Understanding the agency business model
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Understanding the agency business model can help you make more money as a freelancer. Let’s break it down.
There’s a lot of opportunity for freelancers to make money contracting to creative agencies, because interestingly enough, the freelancer has a real leverage in negotiations with agencies.
Creative agencies stand out in the market by bringing a unique approach to content, strategy, and production. They’re connected to brands, they pitch brands, and they win business with brands because of their unique approach. They might be focused on a specific niche, a high level of quality, or an interesting style that brands want.
When creative agencies pitch these projects, they pitch them at a budget that’s big enough to pay their production expenses, their team, their business expenses, and make them a profit. This means the budgets are a little bloated, but it allows them to provide great service.
Every project should be a little profitable for an agency. They outline the workload with the client, get a budget approved, have their staff do the work, and end up with some profit. But some projects can be extremely profitable for agencies. If the agencies can get their staff to work on two or three projects at the same time, while covering their salaries with the revenue from just one client, then the other clients are virtually all profit. This is why creative agencies have such hustle culture, and work at a breakneck speed. The more projects each employee works on at the same time, the more profit the agency makes.
Staffing an agency with full-time employees is expensive and risky. The agency has to make payroll every two weeks, which means they need to have a lot of guaranteed contracts with brands to make sure they can pay their employees, even when they lose a client. Because of this, growth is built into the agency model. It’s tough to grow slow and steady as an agency, and it’s tough to do it profitably.
If an agency is growing, they will be taking on more projects than their staff can handle. This is where the first opportunity lies for a freelancer. Agencies are always trying to make a good impression on their clients, especially new ones they’re trying to win more business from. When an agency gets a new client, and their staff already has a full workload, they’ll look to freelancers to complete the work. Because the agency doesn’t have internal options to complete the work, and because they’re trying to win over their new client, the freelancer can charge a premium for the work. This isn’t a huge concern for the people running the projects at the agency, because they know two things: 1. The project will still be a little profitable, and 2. they know the arrangement won’t last forever. Soon enough, the client will either drop them, or the agency will hire a full-time employee to do the work.
Here’s where another opportunity lies: there’s always more budget, since every project is a little profitable for the agency. They always have more budget, tucked away in their agency fees or production fees. This doesn’t mean that every single time you stick it to them or ask for more money, you’ll win, but you certainly have a higher chance of winning those negotiations than you do with solopreneurs and small businesses who simply don’t have the money. The agency always has the money—even if their production fee for that project is depleted, they may dip into their other business profits, just to try and win the client.
So let’s review the opportunities for freelancers with agencies:
You can charge a lot
You can negotiate
The downside of freelancing for agencies like this is that your time is always ticking. There comes a point when it no longer makes financial sense for them to outsource work to you, when they could be profiting nearly double by bringing someone in full-time. Another downside is that if their clients drop them, they drop you (on that project, anyway). If you do good work, and make a good impression, they’ll bring you back, but only when they have more projects than they can handle again.
In order to get in touch with agencies, you’d do well to network (in-person or digitally) with people who work at agencies (producers, creatives, copywriters, etc.) They’re all overworked, they all need a hand, and they’ll all be glad to outsource some of that work to you.
Hope this was helpful! Good luck out there!
