How to Evaluate a Marketing Agency That Doesn't Know What You Make

So it's a real challenge. So there's a number of things here. One, they rarely ever have this revenue data and they almost always don't have your margin data because you generally haven't had a conversation with them, they didn't ask for it. They don't really want to because as soon as they start committing to revenue and margin, it's out of their control and you can call them out for their program.

So it's better for them to build an ambiguous program. They can claim success over metrics that really kind of don't matter. I mean, why do you care how many impressions you got this week? Impressions doesn't go into your bank account. Cash goes into your bank account. So that's the first thing. The tools don't measure margin, right? It's really difficult and you have to build something custom most of the time.

So Google, Meta, all these ad platforms, they measure clicks, they don't measure cash. Google might give you a cash number if you're an e-commerce business and you tie in all the pixels, yada, yada, yada, everything that your agency talks about. And they'll give you a ROAS number, return on ad spend. But you need to be really careful with ROAS because it's not return on investment, which takes full accountability of costs, including the agency costs.

ROAS is an easy number to throw out there and say, okay, we spent $1, we got five back based off of just platform measurement and it doesn't take anything else into account. So it's easier to share impressions and build programs around impressions rather than somebody actually became a customer. So that's the second thing. Third is retainers generally are not set up on outcome. Their incentive is to keep you subscribed and this unfortunately is the case.

When you're in internal agency meetings, it's numbers of clients, it's amount of dollars that you're bringing in, it's how many clients each team member is managing. That's what their leadership is talking about. They're not talking about how much revenue you're generating for clients. So there are program structures based around performance-based fees, but almost no agency will commit to them. There are programs that you can try and structure based around growth of the business.

But again, an agency will shy away because they need those dollars to run their agency. They have salaries to pay. So it's the hard retainer income that they report on. The fourth thing, they're not really trained on it. Like, I didn't know what a P&L was. Well, I guess I'd run a couple of businesses before we got involved, Ryan, but like the level of knowledge I've got based around P&L cash management now, based around how we do things at Synergy.

You've taught me how to read it properly. You've made sure I became Profit First certified and made sure I was able to allocate dollars. It changed everything. Agencies don't go through any of that. They're taught to read clicks, read impressions, and have a really good conversation that confuses people about what tactics are out there. And none of this is personal. It's just structural. It's just how the agency world works.

But this structure costs you six figures a year. Wow. So really it's not malicious, it's really about how it's structurally built. That's correct, yeah. That's what agencies can do based on the tools available and generally a formulaic way to communicate with your client, try and relay positive news. And I'll say one more thing, it's really easy to share positive news. Like, I'll just let you know, we have so much data at our fingertips.

Like we can go into Google Analytics, we can go into the ad platforms, we can pull anything, like they've got so many metrics in there that we can find something positive in some date range somewhere along the lines, right? So you can jump on a call and you can say, oh, well, two weeks ago last Thursday, you got X number of leads and we think it generated this ROAS, but they might be just changing the conversation from what's going on right now to something that happened two weeks ago, right?

It's really easy to find numbers. So you got to get consistent reporting with it as well. Oh, well, that's good to know. So hey, little Timmy, your poop smells all flowery. Well, it did before it came out. That's right. We'll find some good news in there. Yeah. All right. All righty. I think we're taking a quick break, right? Brought to you by Twins Plumbing and Heating out of Manchester, New Hampshire.

New Hampshire it is. New Hampshire. — and nicely with what you just said. A hidden leak is a marketing agency you're not measuring. That is exactly the metaphor. You don't see the leak on the meter until the bill arrives, and by then it's cost you real money for months. Same energy as Jennifer's 847% ROAS. Everything looked fine right up until you checked the bank account. That is right. Twins has been at this for almost two decades, family-run, residential, commercial, 24-7 emergency service. Water heaters, boilers, drain cleaning, pipe cleaning, pump, sump pumps, installation and repair, all of it in the whole shebang.

We're doing great with this one. Sorry Dana, we're so sorry. Manchester, New Hampshire, 603-450-8946, twinsph.com. Find the leak before the ceiling gives out. That's the whole show. All right, Jon, we're getting back into it. So wait, wait, before we, Dana, you got to track how many leads you get from this podcast. So if you're calling Twins Plumbing and Heating, use From Burnt Out to Bought Out as your code word and you get 30 cents off.

Hey, you got the name of the podcast right this time. Yeah, it's the first time in a while. But you screwed up Dana's ad. Sorry, Dana. Where are we going? See, the hot seat's not so bad, right? So, Jon, I've taken a second opinion on the smell of your chair, and it kind of smells like the waiting room of a funeral parlor. Oh, geez. Yeah, that's Canadian.

Well, it's probably smoky as well. It's probably smoky as well. It's a Canadian chair. Yeah, everybody run up and buy Canadian furniture. She smells like a parlor. Yeah, that's exactly right. And then you can get a tariff on it as well, as it comes across the border. Love it. All right, Jon, let's get back into it. So, tell me a story, a Canadian version, if you can. The one that reframes the whole conversation.

Excellent. So Canadian version, we were eating poutine, right? It was great. Physical therapy clinic, 30 locations. Marketing agency reporting $110 cost per acquired customer. That's a darn good number. ROAS was at 8 to 10x. Another darn good number reported everywhere. The owner said it out loud, every quarterly meeting, every review. Owner, clinic director were thrilled. Agency thrilled, Facebook thrilled as they dumped more dollars into it. And then we ran the math that nobody asked for.

We sat down and worked out the average customer lifetime value. And that is $800 to $1,200 per customer. Sounds great. 8 to 10x return. Except that's revenue lifetime value, not the margin. When you start to factor the things in like therapist salary, room utilization, insurance, billing, overhead, the no-shows that were factored into those cost per acquisition numbers. Really, the margin turned out to be around $200 to $400, not $800 to $1,200.

So when you're reporting back to that return on ad spend number, when you're reporting return on ad spend, 8 to 10 actually think it's amazing. But when it turns into 2 to 1, that's still pretty decent, but it's not eight times. So when you're pouring dollars into an eight times program and it's really closer to two to one, then you got to think about it a little bit.

So still profitable, way less profitable than everybody thought it was. And they were just pushing the marketing every quarter. The agency wasn't necessarily lying and everybody felt good about it. That was the numbers they were paid to report on. But nobody in the room ever sat down and worked it out. And it wasn't complicated. There was one more calculation just to take it a little bit deeper.

The resulting conversation was also easy. With the agency, you say, okay, well, let's cut the two lead sources that are running above that level, feed the two below it, add some retention focus campaigns for existing patients, bump up the number of repeat visits and referrals, etc., etc. And then you get an entirely different number, which is much healthier and much more profitable. So same business, 30 location, different intelligence, six months later, the marketing spend was flat but the profit for new patient had doubled.

So we're between $400 and $800 in the actual margin, right? So that's the full kind of approach in one story. Agency's generally reporting on it the wrong way. Everybody's kind of happy about it but you've got to dig deeper. All right, Jon. So I like the math. That was fantastic. How do you calculate customer acquisition cost or CAC, which I remember as like a cat coughing up a hairball.

Yeah, that's what it feels like when you're doing it sometimes. I'm going to give you the honest truth. It's really challenging. And like we do it enough times and in all of our programs, we got to get to a CAC. We know that it's really difficult to calculate a CAC per channel. Right? What I mean by that is you can be running Google Ads and you'll be running two or three different types of campaigns in Google Ads.

You can be running some Facebook Ads and some Instagram Ads as well. And each of those things will give you a certain amount of clicks that come in. They will give you a certain amount of leads that are generated by those individual campaigns. And that's about the limit of what an agency can report unless they go across the other side of the threshold and track what goes on when a lead comes in.

You've got to record phone numbers, you got to record email addresses, so that when they come into the actual environment that the lead comes into, you can actually track them through and see whether they become a customer. But you've got to keep them all separate. Back to those channels again, I think I mentioned five different ones there. Those are just the easy ones off the top of my head.

So all of those phone numbers and email addresses have to go in, they have to be tagged. Generally, they can go into a spreadsheet. They can go into your job costing software. They can go into your CRM system, and you can tag it by source. But you've got to get those five independent sources, not just Google or Facebook, because that's not enough detail, right? You need to know within each campaign which one is working and which one is not.

Then you have to track all the conversations all the way through to close of the customer, and then track it through to the revenue that's coming in from whatever service you're running. So it's really about consistently building that tracking path to understand where people came from and whether it results in them becoming a customer and then whether they actually generate revenue from it. So then you look per channel and you go, okay, in Instagram, how much revenue did we make?

I bet you it's not a ton, depending on the business that you're involved with and how much did we spend? And that's where you can sit down and say, okay, well, there's a return number there. You then got to factor in the cost for the program and your actual margin numbers to look at what you're truly generating as return from those individual programs. So it's complex, it's not easy, especially when you get other forms of advertising running over the top of it, especially when you got phone calls coming in that aren't necessarily tracked and your team actually has to ask them the question to say, Hey, how did you hear about us?

And they might've hit two or three of those individual channels, but they only remember one of them. So your attribution gets kind of messed up. So it's about having a structured approach to tracking. If you aren't talking tracking in that level of detail with your agency, they aren't doing it. There's just no way to be able to tell whether it's being effective for you or not. So sorry to go down a wormhole there and I know a little bit of detail, but that's how it works.

Sorry, not sorry, that I asked. Yeah. Well, why don't we take another break? Sounds good. Quick break, Jon. You're doing great in the driver's seat. Thank you. I must say it's weird up here. Brought to you by Twins Plumbing and Heating, Manchester, New Hampshire. The H wasn't silent this time. Time for this one. You take it. Okay. When your kitchen sink backs up, an amateur snakes the drain and calls it done.

A pro follows the line back and finds the actual clog three feet down, which is exactly what a CFO does with an agency's ROAS number. Wow, I'm impressed. That was actually a good analogy. Thank you very much. As a Canadian, I take drainage very seriously. Our national pastime is basically staring at snow melt in April and asking whether it's going to end up in the basement. That's your one.

That is my one and it's real. It is in our basement every year. Twins does drain cleaning, but they also do the boring stuff that prevents the emergency call, boiler service, water heating installation, whole home water filtration, preventative, which we say in every episode and it always supplies. Sure does. Twins Plumbing and Heating, Manchester, New Hampshire, 603-450-8946, twinsph.com, family run, almost two decades, they will tell you if the problem is the drain or the whole line.

Alright Jon, so owners paying agency $12,000 a month right now, how do they grade them? But without firing them on Monday? Yeah, that's a good question. Because there are levels of success. You really don't want to fire anyone right off the bat. You want to issue a report card and you want to get them to up their game. The squeaky wheel gets the oil. I'll repeat that the squeaky wheel gets the oil if you're asking the questions if you're making noises like you're — slightly dissatisfied customers. They don't want to lose your revenue. They'll want to fix it. So five questions. Want to give you — send them by email. Ask for written answers so they can — so you can come back and digest them. Question one, what is our gross margin per new customer?

I would be very surprised if anybody answers right off the bat, especially if they haven't had these conversations with you. They're going to say what? I've no idea. You need to tell us more. If they do know a number and it's wrong, then that's even more challenging, right? It's a bigger red flag because they're making stuff up and that then creates a lack of trust, right?

So that's a really hard first question. Question two, what I was just discussing earlier and described how we have to fix. What is our CAC by channel, month by month, ideally over the last six months, because we need trends on these things because they're doing things all the time and they're pulling levers and they pull a lever one month and it changes things that you need to be able to see the trend. That should be in one clean table. If they need a couple of weeks to build it, they haven't been running it, they don't know, at least if they're going to build it for you, that's awesome. They're showing the effort is there. Third question, what is our lifetime value to CAC ratio and what's been trending. Trending is the key word there because if they're not measuring it over time they haven't been tracking it and you know there's if you're not tracking that over time there's really it's a real challenge for them to be

able to tell what they did that's more successful versus causing issues. Again that's a really tough question. Question four, which channels would you starve today if forced to? Kind of hints that you're going to reduce your budget and so — so an agency should be able to find a solid answer with this and if they have an answer and it comes right away, that's great. If they don't have an answer and they take time, then obviously they're trying to work it out.

If they say, oh, they all work together, we need SEO and we need paid media and we need social media, that is a BS answer. I would cut two of those programs right off the bat. So yeah, judge based on how they respond. And again, this is a challenging one, question five, what business objective does each campaign map to? So if they know your business, and they've created campaigns to achieve those aims, then they really should be able to say, okay, well, if you're trying to increase your customer retention, we're running some email and some custom matchback campaigns based on your existing audience.

And those are the campaigns that ladder up to that they really should be able to kind to map what they're doing to your business objectives. If they haven't had those conversations with you, then I mean, that's the first conversation any agency should have with you. It shouldn't be, what are your pain points? It should be, what are you trying to do with your business? Where are you taking your business?

So yeah, that's question five. Score them. If they get all five answers and they're all great, then give them a five for each of the questions. If they're poor on each, give three to four, zero to two, et cetera, et cetera, total it all up and average it and see what you get out of five. If you're below a three I'd say then you really should start setting up a more consistent reviews with them. Give them a bit of a push not necessarily notice but give them a heads up. Hey look I'm not sure this is working for me. I need you guys to work harder and set up structures and campaigns that give me the reporting that I need. If there is zero or one start thinking about replacements right away. Don't fire them just start talking to other agencies, but give them the heads up when you start these new conversations that

these are the things that are most important to you all based around these five questions. So if the agency entirely fails that report card and gets defensive, it's really telling you everything you need to know. So you're telling me when somebody fails that report card run don't walk to them and start interviewing other agencies? I would have those conversations. It really depends on their response because you know what, it takes a while for an agency to get up to speed and start generating benefit.

So like if they respond, hey, we're going to work harder, we're going to bring some more people on here, we're going to sit down and work through your objectives and we're going to work this out, that's actually a relationship worth putting more time effort and energy into because last thing you want to do is spend four months onboarding the new agency and really get to the same place. So the answer isn't always fire the agency, you have conversations somewhere else. If they can't answer anything and aren't willing to respond, they're down at the zero to ones, then I think it's worth having conversations right away. You can't afford to keep throwing dollars at this campaign. It is — run, but do it. Do it intelligently, have the right conversations with other types of agencies so that you can transition smoothly, right?

You don't want to fire your agency and then have nowhere to be generating additional revenue and growth from. All right, good stuff, Jon. Okay, so let's talk about, if an agency failed the report card, yeah, right, so now what? Okay, here's, I think I just covered a little bit of those steps based on how they answered the previous question. The actual solution, it's not always a better agency.

In those cases where they're just blowing smoke and mirrors out, you can't answer any of those questions and don't care. Don't bring additional help or thinking to it. Then you got to move agencies, yes. But that's not just the total solution. It's about having somebody with a vested interest in the organization and also has knowledge of the business side of marketing as well. So it's really a job, the incentive for them needs to be what happens in your P&L, not whether the retainer gets paid at the end of the month.

That role generally has a name. It's a senior marketer, chief marketing officer, fractional CMO, director of marketing, etc., etc. The same seat, different costs, but it's really about having the level of thinking that we're talking about at the table. Because you can't just have your ownership team and your leadership team say, we want to grow by 20% and then hand it to people that have no vested interest in watching that growth happen. You've got it, there's a gap there, right? You need to fill that gap with skills and experience. And as a fractional CMO, the fractional CMO has real value when it's set up that way, set up for success that way. So if they should be immediately talking about CAC, margin, business growth, they should be pulling the cover off as well saying whether your goals are realistic or not. Right? Like if you're wanting to grow 40 to 50% in a year and you're upping your marketing budget by 10% and you don't have an idea of CAC and

when your leads are like 10 to 20 leads coming in a month, there's no way that you can jump up to 40% growth when you don't have the numbers nailed down and you have such little controllable impact on your marketing. So they should be thinking and talking at that level. Last break, Twins Plumbing and Heating. And this one is for the commercial listener because on the commercial side, plumbing and heating are diligence items.

Explain. Well, when somebody buying a business walks a commercial business at diligence, they walk the mechanical room, bad boiler, sketchy water heater, non-code plumbing, those are all line item discounts at the closing table. Sometimes low six figure discounts as well. Yes, yes, all of those. Twins does full commercial plumbing and heating, boiler installation, water heater installation, drain cleaning, whole building, water filtration, and almost two decades doing it.

Same principle as this whole episode. Fix it before the pro shows up to inspect it. Tune up is cheaper than the discount at the table. That is right. Manchester, New Hampshire, 100 Zachary Road, Unit 4, 603-450-8946, twinsph.com, 24-7 emergency if you didn't fix it before the pro showed up. Do the work before the invoice. The marketing work before the LOI. Same principle, different piece of paper. Alright Jon, so awesome stuff. You've teed up the CMO as the solution in some way, shape or form. But let's sharpen this up. What does a real CMO do differently day to day than say an agency?

Okay, so CMO's job really is translation in both directions, both business to execution and execution back to business every single week. The first direction is business objective into marketing initiative. So if you as the owner or any of our owner operators are saying I want to be at, whatever, $8 million in three years, that needs to be translated into marketing terms. That is X new customers per month at Y CAC ceiling and then take that into the detail to achieve it.

Here's the channel mix that gets us there. Here's what we run. Here's what we cut. You know, why are we spending X dollars on a newspaper and radio campaign when we don't have direct customers coming from it? So that's the first direction. The second direction is marketing data back into the P&L, back to business results. So the agency needs to be reporting their numbers. We talked about 847% ROAS, and that gets translated into cash for verified return is, in that case that we mentioned, 0.6.

We're losing money, kill it. We can't be using this. So the CMO needs to be able to do those, to do both those directions. If they can't do it, they're really managing the campaign, a glorified campaign manager, not a CMO. So from the agency's perspective, there's a huge difference there, right? The agency's incentive is, hey, let's keep the retainer rolling. If a new CMO comes in, their incentive is entirely different.

Let's hit the business number. Those are different jobs, different reports, different questions in the L10 meetings that are being run. So the agency and the executional side should run. The CMO grades the campaign, understands and manages how it affects the business. You can't have the same people doing both. So four numbers of CMOs should be talking about. We've mentioned them already here. Week one, CAC, lifetime value.

Lifetime value to CAC relationship. ROAS by channel. And then also the payback period for the marketing investment. All of these are in dollars. You should be talking about dollars, not clicks, not impressions. So if you already have a CMO, fractional CMO, those four numbers aren't pinned to their wall and you're having conversations on these you have a campaign manager with an inflated title. Alright Jon so for all those playing at home can you give me a concrete example of you know what does both directions look like in the weekly L10 or weekly management meeting? Oh that's a really good question to have me riff off man I'm gonna have to think Ryan. What does it look like in the L10 meeting that's — It's easy from the agency through to, oh yeah, it's pretty straightforward actually, from the agency to the business, the weekly L10 meetings, the first thing we go into after the segue is the data,

the data or data, depending on if you're a cyborg in Star Trek. So right away there, you've got a dashboard, you should be looking at KPIs that talk about spends, leads, qualified leads, new customers, and then new customer revenue by marketing channel. Right? So that's what it looks like from taking the agency information, the execution information, and putting it in the business language that actually ladders up to P&L. And over time, the entire leadership team will understand that language, right? All of those things are foreign to most of the leadership team. It's a quick explanation. They'll get it, smart people.

And then that's the agency numbers coming to the team. The other way around, and saying, how do we get the business stuff down into the agency? Well, that's obviously the CMO's job to say, how are we actually performing from a business unit perspective, and is the marketing having the effect that we want? Not just at the metrics level, but where are we at with capacity? Where are we at with changing up the product set to be more profitable?

And all of those things might mean you're working on installation jobs, not service. They might be selling a different line of furniture versus a line of furniture that's been established for a long period of time. That's more difficult to make and requires more hours. So all those things are business problems that then need to get passed down into campaign management back to the agency. That's a really good question to riff off of.

That was a really good answer from a CMO perspective. Thanks sir. These gray hairs have been earned. They have. And the one thing you did teach me, marketing, you know, the first thing in marketing was to insult our viewers. So hey, all you slow listeners out there, you can play this on half speed because Jon's about to tell us about marketing 101. So Jon, tell everybody one move by Friday.

I'm not gonna follow the thread there. As the nice Canadian marketer, I'm not gonna follow the thread. All of these guys can understand it. It's not that hard. You just haven't been focused on it, right? So, step one, by Friday, because this episode will come out on Friday. It's actually coming out tomorrow. We're rushing it. By next Friday, calculate your cost per acquired client, your CAC. And you might not be able to do it like per channel as I described earlier.

But if you've got a dollar amount going into campaigns, you can actually say total number of — total amount of spend and total number of customers that we get from it. You might have to kind of fudge that, do a snapshot, you know, have to run a campaign with and collect email addresses for a week, but try it. Do it because it's going to give you some numbers to start with.

So take that full spend, divide it by the number of customers, and that's your CAC. It'll be ballpark. It'll be good enough for a conversation for week one. Then repeat it the next week and get your agency to be more sophisticated. They really should be able to get quite sophisticated in two to three to four weeks. Depends on your selling cycle as well. Obviously you got a long sell cycle.

It's going to be a bit of a challenge. And then take that and compare it to your gross margin, right? Not revenue margin like the clinic I was talking about. If your CAC is more than a third of that margin, you got a bit of a problem because, you know, that's 30%, you know, if 30% of your margin coming in from your client goes to acquiring that client, that's an interesting problem.

You've got to work that math out there and you got to look at your customer lifetime value to say, okay, well, if they're purchasing multiple times, does that CAC make sense? So that's the first thing. But by Friday, get a CAC and then start to punch the other numbers that make sense in your organization. Ideally, the best time to run that math was a year ago, two years ago, three years ago, but the second best time to run it is now, like right away, get it for next Friday because you've started. Next week, I think we're going to go into a little bit of detail. I think I'm in the hot seat again next week and we're going to talk about the fractional CMO playbook and I can give you a bit more deep dive information on how to work all those different systems out.

Yeah and folks you're going to learn what a fractional CMO does versus the agency compared to that and after that Jon's not in the hot seat for a while so you can come back and listen on episode 17. I'm kind of enjoying it Ryan. We're going to have to arm wrestle a little bit. You know, Jon, you're doing a good job and you did a great job in the hot seat and I'm not crying because you did a good job. Crying because I think the stink got in my eye. Can stink get in your eye? Oh god. That's the Bengay. That's the Bengay. I think we moved on from Bengay to something else man. It is gay. I think I need a new chair. Can we expense that?

Is there enough margin? Is our marketing performing well enough to be able to for a new chair. Like the first federal budget will give you money for firewood so you can put this chair in there. Yeah, it's a little history for everybody. Alright Jon, give us the one thing, take away and don't blow it. I'll try not to. Your marketing agency, I blew it right away. Your marketing agency has no idea what you make. Structurally, they don't really care, not because they're bad people because their contract is written on your spend and their retainer, not the outcome.

Physical therapy clinic we talked about thought $110 on $800 to $1,200 lifetime value meant 8x returns, but nobody had the real math. The real ratio was about two times. Every dollar of the new marketing spent was pushing CAC while everybody else celebrated and the agency wasn't lying. It was reporting on the number that it was paid to report on. The solution isn't a better agency, although there are terrible agencies out there that don't care, that truly don't care and just set it and forget it. The true solution is also having a senior level marketer, CMO support full-time fractional with a vested interest in your P&L, not the retainer. Grade the agency you're already paying by asking those five questions we talked about. If they fail, start interviewing replacements. Calculate your own CAC by Friday, compare it to your true margin, and the gap between your number and theirs is a really healthy conversation to have with the agencies that you roll with.

All right Jon, that's great. You know, we'll start a new streak on nailing the one takeaway again. We'll start at one, next, hopefully. And folks, let us know if you would like us to give us your the cheat sheets and our seven things and Jon's, you know, how to calculate CAC and lifetime value and stuff like that. And we will start putting these in the episode notes for you so but we're not going to do it if you don't care so it's as simple as that so I guess that's my second insult to our listeners so I've learned well from you Jon great job did great on the hot seat and take us out thanks awesome. That's it for this episode of From Burnt Out to Bought Out. If anything we said today hit home, don't just nod in agreement. Pick one thing. The number you've been avoiding, the process that only lives in your head, the conversation

you've been putting off for six months. Do that one thing this week. That's how it starts. And if you're not sure which one thing to pick, drop us a line. We'll happily point you in the right direction. New episodes drop every week. Until next time, stop burning the treadmill and start building something you can actually sell.