A tale of two business models
When you first see marketing agencies, healthcare providers, and legal firms put in the same group, you might be thinking – why? They provide completely different areas of expertise. They serve vastly different audiences. How could they possibly be similar?
What about their business models - could it really be that obvious? Let’s break it down.
Marketing agencies can be project-oriented, which can mean single large projects (think an eCommerce website) or project-based work with a particular client (quarterly email campaigns). Or they can also focus on the coveted AOR (agency of record)/retainer-based relationships.
Healthcare providers increasingly fall into two camps. There are urgent care centers where doctors are only addressing the problem you have at the moment. Then, there are primary care and specialty practices that are focused on treating “the whole” patient, even if mainly focused on a specific area of care (like gastroenterologists).
Legal firms can also be categorized into two broad groups. Firms who are hired for a single purpose, like contingency-based firms who only get paid only if there is a payout (e.g. personal injury, class action, etc.) or criminal defense firms. Alternately, many corporate law firms are retainer-based, and handle whatever is needed, whenever it comes up.
No matter the industry, all the models listed above are relationship-based - the main difference being the predictability of revenue. Monthly recurring revenue (aka MRR) or retainer-based models provide more reliable income, while transactional or one-time “projects” result in larger revenue swings. Both can be successful models, although they require different risk tolerances and leadership from their managing partners – especially with respect to growth strategies.
A business based on a portfolio of MRR-based clients often suits less risk-averse leaders. And while building this type of business may take more time – in some cases, a lot more time – this model can allow for more measured, planned growth.
On the other hand is a business built like a “project shop”. There are two ways this model can be wildly successful. If you’re targeting and winning large – or in some cases very large projects – and managing your resources and revenue appropriately, you might experience revenue swings, but you’re also banking profits to invest in your next big proposal. Alternately, if you’re able to achieve economies of scale through high volumes of doing roughly the same set of “projects” over and over again, you create consistency which in turn results in revenue stability and allows you to invest in continued growth.
What about combining the two models and getting the best of both worlds? Many agencies and professional services companies do exactly that, as these models can co-exist successfully within the same firm if desired. In fact, from a strategic standpoint, this can help management mitigate risk. The MRR side of the business creates a baseline of steady, predictable revenue, allowing partners who are more risk-averse to make informed decisions regarding how much effort – and risk – they’re willing to take to go after large projects, hire ahead of the curve, etc. That said, for sustained growth, there must be a clear operational framework to ensure efficiency and appropriate measurement of success to keep both partners and employees engaged and incentivized.
Ultimately, there is no right or wrong business model whether you are a marketing agency, healthcare provider, or law firm. By identifying your long-term goals and recognizing the amount of risk you’re willing to take, you can develop the right set of growth strategies to reach your vision.
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