How would an SEO agency be built today? Part 2: Current business model(s)

There are about 36,000 digital marketing agencies worldwide, based on our research on platforms like UpCity, Clutch, and our trials and users. Out of these, about 60% have SEO services integrated into their main activities. New agencies keep appearing, even in the current challenging context — more than 200 were created so far in 2020.

With this in mind, our team at SEOmonitor designed a strategic experiment in three parts, starting from the question —  How would you build an SEO agency in 2020? 

In the first part, we’ve explored trends, based on search data, and Gartner’s Hype Cycle to understand what’s transient and what’s here to stay, whether or not accelerated by the pandemic.

In this second part, we’re looking at the status quo of SEO agencies and their current business models, introducing another strategic lens to guide our research: Alex Osterwalder’s Business Model Canvas or BMC.

A new lens: the business model canvas

In Osterwalder’s words, BMC is a strategic tool that helps you paint out an existing business model and make it tangible for all the agency’s stakeholders. 

The right part is all about capturing your business value with an in-depth look at customer segments and relationships, value proposition, channels and revenue streams. The left part includes means to deliver that value with key activities and partners, cost structures, and resources. 

We’re challenging this meta-analysis of SEO agency business models with the BMC, as it offers an opportunity to understand specific jobs to be done while asking focused questions. It’s an exercise that can lead to business optimization in novel ways. 

Plus, there is a particularity here: the agency business model has a universal core in terms of functioning and monthly recurring revenue. However, different aspects vary based on the agency’s focus. Just like a bundle: various properties and functions (teams, services, industries), a universal job to be done (helping clients achieve their digital marketing goals).

The current agency business model: Who are the customers?

SEO agencies practice different customer segmentation approaches, so they can showcase either range or sharp focus.

Therefore, some agencies cater solely to one local or regional vertical, one market or even act as resellers, having other types of agencies as part of their customer segmentation. Others embrace the full market. 

Let’s see:

By geography, we identified the following segments:

• Local businesses that are in the proximity of the SEO agency
• Regional businesses 
• International brands 

By vertical (industry):

• Agencies focused on a single vertical regionally: e.g. auto dealerships or lawyers.
• Agencies focused on a single vertical internationally: e.g. SEO for global SaaS companies.
• Multiple targeted verticals and only those: e.g. eCommerce, travel, fashion, and real estate.
• Online only: focusing on companies that derive most of their revenue from online transactions.
• B2B only.
• White label services only targeted at digital marketing agencies or brands.

By size:

• Small and medium businesses
• Enterprises
• Consumer brands present in Fortune500

Focusing on a single vertical shows deep expertise: SEO for lawyers or Dealer Spike targeting dealerships in 8 branches. Highlighting 2 or more verticals means you’re positioning the agency in terms of local/regional market know-how and accessibility, as is the case for Blue Corona.

Catering to both SMBs and brands with a mix of services are agencies like Ignite Visibility that position themselves as international experts with multiple-industry know-how.

Or there can be B2B- or online-only focus: OuterBox is one example, as is Directive Consulting. They showcase their eCommerce or software expertise in the value proposition, so you know where they stand.

Why do customers buy the agency’s services?

In terms of positioning, there are specific patterns to take into account based on customer segmentation and more: how well does the agency address the customer segment needs? What is the distinction in terms of price, services, methods, etc.? What is the brand angle?

If we think about vertical-focused agencies, then the distinction is upfront: deep expertise in an industry makes them the appropriate choice for those client segments.

If we look at the expertise angle, there are other ways to showcase it — know-how of a technology vendor like Magento or Shopify as Best Response Media and Smarketa do it, or by unique proprietary software and algorithms which underline deep tech, data knowledge (e.g. Upswing’s COVID-19 Data Trends or TitanBOT from Titan Growth).

If the approach is the angle, then there is always the full-service digital positioning (e.g. Crafted) which implies executing complex projects from start to finish: strategy, creation, social, design, and so on. Or a mix of services and price: bundles of SEO services sold at a monthly fixed price just like a regular subscription, which gives the client a sense of control.

There’s also the delivery angle which is less used: explaining a manifesto or methodology. It’s more than a differentiator; it’s an explanation of a way of thinking about the SEO agency’s role. Re:signal does this by having a dedicated page for their Think – Plan – Do – Measure method. 

Or the price angle — SEO service-packages for a monthly fixed price just like a subscription, so the client feels in control. WebFX, Pixelcutlabs, Guerrilla Agency etc., are some of the agencies that decided to use this as a selling proposition.

How are the value propositions promoted, sold, and delivered?

Here’s a building block that is currently under a lot of pressure, as channels are shifting after the pandemic.

Yet, the following conventions in the industry continue to dominate the way agencies reach their clients:

• Events and business networking: conferences and industry events were the norm for promotion and meeting potential clients, strengthening relationships, and studying the competition. In time, some agencies took ownership of the process, so they started organizing industry events. In contrast, others co-hosted such activities with other important stakeholders (brands or publishers). In current times, shifts to online, virtual summits are more likely.
• SEO: in the lines of practice what you preach, why not showcase your quality work by doing it for you as well? Think about a regional agency targeting keywords like “SEO Chicago” or “SEO Ontario” and presenting the results as proof. 
• Referrals and recommendations: word-of-mouth remains one of the most powerful channels, mainly if you target a particular vertical. Or if you want to enter a new market segment.
• Media coverage: not as widely used, but some agencies generate reports and studies that get covered in national media or industry publications. 
• Free data-exploration tools: another not-so-frequent channel that acts as a differentiator is using proprietary tools to help potential clients, and present expertise and results. For instance, Upswing’s Visibility Report is a free tool for brands to evaluate their online visibility based on search performance.
• Pay per lead aggregators: Digital agency aggregators like Clutch or Upcity, professional associations, and even chambers of commerce can function in terms of acquisition, being specialized and targeted. 
• Educational content: whether general marketing advice on their blog or guest posting, whether podcasts or webinars, agencies have a lot of know-how they use to build trust in their particular offering. A compelling case is when agency leaders create educational videos or, even further, associate with academia and create digital studies. 

Depending on targeted customer segments, the channels will vary and will be prioritised in accordance:

Digital Nexa uses educational content in the form of their webinar series: the Digital Growth Show, to present general marketing know-how or to answer client questions. Builtvisible creates resources and sustains an active blog to help their clients and potential clients understand what services they need. 

Edit, on the other hand, usually organizes the SearchLeeds event, while Upswing creates Power Sessions as a form of owning the channel and generating business leads. 

How does the agency interact with the customer through their journey (acquisition, operations, retention)?

Apart from the channels focusing on acquisition and brand development, this question involves client management and retention: how the client relationship looks and what’s particular for an agency.

One crucial aspect from this point of view is having personal account managers and being able to continually check the status of your campaign with a singular point of contact. This is one of the things that makes or breaks contracts. 

The other one is reporting: it’s not enough to perform, you need to present results and be transparent about issues. That’s why an interesting pattern in analyzing SEO agencies is looking at the ones that access self-serve reporting platforms to allow full transparency and a semi-automation of the process. It’s a novel way of doing the monthly report, which dictates more trust in the relationship and tools as well.

How does the agency earn revenue from the value proposition?

There’s no one answer to this question, but it’s essential to keep in mind that most agencies function based on monthly recurring revenue or MRR, which usually involves:

• Monthly fees for SEO campaigns.
• Monthly fees for content development.
• Fixed monthly bundles of SEO services.

Depending on their range of services, they complement it with multiple streams that can imply: 

• One-time technical audits
• One-time advisory projects
• One-time reporting setup projects 
• Digital marketing training sessions
• Affiliate fees from software tools or hosting (Hubspot, GoDaddy, Wix, Yext) 

Some of these services are widespread, while others may have surfaced in the last couple of years. For instance, offering training and/or consultancy services is on the rise, going even further to business consulting during the pandemic — advising on new sales channels, new market segments to address, adapting to remote work, finding new target audiences for clients etc. 

Furthermore, some agencies become resellers for tools like Hubspot, which provides a significant portion of the income. 

What uniquely strategic things does the agency implement to deliver its proposition?

In terms of activities that secure market positioning, agencies design their services in correlation with their customer segments and their value proposition. After all, SEO means many things nowadays.

Some agencies choose to offer strictly SEO-related services, while others go the full-service route, to capitalize on the various needs a digital marketing project has: 

• Outreach and link-building
• Website design and implementation
• Local business presence management
• Content writing
• Paid search campaigns
• PR with a link-building focus
• Conversion rate optimization or CRO

These are the primary services identified, but there are a lot of in-between cases, depending on the agency’s strategic choices. For instance:

Higher Visibility developed an integrated search positioning with local SEO services, link building, eCommerce SEO, paid search, and even franchise SEO, social media, CRO, plus penalty recovery, while targeting both SMBs and Fortune500 clients. 

Straight North presents itself as an internet marketing agency, having a full-fledged suite of services in SEO (local, national, B2B, enterprise, etc.), but also PPC, display advertising, email marketing, and web design, and so on.

What Key Resources does an agency require to fulfill its value proposition?

The leading resource a business has is human capital. For agencies that means an in-house team with specialized roles and, for some, an extended, outsourced team comprised of freelance collaborators — usually, for more content development, graphic design etc. Based on their value proposition and size, there can also be data analytics departments involved, web development teams, etc. 

Then, there is the digital infrastructure required to execute the agency’s key activities properly. This is a necessary resource, just as familiar as the first one, including both tangible and intangible assets. 

Yet, if we go further down the line, something specific for agencies that can create a unique market advantage is the proprietary methodology involved in the way they do their job.

What can the company NOT do so it can focus on its Key Activities? 

When choosing services, there’s also a lot you have to say NO to. As an SEO agency, you can focus on your core mission or, as seen before, explore other complementary services in-house. 

But, no matter the case, the key activities need to be balanced with key partnerships. In our research, we identified the following types of strategic collaborations that agencies choose to enhance their projects: 

• Media companies for link-building
• Rank Tracking platforms
• CRM platforms 
• Web Hosting platforms  
• Complementary agencies

In the case of Impression, that means opting for a plethora of SEO software providers, while in the case of Found, it means enhancing their CRO services with key partners such as Monetate and Optimizely, for their data analytics efforts. 

What are the agency’s major cost drivers?

Looking at cost drivers and how they link with revenue is a strategic exercise in itself, as it highlights what elements clients are willing to pay for, where to optimize costs, or what new services can appear.

From the agencies we researched, we evaluated the following points as the main costs:

• Office spaces: although this is a cost challenged by remote work and a new way of doing creative business, for agencies that target brands and proximity, it is still a substantial cost.
• Payroll: the team which includes account management, SEO specialists, content management, outreach and PR, to name the usual departments, represents another crucial cost. This can be expanded to developers, a business development team etc., depending on the size and scope of the agency.
• Software: software fees for research, ranking, reporting etc., software development costs, specific tools subscriptions etc.  The tools of the trade are crucial for quality work, so they represent an expense and an opportunity for cost-efficiency.
• Outsourcing: freelancers for content development, graphic design or other complementary services are another relevant cost line. 

To complete those, of course, you need to take into account the agency’s profile, as there may be other relevant costs to add (subcontracted project teams, sales/marketing/PR budgets etc.).

Conclusion

After deep-diving into BMC, it’s probably time to challenge your agency. You can explore further questions and examples, and build your version here, in an interactive piece, that will closely guide you.

What’s next? The reality is that SEO agencies have versatile profiles which support them in a particular market, but can become limits for other types of development. With each choice made to include or exclude a service / client / niche, this means new gaps to fill. Think in terms of new customer segments generated by accelerated digital adoption, new channels like Zoom, Slack or virtual pubs to connect and promote, new resources like automation tools for efficient business processes etc. 

We’re ending this series with an overview of How would you build an SEO agency in 2020? based on input from various agencies. We’ll collect it as part of a strategic workshop for SEO business leaders and we’ll challenge the opportunities and risks the current market poses. Be the first to find out when the final piece will be live. 

At SEOmonitor, we’re committed to helping SEO agencies navigate uncertainty, so we adapt our solutions to the current context. Search Trends, the Client Health Tracker or the Reporting boar are just a part of our specialized tools and resources.

The post How would an SEO agency be built today? Part 2: Current business model(s) appeared first on Search Engine Land.

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