When Should an Agency Add New Services? A Business Expansion Strategy for Agency Owners
One of the hardest decisions you’ll make when scaling an agency is figuring out when to add new services. Expand too early, and you burn cash, stretch your team too thin, and lose focus. Wait too long, and you miss opportunities to grow existing accounts.
I’ve dealt with this at every stage of building Directive, from a local SEO shop serving plumbers and pool guys to an agency with three specialized divisions.
And I’ll tell you this. The right time to expand depends on your revenue, your existing buyer, and whether you can actually make the new service profitable.
Start With a Focused Agency Growth Strategy
When I started Directive, we only offered local SEO. Our clients were plumbers, pool guys, hookah lounges, and other small businesses.
But these clients wanted everything. Email marketing, websites, paid search. They essentially wanted us to become their outsourced marketing department.
My business partner saw the opportunity. Why wouldn’t we offer services clients were already asking for?
For at least a year, I pushed back.
I told him we could handle occasional requests to retain clients, but we weren’t hiring people or investing in new departments.
I had three rules for launching a new service offering.
- We had to believe we could become the best in the world at it.
- It had to fit within our core service offering.
- It needed real pricing power, with the potential to eventually charge over a million dollars.
That’s why we never built a web development department.
Neither my partner nor I was a developer. Website development was project-based, and I wanted to build a recurring revenue business.
We used freelancers when necessary, but web development never became an internal client service at Directive.
Expand Within Your Existing Buyer Persona Before $20M
Eventually, we added paid media, creative, RevOps, and video.
I wasn’t trying to reinvent performance marketing. I studied agencies ahead of us and looked at the services they offered.
SEO, content, paid media, creative, and marketing operations all fit within the same performance marketing stack.
More importantly, they fit within the responsibilities of our existing clients.
Here’s where I think agency owners get service line expansion wrong.
If you’re doing less than $20 million in revenue, be very careful about expanding outside your existing buyer persona.
Let’s say your primary buyer is a VP of marketing who owns demand generation. Adding paid media or creative makes sense because that person probably controls those budgets.
But if you launch a service owned by a completely different department, your existing client relationship might not help you sell it.
Cross-selling strategies become much harder when your buyer doesn’t control the budget.
This changes depending on your market. If you’re serving SMBs where the CEO controls everything, upselling and cross-selling are easier.
In the mid-market, departments have separate budgets, priorities, and leadership.
Without a mature client services team that can navigate those relationships, you’ll have to rely heavily on new business to support that service.
Know When to Shut Down a Service That Isn’t Profitable
We launched video at Directive because it made sense strategically.
It gave our advertising campaigns motion. It improved our creative capabilities. It allowed us to offer live-action production.
But we eventually shut it down.
Video was project-based, and we were competing with vendors charging around $5,000. Margins were compressed, and doing great video required a significant production team.
We couldn’t generate enough consistent deal flow to support that overhead.
That’s an important lesson in developing a new service offering.
Every service needs a strategic purpose and a path to profitability.
Having one without the other isn’t enough.
Some Services Should Be Minimum Viable Departments
There’s another approach we’ve used at Directive that I call a minimum viable department.
These are services that might be difficult to sell independently but become necessary after you win a client.
RevOps is a great example.
Selling RevOps as a standalone service is challenging. Companies with established RevOps teams already have people who own that function. Companies without them often lack the marketing budget to justify a major engagement.
But once we win a client, they almost always need help with attribution, offline conversion tracking, reporting, or marketing and sales handoffs.
That makes RevOps valuable to our existing accounts, even when it isn’t generating significant standalone new business.
The same principle can apply to a down-market offering for smaller prospects who can’t afford your primary services.
Just make sure the department serves a strategic purpose and generates a profit.
When Should You Launch an Entirely New Division?
At Directive, I waited until we crossed $20 million in revenue before deliberately expanding into a different buyer persona.
That’s when we launched what is now our Communications division.
Our core performance marketing buyer typically owned demand generation and the supporting marketing infrastructure.
Communications introduced a different buyer responsible for PR, social media, and brand.
That meant building relationships with a separate department and developing demand for a different set of services.
I was comfortable making that investment because we had the cash reserves to support long-term growth.
When you’re scaling a digital agency, expanding into a new persona requires more capital and patience than selling another service to your existing buyer.
How to Sequence New Services Without Expanding Too Early
If I were building Directive again, I’d follow a sequential approach to service expansion.
Start with your core offering. Add one complementary service. Get that department to a predetermined gross profit margin target before launching the next.
Then repeat.
Today, I’m making three investments simultaneously at Directive. We’re strengthening client strategy, expanding into B2B industrial, and investing in Communications.
But I can do that because we’ve accumulated the cash reserves to support multiple investments.
Until you have millions in cash reserves, I’d recommend expanding one capability at a time.
Remember, every new department absorbs more than cash. It takes attention from your leadership, operational bandwidth from your team, and focus away from existing client delivery.
You can have a great opportunity and still be too early to pursue it.
My recommendation is to expand within your existing buyer persona first, prove the economics of each service, and only pursue new personas when your agency can financially support the investment.
That’s how I’d approach scaling an agency without compromising the business you’ve already built.
Make Your Next Service a Profitable One
For more of my advice on expanding your services and building a profitable agency, connect with me on LinkedIn.
If you’re deciding which service to add next, explore my Agency Academy coaching programs to work through your agency growth strategy with me.
