most of the ad budget is going towards working media). Even if all of the ad budget can be acquired, the agency is still capped in terms of potential revenue.
Net new business is more expensive to achieve because it's of greater value to the agency and though it's the harder path, tasking those resources on new account acquisition is the better way to build overall value for the agency.
Another way to build value for the agency is integrating your Media, Project Management and Accounting software products into one comprehensive Agency Management System. Separate systems limit your ability to identify insights, improve processes and reduce human error that can cause the agency thousands of dollars. And adding new accounts only exacerbates the problem.
Schedule a free demo of Advantage Software and see how the right software can not only accommodate account growth but can help drive it. We all have to make hard choices on how to allocate our time. Prioritizing a demo for the future of the agency is a good choice.