What the agency model looks like from the inside at two years
We are two years into running an agency and I am still figuring out what kind of business this is. The model is genuinely unusual. Revenue is mostly retainer, which sounds stable but is actually a chain of rolling monthly renewals. You are always three decisions away from losing 30% of your income: a client's business changes, their internal team restructures, or they find someone cheaper.
That is different from a product business where a churned customer stops paying and you move on. In agencies, every client relationship is a relationship, with all the maintenance that implies.
The things that surprised us
The sales function never stops. We assumed we would reach a stable client base and growth would come from expanding existing relationships. That is partly true -- upsells happen, and a good retainer client often refers other clients. But churn is real and replacing churned revenue requires new business development, constantly.
We also underestimated how much of the job is not the work. Proposals, reporting, client communication, team management, recruiting, finance. At two people, those things get split between whoever has time. At five people, you need systems or they do not get done.
The margin on project work is better than on retainers in the short term but worse over any period longer than three months. A project ends and you start selling again. A retainer continues. The tension is that projects are easier to sell -- they have a defined scope and a fixed price -- and retainers require a trust that takes time to build.
What we are moving toward
We are deliberately trying to grow the retainer base relative to project work. Not because projects are bad, but because the predictability of retainer revenue allows better hiring decisions. When you know your revenue six weeks out, you can commit to a salary. When it is all project-based, you can not.
The agency model works if you are honest about what it is. It is a services business where the quality of the output depends on the quality of the people, and the quality of the client relationship depends on consistent communication and genuine results. There is no clever product insight that changes those fundamentals. The work is the product, and the work is done by people, and people need managing.
Two years in, I am more clear on what I did not know when we started than I am on what I now know. That is probably the honest state of most agencies at this stage.