Intentionally tanking the revenue of a $1M+ ARR lead-gen agency to improve profit margins and quality of life

Isaac Marsh's cold email agency was acqui-hired by a lead-gen agency called Lead Cookie. Six years later, he bought the lead-gen agency.

As an owner, he intentionally decreased the number of active customers to increase profit. And he turned down potential clients to increase referrals.

Confused? Here's Isaac on how he did it (and why). 

Acquiring your acquirer

I went to university for literature and psychology but promptly ditched that and started my entrepreneurial journey. Having spent the past decade falling into pretty much every pitfall along the way, I've developed an eye for what to avoid and how to position a product in ever-more-crowded markets!

My primary company right now is Lead Cookie. My current business partner and I earned out the original founder, Jake Jorgovan, over the past few years after he acqui-hired our cold email agency.

The reasons we were keen to be acqui-hired by Jake and Lead Cookie was pretty simple. Having been in the outbound industry for about ten years, I knew that there were two major issues when working with a demand generation business:

1. They promise the moon and don’t deliver.

2. They don’t approach their target audience with a message conveying expertise/awareness.

And Jake brought some very clear directives to the table with Lead Cookie:

1. We are going to underpromise and overdeliver

2. We are going to help our clients position themselves as trusted partners — not just product/service providers.

Earning Jake out gave us the kick in the pants needed to start focusing on further setting ourselves apart from the very dirty, dishonest, and “fly-by-night" lead generation industry.

Profitability over revenue

At Lead Cookie, we run LinkedIn and email outbound demand generation campaigns for clients.Since earning out Jake, we've shifted the approach to a focus on profitability over revenue.

We’ve heavily improved our profit margins and reduced our workloads, at the expense of ARR, which has now dropped below $1 million. To improve profit margins even further, we’ve done a massive amount of research about AI and its impact on sales — essentially determining which tools are effective and which are smoke and mirrors.

Over the years, we’ve built our own internal research team, tested half the research tools on the market, and ultimately built out some of our own to use for client campaigns.

Currently, we're bringing one of those tools to market. It pulls relevant companies via intent signals from all over the web, automatically finds the decision makers at them, and tells business owners and salespeople which topics their prospects are most likely to engage in. The end goal is helping our customers engage the right people with the right messages.

An unsexy business model

Lead Cookie's business model is something we’ve experimented a lot with over the years. We’ve tried everything from pay-per-appointment to sliding-scale-based-on-success to the model we always come back to: flat retainer, month-to-month.

The reason we charge this way — and why we recommend only engaging demand-gen companies that do this — is because paying for success misaligns goals.

It means the goal of the demand-gen provider is to get you appointments REGARDLESS of quality. They're just trying to hit some random, arbitrary number. It also means that the agency has no reason to not just blast outreach to everyone they can.

Meanwhile, the customer aims to fill their time with appointments, regardless of whether the prospects are actively in the market for your service/product.

A retainer model isn’t necessarily fun and it sure isn’t sexy, but it does have some benefits. Here’s why we have settled on this model:

1. Our goal is to get quality leads that drive new business for our clients, making them money and keeping them with us.

2. We go month-to-month. This means clients aren’t locked in for an eternity and WE aren’t locked in to working with clients whose campaigns just aren’t working.

3. We treat all campaigns as a combination of market research/awareness and demand generation. This means campaigns get better with age. This can definitely happen with success-based campaigns as well, but if they are really slow out of the gates, the lead-gen provider is incentivized to cut bait to focus on other, more profitable, campaigns.

An exhausting growth model

We pretty quickly fell into the agency problem: Get clients > hire a bigger team to serve those clients > need more clients to utilize the team > need more employees for new clients.

And as you watch your profit margins shrink, you run into growth pains. Adding the wrong team members has an outsized negative impact, for example. 

The agency growth model is exhausting, and I haven't found a way around that yet. Adding in some AI tools can definitely help allevaite some of the strains, but we've seen that relying on them too heavily can tank the quality of the service you are delivering,

Agency tip: Take a counter-intuitive approach to referrals

As far as growth, I'll say this: The hardest thing to sell via outbound is... outbound services.

Rather, the majority of our business comes from referrals. But not just any referrals. The majority of our business comes from referrals from people we have turned away — i.e., we told them we are not the right partner for their situation or told them how to use their internal tools/team without needing to hire a third-party agency.

Jeff (my business partner) and I do everything we can to deliver value to the people that we come into contact with. This isn’t always the easiest way to make a buck, but it does two things:

1. Makes you bloody memorable. Nobody forgets the person who told them, “I don’t want to take your money because you just need a quick framework for your existing tools.” And when someone asks them if they know anyone who does demand gen, you better believe they will point them at the team that tells it straight.

2. It shows your competence. And when people know you are competent, they trust you when you advise them on difficult things. Jeff and I both agree that way too many people focus on “leads” and not on what is going to lead to closed business. We tell people that we have no interest in getting them 20+ appointments per month because getting someone that many QUALITY appointments per month is insanely difficult (and absurdly expensive) to do. We’d rather get our clients 5 to 10 extremely good opportunities per month than 50 mediocre ones.

This is both how we’ve gotten new business and how we’ve retained our existing clients. We deliver as much value as we can and we set appropriate expectations out the gates.

Agency tip: Set the right expectations

Happiness is where expectations meet reality, so promising the moon (and not being able to deliver) is the fastest way to churn clients.

If I were to start over, I think the biggest change would be setting clearer expectations with clients out of the gate. It took probably four to five years before we started sending over proper service agreements and statements of work.

Implementing that sooner, and having very frank (sometimes uncomfortable) conversations about what can be delivered (and what can’t), would have saved so many headaches.

Agency tip: Take responsibility

I remember reading something from the guys over at Tropical MBA that said something along the lines of,  “Any time something goes wrong, take responsibility and learn from it.” 

Did our employees mess up? If so, what mistakes did we make that led to this point and how can we avoid it in the future? 

Is a client unhappy? What expectations did we fail to lay out clearly?

Continue to take responsibility and learn from things that go wrong. And, of course, shore up your processes and approach.

Agency tip: Choose the tool set used by lead-gen pros

Choosing the wrong tools/systems can ruin both your service and your reputation. For example, we used an email software that malfunctioned and lost us half a dozen clients in the early days.

These days, we use a ton of different tools for different stages of our delivery process. In addition to the typical communication/internal tools (email, Slack, Asana, Airtable), we use the following for client campaigns:

• Research: Our own internal SourceEngine (tool we built to find companies currently in the market), PhantomBuster, Clay, DropContact, Hunter, Crunchbase, RB2B, Apollo, etc.

• Engagement: Most of our engagement is done manually, but we do use Smartlead for email sending.

• Tracking + data: Good old Google Looker Studio and Airtable (as a mini-CRM we set up for clients)

Having tested ~150 different research and sales platforms over the past decade, there’s one clear takeaway I can share: Most of them do a few things well. And almost none do everything well.

To have a robust outbound system, you need to tie together a variety of tools and platforms to make sure you’re getting the best possible output.

Agency tip: Become competent

Read some cornerstone business books, but mix them up heavily with books on psychology, philosophy, etc. Most business books borrow heavily from these disciplines and going to the source can often get you more valuable insights.

Focus on the concept of competence. What will it take for you to be knowledgeable and competent enough in your given field to confidently talk to others and know your own value? How can you get there?

Actually listen to advice from people who have made mistakes. Don't fall into the same traps they did.

And be honest. If you don’t know something, tell the person you are talking to that you don’t know. All of my sales ability can be boiled down to honesty. If you can be the person who gives solid directions, people will come to you when they are lost.

Wrapping up

You can learn more about Lead Cookie here. I'm not terribly active on socials but you can reach out: isaac at leadcookie dot com