Your Marketing Agency Has No Idea What You Make, and They Don’t Care

Well, we can try. Yeah, so we're talking about marketing the enigma, you know, where the money gets spent, and there's no accountability. And, Jon, you're going to take us right through it, how it goes.

So let's get into it, Jon. Give me the thesis, and if you can, one minute or less. I can never do anything under a minute.

That's for darn sure. You know that. Well, that's not what Andy says.

Oh, yeah, I'm no good in the kitchen, clearly. Nutshell, your agency has no idea what your margin is. They're lucky if they know what your revenue is.

Of course, your agency knows your budget, but they can't tell you what it generates. There's a huge difference. All marketing engagements are written around your spend, not its outcome.

And that's for a couple of different reasons. One, it's really hard to calculate. And two, it requires higher levels of accountability.

So when I said earlier in our open that they don't really care, it's not personal. It's really structural, and it's to their advantage because they optimize what they get graded on. That's generally things like cost per lead, clicks, impressions, ROAS sometimes, but never margin.

Not long-term customer value, long-term value, not cash. So examples, as always, composite story, names anonymized. Jennifer runs a professional services company, for example.

The agency reports 847% ROAS. Her bank account says 0.6 to 1, so losing money on the marketing spend. And this gap is the episode, which really you need to figure out before you sign your agency agreement.

So, John, they really don't care is a really strong claim. Are you saying that... I mean, are there any good agencies out there? The agencies are good. They don't care, not because they're horrible people, just that it's so difficult to report on.

And if they can't report on it and it's not part of the contract, then really it's something that they can get away with ignoring. Of course, they want you to be successful, and every agency has that intention. But it's much easier to look into the platform and report on clicks and report on impressions because they've got direct control of that.

They don't have direct control of whether what they send you turns into actual business. All right, folks, you and I are in the front row seats of getting some education here in Marketing 101. So, John, why does an agency avoid the margin conversation? Are they, you know, my suspicions are they're trying to hide something, are they? They're not really trying to hide something.

Again, they're just going over what they can control because they've got line of sight to it, and it's easy to turn dials and turn up the things that they're giving you the reporting on. It's really tough to actually follow what they give you all the way through to leads becoming customers, customers then generating revenue, and revenue turning into margin. 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.

Two, 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. 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 the 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.

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 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 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.

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. I'll just let you know, we have so much data at our fingertips.

We can go into Google Analytics. We can go into the ad platforms. We can pull anything.

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've 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. 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. And this one ties in 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, John, we're getting back into it.

So wait, wait, before we wait, Dana, you got to track how many leads you get from this podcast. So if you're calling Twins Plumbing and Heating, use FROMBURNOUTTOBOUGHTOUT as your code word and you get 30 cents off. Hey, you got the name of the podcast right this time.

Yeah, I did. It's the first time in a while. But you screwed up Dana's ad, so.

Yeah, well, sorry, Dana. Where are we going? See, hot seat's not so bad, right? So, John, 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, that's, that's, that's Canadian. Well, it's probably Canadian. Yeah, it's smoky as well.

It's probably smoky as well. It's a Canadian chair. Yeah, everybody run up and buy Canadian furniture.

It should smell 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, John, 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. Market 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.

Marketing 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 10x, you 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 2 to 1, 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. It 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-focused campaigns for existing patients, you know, 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 locations, 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.

Agencies generally reporting on it the wrong way. Everybody's kind of happy about it, but you got to dig deeper. All right, John.

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? So, 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, right? 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, right? 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 have 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. Well, why don't we take another break? Sounds good. Quick break, John.

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. Hey, the H wasn't silenced this time. Tie 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. Prevective, which we say in every episode, it always applies. 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.

All right, John. So owners pay an agency $12,000 a month right now. How do they grade them? But without firing them on Monday.

Yeah, that's a good question. Um, because there are levels of success. You really, you 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 a slightly dissatisfied customers, they don't want to lose your revenue. They'll want to fix it.

So five questions I'm going 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, 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, that then creates a lack of trust, right? So that's a really hard first question. Question two, what I was just discussing early 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 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, OK, 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 of 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 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 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 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 it takes a while for an agency to get up to speed and start generating benefit. So like if they respond, hey, you know, 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 and 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 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, John. OK, so so let's talk about if if an agency failed the report card. Yeah.

Right. So so now what? OK, here's here's I think I just covered a little bit of those steps based on how they answered the previous question, but the actual solution, it's 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've 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 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. Right.

That role generally has a name. It's a senior marketer, chief marketing officer, fractional CMO, like director of marketing, et cetera, et cetera. Different levels, 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 percent 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 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 if you're wanting to grow 40 to 50 percent in a year and you're upping your marketing budget by 10 percent and you don't have an idea of CAC and your leads are like 10 to 20 leads coming in a month, there's no way that you can jump up to 40 percent growth when you don't have the numbers nailed down and you have such little controllable impact on your marketing.

So they should but 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 commercial business diligence, they walk the mechanical room, bad boiler, sketchy water heater, non-code plumbing.

Those are all line item discounts at the closing table. And 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 6 8 3 4 5 0 8 9 4 6 twinsph.com 24 7 emergency.

If you didn't fix it before the pro showed up. Do the work before the invoice. Do the marketing work before the LOI.

Same principle, different piece of mind. All right, John. 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 the 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.