How to Create a Recurring Revenue Machine for Your Digital Agency
Kevin Daisey works hard to stay on top of changing trends in digital marketing. He is the founder & CMO of Array Digital, a digital marketing agency specializing in search engine optimization, social media, and digital advertising; and also Rival Digital, a digital agency niched in the HVAC market. Today he joins us to chat about how to create a recurring revenue machine. And also how establishing tight processes will not make you lose clients if they’re the right clients, and how his agency benefitted from eliminating the least profitable services.
3 Golden Nuggets
- Becoming a recurring revenue machine. After his accountant asked what he was predicting for next month’s revenue and he had no answer, Kevin realized they needed to get serious about the business. So, he and his partner decided to implement 12-month payment plans and started converting clients to that plan. Clients pay for 12 months, even if the project was done in four months, and they can forecast on collecting that revenue.
- Figure out which services are bringing in more clients. Investigating all the services that they offered and identifying which ones were recurring and which ones were not, helped our guest make some changes in his agency. A lot of agencies try to do too much and think that to double in size, they need to do double the amount of services. And that’s actually very incorrect. In the end, they figured out which services they could eliminate and which ones they should go all in. That helped them grow their recurring revenue in just eight months.
- Have a tight process. Establish a very solid outreach and communication process to establish clear payment options for your clients. If checks are just not convenient for your business, you can establish other options, like ACH, and offer a discount to encourage customers to use that method. You can also establish penalties for delayed payments. If you clearly communicate the benefits and downsides of each payment method, there are no excuses. Kevin and his team trusted their vision and were happy to see that customers started to comply with this new process.
Secrets to Becoming a Recurring Revenue Machine
Jason: [00:00:00] What’s up everybody? Jason Swenk here and on today’s episode I have an amazing guest from our mastermind who runs a really amazing agency. And we’re going to talk about creating a recurring machine, but before we get into it, I want you to do me a favor, take a screenshot of listening to the podcast.
And upload it to Instagram and tag us, because we want to reach out to you and give you a shout-out. So make sure you go do that now and let’s get into the episode.
Hey, Kevin. Welcome to the show.
Kevin: [00:00:36] Hey, Jason. Thanks for having me.
Jason: [00:00:38] Yeah, man. I’m excited to have you on. So tell us who you are and what do you do?
Kevin: [00:00:42] So my name’s Kevin Daisey and I run two agencies, one called Array Digital and, Array Digital is a full-service digital marketing agency that primarily focuses on working with law firms. Also, I have another agency that we started in September of 2020, which is niched in the HVAC market. So HVAC contractors, companies around the country, uh, with websites, SEO, social media, and on, on advertising.
Jason: [00:01:12] Awesome. I love it. Well, let’s go ahead and get into it. How can people listening, how can they create a recurring machine?
Kevin: [00:01:21] Well, let me, uh, I guess start with kinda what led to where we are and obviously where we are is a far cry from where we want to go. But, uh, in order to get there, we had to have recurring revenue.
And so back about a few years, my business partner, Eric J. Olson, who’s actually a member of the mastermind as well. Me and him formed Array Digital together, after both running our own agencies for quite a few years. And we both struggled with one thing, which took us a while to figure out, by the way.
We didn’t have predictable recurring revenue, we had lots of projects. Now we have some small services and hosting and maybe some support to some degree. But it was never enough to actually operate the company, pay payroll and things like that. So it was really just kind of a way to supplement and maybe have recurrent customers in the future. But on a monthly basis and cash flow, we didn’t really have a lot to stand on.
And so we were really focused on software and mobile apps at one time and we had a lot of software developers that had $100,000 salaries and up. And we just really saw, when we had a slowdown at one point in sales, which was Eric and I at the time, how are we going to have the payroll is massive and how are we going to pay this if we don’t have projects this month?
Around the same time, we were meeting with a, an accountant who actually ended up being the worst accountant we’ve ever had… ever. Like we fired the guy, his, it was a terrible experience. But he did this one life-changing thing, which we sat down with him to plan.
We tried to start having a budget and we were just at a million dollars in revenue and we’re like, hey, it’s time to kind of get a budget and start to plan out things a little bit better. He asked a question: what are you guys predicting for next month’s revenue? And then next quarter’s revenue?
And we were just like blank stares. Like, how are we supposed to know that? We don’t know that, we have no clue. I guess we can assume if we get these projects to this point, then we should expect to build this much and whatever. But we really had no good answer for him. That just made Eric and I think a lot about that question and how we were going to even grow and scale pay payroll.
Like we’re, we’re this close to going out of business. Tomorrow. So that kind of really got us thinking. We got, we got serious about it. And he proposed that if we’re doing a $100,000 software project, what if we took it and extended it to a 12-month payment plan instead of, you know, $25,000 a month for the next four months? Even though the project would be done in four months, they can pay us 12 months and we collect that revenue.
So this, the concept right there was kind of like, well, how are we going to pay payroll? If we collect $7,000 a month instead of $25,000 a month or whatever. And so we had to take baby steps that ultimately led to us investigating all the services that we offered and which ones were recurring and which ones were not.
Digital marketing, which was at the time a smaller piece of our business, SEO, and website support stood out as the only ones that we had that were recurring and they were very profitable. We have the website done and we’re still collecting money every month for support. SEO was an ongoing service, which is in-house. So we didn’t have to, there was no cogs, really. So we looked at that and we’re like, wow, it’s just such a small piece of our business though.
It was like, you know, 10% of our revenue, but it was predictable revenue. So after a lot of thinking, a lot of thoughts or, I mean, a lot of thought on our services and then the challenges with sales on the software side, it ultimately led to us cutting software, cutting mobile app development. And digital marketing was the winner at the end of the day.
And so we put all our focus on that. We up the ante, and we made sure to secure the other services like social media and advertising, which is something we didn’t do. We did websites and SEO. So we started hiring in that department. We actually had to let go or our software people, we made sure they got other jobs and had other positions.
And then we started hiring and learning digital marketing more than ever. We grew from… our overall revenue did not change in the year. So we were a million dollars. But we went from, I think, 17% recurring revenue to a 100% in eight months. So where we were having a hundred plus thousand per month on contract that we could predict every single month for services that we were rendering.
So that was kind of the major change. And then any questions about that, but then I can go on to kind of now how we refined and fine-tuned to become more of a machine and a process. That continues to allow us to grow.
Jason: [00:06:34] Well, I love, I mean, there’s so many agencies that are in that similar boat, right? And they’re, they want that predictability or that peace of mind. Because I remember going through the same thing, you know.
Our out for more predictability was just building a pipeline, but we never even thought back then, because 80% of our business was projects, and it was extremely profitable. But we just created a huge master pipeline, so that was our main focus.
But I like the approach that you guys took because there’s a lot of people that are going, I want some predictability. And I’m glad that you had a really good experience with a bad CPA to make you guys change that focus. And I also like, and I don’t want to skip over it, because a lot of agencies try to do too much. I like how you audited, what are the most profitable pieces, you know, in your agency? What should we eliminate? What should we actually go all in?
Because too many people just try to do everything. And they think, well, if we want to double in size, we need to do double the amount of services or double amount of the things. And that’s actually very incorrect. Like a lot of times in the mastermind we talk about, look, if you can focus, you’re going to be so much more successful in that one thing.
So I love that. Now, let’s talk about, you talked about how we got there right on the recurring. What did you learn from that? And like, what’s changed since then to now?
Kevin: [00:08:10] Sure. Absolutely. I think so that’s a big part of it. So, getting there was at first going to our existing clients and trying to convert them into a, more of a monthly plan, um, upselling them on the other services that we did offer and focusing on that.
So we had to convert a lot of clients and of course we signed on new clients with new offerings, so there was a sales effort as well, but we did it pretty quickly and pretty easily. And we didn’t expect it to work that fast.
But then we started to look at how do we collect the money? How long does it take to collect the money? What’s our expenses out and how do we refine this, this whole process to be very focused? And then, you know, with the least amount of, I guess, manpower as possible. So we’re really sort of looking at efficiency. At first, we were mostly paid by check and so we started to realize, okay, well man, 30 days.
Jason: [00:09:05] Checks in the mail! Checks in the mail! Uh, hated to hear that.
Kevin: [00:09:11] Yeah. So, okay. If you have recurrent revenue, that’s great. But if you’re not collecting it in a timely fashion, it doesn’t matter. So next thing you know, your payrolls are on top of each other. You’re, you’re coming out of pocket for, uh, expenses. So basically you’re, you’re floating the bill for your clients and you’re, you’re paying for your staff and all these other things, and then you’re expecting them to hopefully pay you back.
So there’s another, uh… your mastermind I’m pretty sure is where we got this from is getting that money in the door faster and how important that is. And so, at first, it was like, well, we, you can’t bill people, expect them to pay in 14 days, but we did it and we tried it and it worked.
And then we had some people saying, well, try that in seven. Well, that’s insane. No, one’s going to pay net seven. And so what we did is the extreme. We started offering a discount for ACH, or a penalty if you pay another way. We also put in a net seven terms with a late fee if you were later than seven days. If you want to pay by check, that’s fine, but here’s our rules.
And we have a very swift process for turning clients off, which was never fun to do. It’s not something we want to do. But say, if we have a website for you and you’re three weeks late, so the 30 days is not even reached yet, your site goes off, your servers are stopped. Uh, we have a very strict process.
And then when the client calls and says, I can’t believe you guys would do this. We have a really solid outreach and communication process for they know, many times over that they’re going to be. You know, get late fees or get turned off. And so then we always say, hey, we offer ACH. That’s how we run our business. If you don’t decide to go that route, you know, you can choose these other methods. But they have their downside.
So how about we get you on ACH? So we avoid this problem completely and, you know, we have predictable invoicing too. Our bill is the same every month. We have what we call all-inclusive service, where we never charge a dollar more, and whether or not, we make more ads or we, we talk to you more or whatever, it’s just built into our costs.
So we say, hey, it’s ACH, same bill every single month. And then we can continue working for you. We have the ad funds we need all that stuff and we don’t have to worry about it.
Jason: [00:11:37] I love it. You know, it’s um, you never know what people are going to say until you actually do it. I, I remember many years ago a client, one of our first clients, I think this is probably in like 2000 and they didn’t pay their invoice and they just kept giving me the run-around.
And I took down everything and I just literally put unpaid bill, you know, and then I put their contact info. Because what I didn’t want to have happen was that client going well, you took down my whole business. People couldn’t reach me, even though the internet was websites were fairly new. But as, as like unpaid bill to your designer, but you can contact them here. So when we actually did, when he did try to, when I did take them to court, they were like, oh, you take down my business. I was like, no, no, all the contact info is right here.
So I don’t suggest doing that, but that’s what I did when I was a young punk shit. I just didn’t care. I was like, well, you can sue me for it, I don’t have any money back then.
Kevin: [00:12:42] Oh no. It’s, I’ve been in some situations before. And I think, you know, all those, those moments that you remember make it easier to do some of the things we do now.
But we love our clients. We want to give them the best service possible, and to do so we need to be funded by what they agreed on. Which is in contract in a timely manner, so that nothing goes down, nothing stops. And so it’s very easy to say, hey, listen, we love working with you guys, we want to perform for you guys. If this bill is not paid, the performance and results are affected.
So ACH, we give you a discount, we encourage it and it helps us perform better for you. So we have 80 some clients. And it’s funny because some of my sales members will be like, we can’t do this. Like, this is absurd that we could give them no net terms and that they have to pay upfront for a service like agencies don’t do that.
Well, we do. And we have 80 clients that have no problem with it. We rarely have a problem. And if we do have a problem, it’s because we signed on the wrong client.
Jason: [00:13:50] You nailed it on the head. Uh, and it’s also, it really starts from, I feel, the very beginning. Like traditionally you think of an agency or the salesperson for an agency is they’re the chaser, right?
They’re chasing that prospect, the chasee. But what you have to do is you have to kind of flip it where you want them to be chasing you. And the only way to do that is by flipping the conversation, asking the right questions and kind of pulling them versus push. Like, I always tell people if I start pushing on you, like, I literally come up to you, Kevin, I start pushing you. What are you going to do? You’re going to push back.
And that’s what salespeople do versus, you know, if you think about like telling a story of a client that you’ve had for a lawyer, right. And then, or let’s… I only relate to agencies because that’s the world I live in. So I was like, I’m not going to make up a lawyer thing and there’s no lawyers listening anyway.
Kevin: [00:14:48] That’s right. And if you are, call me.
Jason: [00:14:51] But, uh, like if I was exactly, I hit, hit Array Digital up for him. But, um, if I’m talking to an agency, I’ll be like, hey, you know, one of my, um… I was talking to agency the other day and they are basing their whole business on word of mouth and referrals, which just isn’t scalable. That’s what they told me.
And I’ll be like, well, what we do is we show you the exact framework that’s working for my agency, other agencies, like with that, and then I ask a question, this is what pulls them in. Does that resonate with you? Does that make sense? Do you have any questions on that? Like I’m pulling them closer rather than pushing, being like, well, let me talk about my service.
And I’m taking breaks between like me throwing up on them. I think too many salespeople do that. Like they don’t take those breaks. And when you do then, uh, you can be the chase, you know, or they’re chasing you.
Kevin: [00:15:44] No, I love that. It’s where we want to be. We don’t want to be the cheap option. And we don’t want to be the ones that, uh, well, you can pay us whenever you want and don’t have any process.
We want them to realize that we have a tight process. We have a plan, we’re focused on the results. And in order to do that, this is how we operate. If you want to work with a company like us, that charges maybe more. We have what we call professional services, which is basically an extra fee that weeds out a lot of potential customers or clients and whoever questions that line item, “well, why do I have to pay for this?”
They’re probably not going to be a fit and we don’t need to jump through hoops on telling them why they need to pay for that every time. So it’s clearly stated in that line and that it’s really. You want superior service? Communication, unlimited, uh, responses and all the help you’re looking for? That’s what that line is for.
So yeah, it costs extra to work with us. And we want the client that says, that’s what I want. I want a Mercedes, not a Kia. There’s a different service level when you, you buy a car like that, that a dealership. So we’re not for everybody, but. My biggest fear is honestly signing a lot of little clients at a small amount per month that are, you know, we have some, you know, client can come in for a pretty low amount of with us.
We don’t have any kind of like crazy tiers because a lot of them lead to larger business over time. But at the end of the day, my concern is a lot of small clients that, you know, really break operations.
Jason: [00:17:16] Exactly. Well, I love how simple this is to create a recurring machine because a lot of us just try to over-complicate things like it. Literally, the simplicity of it is going, look, we’re only going to be in recurring and you have to pay us on these terms.
And if we do this, we’re going to have more predictability and we can grow and we can scale and, and, and all of that. So that’s fantastic. Is there anything I didn’t ask you, Kevin, that you think would benefit the audience?
Kevin: [00:17:45] Yeah. I really think being part of the mastermind. The Digital Agency Elite is, is really allowed us to test these things, ask questions and, uh, being part of a mastermind has been a huge thing for us.
So a lot of these questions and things that we’ve done, you know, we haven’t done them in just. It’s like we have someone, a sounding board, hey, we’re going to do this. What do you guys think? We might still do it if it’s I want to do that, but we at least got some opinions and we can share our thoughts and insight with them.
And it’s a great way to get where do you want to go faster. So just think, maybe you have a process for billing and have a process for onboarding, uh, have some rules in place for your clients. And again, if they’re the right clients, they’re going to have no problems with it.
Jason: [00:18:32] Awesome. And where can people reach out to you guys? What’s a website address where people can check both agencies out?
Jason: [00:18:48] Awesome. Well, thanks so much, Kevin, for coming on and, uh, giving us a really simple strategy that can be a real game-changer.
Because if we have that predictability in our agency, we can bring in the right people, we can have the confidence, we’re not making decisions from a scared point of view. And, uh, it’s just a, really a great strategy.
And if you guys want to be around other amazing people like Kevin and his partner, where you can have them act as your sounding board and see the things you’re not able to see, I want to invite all of you guys to go check out the digitalagencyelite.com.
Now this is not for everyone. So go check it out and until next time have a Swenk day.