Why Many Agencies Do Not Understand Their Own Business Model

Most agencies do not fail on creativity, but on their business model. The uncomfortable truth: those who do not clearly define their services, do not scale their processes, and do not make results measurable will go under in the competitive landscape.

For entrepreneurs, this means: an agency that does not understand its own value creation will not bring lasting benefit to your company either. The price of unclear structures and inefficient models is high - for both sides.

What does this mean for your decisions? Consider the following points:

• Do you work with an agency that delivers results or bills hours?
• Do projects start with a clear strategy or with impulsive execution?
• How transparent is the actual added value for your business?

This article shows why these questions are decisive - and why many agencies fail here.

Missing or unclear value propositions

Many agencies fail to communicate their actual business value clearly. Instead of precise value propositions, they rely on generic "full-service marketing" that gives entrepreneurs no reliable basis for decisions. Often they sell services such as "SEO" or "websites" because clients ask for them - not because these measures solve the real business problems.

This problem has deeper causes. Agencies usually work to the rhythm of campaigns that stretch over weeks or months rather than pursuing long-term strategy cycles. This short-term focus hinders sustainable value creation. Those who land the next contract or increase the ad budget are rewarded - not those who create long-term business success. The result: only 9% of companies effectively use data and technology to create relevant customer experiences. At the same time, many agencies cannot explain coherently how their work translates into measurable business success.

Below we look at how standardised services and a lack of focus on ROI cause further problems.

Interchangeable services without differentiation

Generic offerings push many agencies into a downward spiral. Without clear differentiation, often only price remains as a decision criterion. To stay competitive, agencies lower their fees and rely on less experienced, cheaper staff. This leads to declining quality, after which clients cut their budgets further. 83% of brands fail to create consistent customer loyalty across all touchpoints because their agencies provide no sound methodology that goes beyond standard solutions.

A clear example is Tropicana (PepsiCo): in 2009 the company commissioned the agency Arnell with a packaging relaunch of their orange juice. Without a data-backed strategy, the agency opted for a generic redesign. The result: a 20% drop in revenue and a loss of US$30 million in just two months. Tropicana had to return to the original packaging. The mistake did not lie in the execution but in the lack of understanding of the business context and customer loyalty.

Beyond the interchangeability of services, the missing focus on measurable results remains a central weakness of many agencies.

No focus on measurable ROI

Most agencies report on metrics like impressions, clicks or "engagement" - data that gives entrepreneurs no basis for decisions. 78% of brands do not take the customer journey into account in their marketing decisions. Campaigns are therefore often planned detached from actual purchasing behaviour. Without a clear link between marketing measures and revenue, marketing remains a cost centre rather than an investment.

One reason lies in outdated compensation models. Many agencies work on the basis of a percentage of the advertising budget - the more the client spends, the higher the fee, regardless of ROI achieved. Stefan Vetter, CEO of Wortspiel GmbH, describes it aptly:

"Some agencies are paid with a percentage of the advertising turnover. That is not always in the client's best interest, because the more they spend, the more the agency earns."

These uncertainties in communicating value lead to inefficient compensation models that slow growth. Without a clear alignment on measurable business outcomes - such as leads, revenue or profit - the relationship between agency and client remains purely transactional. Strategic planning that addresses these weaknesses is essential for long-term success.

Services that do not match client needs

Many agencies offer services that are not aligned with the actual challenges of their clients. The problem lies less in a lack of expertise than in a fundamental misalignment. Often there is no sound analysis of client needs at the start of a project. Statistics show that roughly 52% of all agency projects fail because they take longer than planned. The original assumptions often do not match real conditions.

This gap has structural causes. Agencies often lose focus because they concentrate too much on short-lived campaigns running for only a few weeks or months. Instead of developing long-term strategies, the focus is on winning new orders quickly or improving quarterly figures. Long-term perspectives fall by the wayside. David Giesen, Senior Project Manager at Jung von Matt, describes the problem aptly:

"Working efficiently and profitably while appropriately involving decision-makers and hierarchical levels [is a major challenge]."

The result: agencies jump straight into execution without understanding the comprehensive business context of their clients. A typical example is the use of Google Ads simply because the client wants it - without strategically checking whether this measure makes sense at all. The next section looks at the risks of jumping into operational execution too quickly.

Straight to execution instead of strategy

Agencies often start with campaign management without laying a strategic foundation. A company commissions Google Ads, for example, and the agency immediately sets up campaigns - without performing an SEA audit or analysing the account structure. The budget is invested, clicks are generated, but the results are missing. No one checks whether the landing pages actually convert, whether the bid strategies fit the business logic, or whether the audience is correctly addressed.

Melissa Wagner, PR Team Lead at getpress, puts it clearly:

"Agencies have to work efficiently to be profitable in a value-based billing model. That also requires a willingness to engage with AI tools... Those who do not proactively deal with this now will fall behind."

Without thorough strategic preparation, marketing quickly becomes a cost trap. Budgets are deployed without ensuring that the measures actually contribute to business development. Alongside this strategic weakness, a missing understanding of the client context is another central reason why many projects fail.

Ignoring the client's business context

Around 83% of brands fail to build consistent customer loyalty across all touchpoints. Instead of asking: "What problem are we really solving?", many agencies only think about the services they want to sell.

An example illustrates the issue: a B2B company with long sales cycles commissions an agency with social media ads. The campaign does generate reach and clicks but no qualified leads - because the agency overlooked the need for a multi-stage nurturing strategy. In addition, 78% of brands do not consider the customer journey in their marketing decisions. As a result, budgets flow into channels that have hardly any influence on the customer's buying decisions.

Agencies that start their work with a clear marketing master plan or roadmap avoid such mistakes. They first analyse the status quo, define clear goals and prioritise measures - before a single euro flows into campaigns. In this way, it becomes clear which services actually provide value. A structured roadmap, as used by Nordsteg, eliminates these weaknesses before measures are implemented.

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Pricing models that threaten profitability

Many agencies stand in their own way with their pricing models when it comes to sustainable growth. The hourly fee in particular proves to be a stumbling block: it ties revenue directly to working hours, limiting profit potential. The paradox: the more efficiently an agency works, the less it earns. Investments in process optimisations, AI tools or specialised know-how are effectively penalised.

The numbers underline the problem: around 60% of agencies still rely on work-based fee models, with an average net margin of only 15%. At the same time, agencies today produce four times more output than a decade ago - often for the same or even lower prices. This practice sustainably slows growth and development.

Why hourly billing blocks growth

The main problem of hourly billing is the linear growth logic: more revenue requires more staff. Even at optimal utilisation, the number of billable hours per year stays limited to about 1,600 - not taking into account holidays, sickness or administrative tasks. A single week of holiday or the onboarding of a new employee can wipe out the margin of an entire month. This dependence on working hours pushes agencies into a ruinous price competition instead of putting the actual value of their services centre stage.

A way out of this dilemma lies in switching to a value-based pricing model.

The switch to value-based pricing

Value-based pricing dissolves the link between revenue and working time and instead puts the value created for the client at the centre - whether through revenue increases, cost reductions or a stronger market position.

A practical example: the PR agency Pedroza Communications moved to value-based pricing in 2021. Within a little over a year, it was able to increase its profit by 66%. Similarly successful was the agency Ready North (formerly PR 20/20), which introduced a "point pricing" model in 2014. Projects are valued using a fixed point system (for example, one blog post = 3 points at US$165). The result: more transparency and a clear focus on outcomes.

The switch to value-based models, however, requires a change in mindset. It is no longer about asking: "What do you want implemented?", but: "What does success mean for your company, and how do we measure it?" Studies show that even a 1% price adjustment can increase overall profit by 11.1%. Value-based pricing can increase profitability by up to 50% compared to market-based approaches.

It is important to note that value-based pricing only works if the agency first creates a clear strategic foundation. Without a solid marketing master plan or roadmap, the actual value of the services delivered cannot be measured - and therefore not justified. Agencies that jump into execution without a sound strategy inevitably remain stuck in the hourly trap.

Examples of common agency mistakes

Practice repeatedly shows how agencies fall into predictable traps. Two typical patterns stand out: neglecting the planning phase and pricing models that systematically throttle growth. Both problems result from a fundamental misunderstanding of their own business model. Two examples illustrate how these mistakes play out in practice.

Example: The planning phase is skipped

Many agencies start without a clear strategy - a mistake that quickly leads to chaos, especially as the business grows. Without sound planning, there is a lack of transparency in the team, and processes get out of hand. The numbers speak for themselves: around 90% of agencies fail within the first two years.

The core problem? There are no clear processes or standard operating procedures (SOPs). As a result, every important decision gets stuck with the founder. The company thus does not become a scalable system but a full-time job for a single person. Melissa Wagner, PR Team Lead at getpress, puts it aptly:

"A lack of communication quickly becomes a blocker for good PR results."

Without strategic communication and planning at the start, even the best campaigns can fail - especially when deadlines draw closer and chaos takes over. These planning gaps directly affect pricing and therefore scalability.

Example: Pricing prevents scaling

Another problem is hourly billing - a model that rewards inefficiency. The longer a task takes, the more revenue is generated, albeit at the expense of long-term client value. More than half of agencies still rely on this model. But it has a decisive disadvantage: the revenue potential is directly tied to the number of employees. To grow, new employees must constantly be hired. This leads to linear growth without economies of scale.

The figures illustrate the problem: CEOs of traditional agency holdings such as WPP and Omnicom earned 4.6 times and 2.8 times, respectively, what executives received at Accenture - even though Accenture was larger and growing faster. The difference lies in the business model: while tech-based consultancies such as Accenture invest billions in research and development, traditional agencies often lack a corresponding position on the balance sheet. On top of that, agencies work in short-term campaign cycles rather than investing in long-term innovation. Hourly billing further reinforces this structural problem.

How to build a profitable and scalable agency model

Sustainable growth and profitability do not emerge by chance but through a clear plan. Successful agencies focus on three decisive principles: a well-conceived strategy that precedes every implementation, a focus on business-relevant outcomes, and scalable, value-based pricing. These three factors create a system that works independently of the founder and endures long term. The starting point? A clear strategic plan.

Strategy before action: the marketing master plan as a foundation

Successful agencies do not act on impulse - they plan systematically. One example: the PR agency getpress develops quarterly storylines to make strategy and milestones transparent. Likewise, the full-service agency Remazing works with a structured roadmap for its brand clients that ranges from defining the service package, through strategic planning, all the way to implementation and monitoring.

Such a master plan is more than a mere to-do list. It includes defining the target audience with precise buyer personas, SMART goals, choosing suitable channels based on user behaviour, and a timeline with clear milestones. Winston Churchill put it aptly:

"Those who plan do better than those who do not plan, even should they rarely stick to their plan."

With a sound roadmap, you not only create clarity in the team but also prevent chaos - a frequent stumbling block as project complexity grows. This planning forms the basis for all further steps, especially the focus on measurable results.

Focus on success-relevant KPIs

Agencies that look only at channel-based metrics fall short. A comprehensive approach that integrates CRM, sales and logistics data is indispensable. Only then can you identify metrics directly linked to the client's business success: ROI, customer acquisition cost or conversion rates, rather than relying on superficial numbers like clicks or impressions. Companies that pursue this data-driven approach report savings of up to 30% and revenue increases of up to 20%.

Internally too, agencies should distinguish between gross revenue and adjusted gross income (AGI) - the revenue left after deducting external costs such as Google Ads spend or media costs. The EBITDA margin of mid-sized marketing agencies globally is between 12 and 17%, with personnel costs ideally around 50% of AGI. Melissa Wagner, PR Team Lead at getpress, puts it in a nutshell:

"Less hour-based, more value-based billing. ... This means that partners know transparently what they really get for their money."

Value-based pricing: the key to scalability

The transition from hour-based to value-based pricing is essential to achieve scalability. Instead of trading time for money, it is about selling concrete results and goals. This model allows revenue to be decoupled from the availability of human resources and predictable income to be generated. The prerequisite, however, is that the agency's internal processes are efficiently designed:

"Agencies must work efficiently in order to be profitable in a value-based billing model."

Right at the start of a project, the service package, timeframe and milestones should be clearly defined. Various monetisation models are available, including fee-based direct sales, subscriptions or freemium models. What matters is that the chosen model generates recurring income - similar to SaaS models, which create long-term stable value through monthly fees.

The Nordsteg approach: planning before execution

Many agencies act too short-term and overlook the importance of long-term strategy, solid infrastructure and intellectual property. Nordsteg follows a different approach: no euro flows into advertising before a clear marketing master plan or roadmap is in place. This order is decisive, because without a strategic foundation neither measurability, efficiency nor sustainable profitability can be achieved. This approach not only leads to better results but also enables a transparent and effective pricing model.

Why planning is indispensable

A well-thought-out plan is more than just an organisational tool - it is the basis for value-based pricing and predictable results. Hannes Detjen, founder of Remazing, puts it in a nutshell:

"We start with strategic aspects, then we move on to content optimization and then we get started with the campaigns."

This clear order ensures that budget and resources are invested specifically in measures that actually produce business success.

A strategic resource analysis before implementation prevents unnecessary spending and ensures that material, working time and capital are deployed only where they bring the greatest benefit. Without SMART goals (specific, measurable, achievable, relevant, time-bound), effective success monitoring or precise ROI calculation remains impossible. Planning also allows "points of no return" to be identified early and buffers to be built in, so you can react flexibly to unforeseen market changes.

Results that count

Nordsteg links strategic planning with coaching and data-based implementation to secure long-term growth - no short-term experiments. This approach creates clarity: clients know from the start which results they can expect for their investment. The focus is on outcomes instead of deliverables. It is not about ticking off task lists but about concrete business results such as leads, revenue and ROI.

This approach addresses the weaknesses of many agencies that often work without a strategic framework. With clear structure, Nordsteg ensures that every measure is based on a sound process and delivers sustainable results.

Conclusion: Rethinking agencies

The problem with many agencies lies rarely in a lack of expertise but in a fundamental misunderstanding of their own business model. Those who focus solely on billable hours and operational measures without a strategic underpinning build on shaky foundations. Such models are not scalable and quickly hit their limits. The consequences are clear: agencies fail early. On top of that, the four largest agency holdings had to absorb stock losses of between 3% and 25% in 2017 and 2018.

These numbers show that when choosing an agency, entrepreneurs should place more weight on the agency's mindset - not only on short-term cost advantages. The right agency is marked by strategic understanding, not by the lowest price. Alexander Osterwalder, co-developer of the Business Model Canvas, puts it in a nutshell:

"A business model describes the rationale of how an organization creates, delivers, and captures value."

An agency that does not understand its own business model will hardly be able to create long-term value for its clients.

The future belongs to those partners who put strategic thinking first. Companies that achieve "holistic maturity" in their marketing models report cost savings of up to 30% and revenue increases of up to 20%. Such results do not come from more busywork but from a clear structure. As emphasised in the previous sections, the key lies in a sound business model. Only those who first define a clear roadmap and strategy can achieve predictable results and sustainable growth. Those who ignore these principles risk their own profitability. Those who internalise them, however, create a marketing system that remains stable and efficient independent of market changes or agency switches.

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