I worked with a public company trading at roughly 8x price-to-sales.
That means the market valued every $1 of new annual revenue at $8 of equity value.
- Paid ads drove ~40% of sales.
- Year 1 optimizations drove over $5OM in incremental revenue.
- Over 2-years, the stock price grew at a 20% CAGR.
The value created for shareholders was massive. Yet, the agency’s fees remained a flat, single-digit percentage of the media budget.
This is the irony of the agency model. We help clients grow, yet we are stuck in a model that fails to capture the value we create.
Employees get stock options. Executives get long-term incentives. Why not the agency driving the growth?
Think about it: Doesn’t a 3-year vesting period essentially function as a retainer?
If an agency has near certainty they can help a client grow, they should want to invest and reap the benefits.
- S&P 500 5-year return: ~14%
- Agency revenue growth: Low single digits.
Advertising is a bad business. Investing is a great business.
Clients already invest in advertising. Maybe it’s time for agencies to start to investing in clients.
Leave a Reply