A profitable agency needs healthy delivery margins, a repeatable way to win clients, and a team that can run accounts without the founder. Here is the seven-part system I use to work toward that model.
The margin targets and revenue ranges below reflect my operating model and observations in specialist agencies. They are not industry-wide benchmarks or guarantees.
Two kinds of agencies
There are only two kinds of agencies: ones that make money at scale (cash cows), and ones that are glorified nonprofits.
Feeling stuck in the second camp? Here’s my system for turning an unprofitable agency into a cash cow:
1. Get your gross margins above 70%
If your delivery costs eat more than 30% of revenue, you will never have enough money to fund growth. As you scale, that margin will compress, but if it ever drops below 60%, you're burning cash with inefficient delivery.
2. Fire your worst clients
Every agency has clients that pay the least and take up the most time. They destroy your margins and burn out your best people. Figure out which clients cost more to serve than they're worth and cut them. For the relationships you want to keep, use a client-health process to catch problems early.
3. Stop selling time you could systematize
Look at every deliverable your team produces and figure out what percentage of the work is the same every time. Build SOPs and templates for that portion and keep your senior people on the work that actually requires thinking. Your delivery should get cheaper per client as you grow, not more expensive.
4. Pull the founder out of delivery
If the founder is still checking in with every client, the agency will flatline somewhere between $3M and $5M. I've seen it over and over. You need a delivery team that can run accounts, make strategic calls, and solve problems without the founder in the room.
5. Build a growth system that scales faster than the business
Referrals and inbound will get you to $3M, maybe $5M if you're lucky. After that, the new business you bring in only replaces churn and the agency flatlines. You need a repeatable acquisition engine with real pipeline math and real conversion data.
6. Cut the costs nobody questions
Go through every line item in your P&L and ask whether each one is actually making the agency money or just making it feel like a real company. Most agencies I've looked at are carrying 15 to 20% in costs that don't contribute to delivery or growth. Cut them and put that money into your growth system.
7. Build a moat
Partnerships, exclusivity, IP, privileged access. Stack enough of those together and your service becomes almost impossible to replicate, which means you can charge more and still be the obvious choice. Without a moat, you will drown in competition and margins will erode to zero.
About this article
Lightly edited from “There's only two kinds of agencies:” on LinkedIn ↗, originally shared by John Ghiorso on . The Journal edition was first published on September 8, 2026.
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