Over the years Credo’s been contacted by quite a few entrepreneurs and new agency owners who are signing new clients and looking to find contractors to deliver the work.
I’ll be upfront and say that if someone is looking for contractors, Credo is not a good fit for them. We mostly work with best-in-class digital agencies, not contractors, and we have helped a few agencies of record find another agency to run a specific channel that the AOR does not offer. These have been few and far between though, as usually we are contacted by people who “have a few new clients on the cusp of signing and need to find someone to fulfill the work.”
I have never seen one of these actually end up finding a partner (because that’s what this is – a partnership – and not just a transactional relationship).
Because we’ve been approached by so many (at least 100) in the last 5 years, I figured I should dedicate some time to thinking about the issue and how one could make this sort of arrangement work for all involved parties – the agency of record, the agency/contractors doing the work, and the client.
To attempt to make things more clear, I am going to use the following terms throughout the article:
- Delivery partner – the entity doing the work that was signed by the agency of record. Could be an agency or contractor(s).
- Agency of record (AOR) – the agency that signed the work and *usually* deals with the account management.
- Client – the entity that work is being done for. They sign with the agency of record, but the delivering provider is the one actually doing the work.
So here below are my thoughts on how it could be done well.
Challenges of whitelabel services agreements
In conversations with both sides of the market, we’ve learned that the challenges of whitelabel services are numerous. They include:
- Margins can be very thin, which makes it hard to build a profitable agency delivering whitelabel services. If the agency closing the work charges rates that do not require thin margins, then the client is often overpaying for what they are getting and will likely learn that and churn (and be very unhappy).
- Because the deliverypartner is often behind the scenes and not working directly with the client, they have no control over how happy the client is beyond the quality of work. This loss of control can be a major downside for the delivering provider and can lead to the client churning faster than they otherwise may have.
- Following on from the above, the agency of record has no control over the quality of work delivered.
- Because margins are notoriously thin for whitelabel work, agencies of record operate with thin profit margins until they decide to bring the talent in-house.
- Following on from above, this leads delivery partners to find new agency of record partners and can put the agency at risk financially.
I even know one agency that was primarily a whitelabel agency who had the majority of their revenue from just one agency of record (aka, another agency referring them work). When that AOR decided to bring talent in-house and deliver the services themselves, my friend’s agency lost $1M in annual revenue ($83k+ per month) in that shift.
Our friend Pamela put it succinctly as well:
Margins are definitely a problem as is the issue of communication. I have a lot of trouble WL bc often agencies can’t/don’t know how to communicate strategy, needs, & results properly. I end up having little control with all the responsibility to perform.
— Pamela Lund (@Pamela_Lund) February 7, 2021
What each side of the whitelabel arrangement needs
Each side of the AOR/delivering provider dichotomy has their own areas that they care about strongly.
Agencies of record care about the following:
- Ability to make a margin on the work;
- Quality work being delivered by their delivery partner;
- Ability to retain the client because of the quality of work and results delivered by their partner.
The delivery partner cares about:
- Ability to make a profit on the work;
- Ability to get new clients without having to employ a sales team (or for the founder to do sales);
- Retain clients without having to do the account management work;
- Consistent automatic deal flow
As with most things in business, what providers on each side of the equation have found is that Pareto’s Principle holds true – that 80% of the profit and good deals are going to come from 20% of their partners.
If a delivery partner has 10 AOR partners then on average only 2 will bring them consistent and quality clients.
Likewise, if an AOR has 10 delivery partners then they will do the vast majority of their work with 2 of them on average.
It’s just how the world works, and I’d rather recognize how the world works and go with it than try to change the world.
Economics of the whitelabel model
All of the above mentioned challenges are very real to making a whitelabel model work for both sides, but the reality is that the biggest challenge is simply that the economics are very hard to make work.
Here’s some simplified math about a whitelabeled project:
- Agency of record sells a 20 hour a month retainer project for $3,000 ($150/hr).
- Contractor working for agency charges $100/hr for the work (15 hours a month). This totals $1,500.
- Agency has the client management overhead (5 hours at $150/hr) plus HR and payroll and other costs associated with tools, as well as potentially things like content production or editing costs.
The client is paying $3,000. $1,500 of that goes to the contractor and $1,500 to the agency for project management.
What’s happening here is that the client is paying more than they need to, the contractor is charging less than they could be if it was a direct client, and neither party (agency or contractor) is making a big profit margin, though the consultant is probably making out alright as long as they’re keeping their own business cost low and not needing to pay another sub-contractor for any work.
Furthermore, depending on what is being done that monthly price of $3,000 may be more or less than the client should be paying for that work.
And this presents the major challenge.
Too often, the person selling the work to then outsource it to a whitelabel partner doesn’t understand what goes into getting the results the client is looking for. They’re basically an order taker, and then finding someone who can deliver that work for that amount that is still profitable for both.
How to make the whitelabel model work
Remember that these are just my thoughts based off my experience in the world of digital marketing and seeing 5,000+ companies coming through Credo looking to take their marketing to the next level.
There are a few things that need to be present to make a whitelabel arrangement work for the client, the AOR, and the delivery partner.
First, the client needs to know exactly what they are getting and who is doing the work. They should understand that the AOR is managing the relationship and working mainly on the strategy and project management levels to make sure things are getting done.
So the ideal client for a whitelabeled service is operating at a scale where they will get value from strategy and project management, and the ability of the AOR to bring in a partner when something new is needed (say, a new website for Coca Cola).
Working with an AOR who is working with a delivery partner is not a good fit for companies with a tight marketing budget needing to see a quick ROI on direct marketing campaigns.
Agency of record
In order for an agency of record to be successful, you need to be experts in what the client is looking for and be able to then do a few things:
- Price the work correctly with a margin that also makes sense for the client and delivery partner;
- Project manage and be able to find new partners when the client’s needs evolve and change;
- Speak consistently to the client about the metrics being seen from the ongoing marketing activities and help them see the ROI.
The issue I see with too many potential agencies of record in the digital marketing space is that they’re able to generate and close leads, but that is often because the prospect doesn’t know any better and is being underpriced, and thus the quality of the work will suffer.
Being a delivery partner for an agency of record can be a good gig, because the right AOR partner will bring you a lot of work.
But being a delivery partner can also be a bad gig because you don’t own the client, and if your AOR screws up the project you’re losing the client through no fault of your own.
Similarly, if the agency of record is bad at account management or bad at showing the results of the work done, you can lose the client.
And finally, if you’re relying too much on being a whitelabel delivery partner and don’t have your own clients, ultimately your revenue is at risk because the AOR could either lose the client or decide to bring talent in-house because they’re cheaper than you. I know one agency owner who had a multi-millions-per-year agency who overnight lost 80% of their revenue because their AOR partner brought all the work in-house.
So how do you, as a delivery partner, make whitelabel work and derisk it for yourself?
First, involve yourself in the reporting so that you can show the results of the work done. Make it easy for your AOR to look good to the client. Ultimately, you win when they look good and win.
Second, vet your AOR partners carefully to make sure they are good at account management and retaining clients.
And third, have some of your own clients. I do not recommend any agency be simply a fulfillment partner. Also having your own clients will let you make a better margin and teach you a lot about client management, which will also make you a better whitelabel delivery partner.
Whitelabel can work
At the end of the day, whitelabel can work for all three parties involved as long as:
- the client must have margin in their business and marketing budget and understand that part of what they are paying for is an AOR that has the ability to scale things up and down;
- The AOR must understand the channel and be able to sell it effectively for a reasonable budget, and be great at account management. And;
- The delivery partner must be able to charge a reasonable rate that builds in margin for them, as well as having their own clients from which they make a margin and can protect their risks.