Uncovering Agency Trends From The Foxwell Founders 2026 Agency Report with Andrew Faris
Andrew Foxwell (Foxwell Founders / Scalability School) sits down with Andrew Faris (AJF Growth / The Andrew Faris Podcast) for a joint co-release episode to break down the findings from the Foxwell Founders x Motion 2026 State of Agencies Report. A data-rich survey of hundreds of agency owners and in-house operators across 30 countries. The conversation covers AI's dual role as the #1 growth opportunity and the #1 threat for agencies, why only 11% of agencies have produced clear top-performing AI-generated ad winners, the reality behind agency margins (42% running net margins above 30% while many founders still struggle), why in-housing is the #1 reason agencies lose clients — and why it usually backfires — and the uncomfortable truth that many agency founders grow for ego rather than strategy.
Along the way, Faris offers a sharp framework on how brands should think about paying their agencies, and Foxwell shares candid coaching insights on what separates agencies that thrive from those that stall out.
Key Takeaways:
Why 26% of agencies say AI-powered services are their biggest growth opportunity — yet privately admit they're terrified of it?
Is AI actually working for creatives or is just generating slop? (Only 11% of agencies have produced a clear top-performing AI-generated ad winner.)
42% of agencies report net margins above 30%. So why are so many agency founders telling Andrew Foxwell they're broke?
Is in-housing the worst move most brands make?
The gross margin range your agency should be sitting between.
Are agency founders growing because they have a strategy or because they want to sit at the big [kid] agency table?
When the average tenure of an in-house growth director might only be ~18 months, is there a fundamental misalignment between founders and the people they hire?
If AI amplifies slop just as well as it amplifies great ideas, why do so many agencies think volume is the play?
Should more brands be firing their CRO agency and building more with Claude Code?
To get the full report head here: www.foxwelldigital.com/2026-state-of-digital-marketing-agencies
This episode of the Scalability School podcast is sponsored by NorthBeam and they just launched Northbeam Incrementality. Northbeam Incrementality gives you easy, automated, self-service incrementality tests, while protecting you from the major mistakes so many people make while running incrementality tests. Your MTA handles the daily tactics, your MMM guides the long-term planning, and Incrementality provides the causal truth. It’s a closed loop that allows you to scale what works and cut what doesn't. Right now when you head over to www.northbeam.io/incrementality, they’re offering Scalability School listeners 50% off unlimited tests for a year when you join. Just tell them we sent you!
To learn more about Andrew Faris, The Andrew Faris Podcast and AJF Growth you can follow him on
X: https://x.com/andrewjfaris
Youtube: https://www.youtube.com/@andrewfarispodcast
Email: podcast@ajfgrowth.com
Work With AJF Growth: https://ajfgrowth.com
To connect with Andrew Foxwell send an email Andrew@foxwelldigital.com
To connect with Brad Ploch send him a DM at https://x.com/brad_ploch
To connect with Zach Stuck send him a DM at https://x.com/zachmstuck
Learn More about the Foxwell Founders Community at https://foxwellfounders.com/
Learn More about the The Hive Haus Creators Community at http://HiveHausUGC.com
Full Transcript
(00:00) Hey everyone, have a really awesome episode here for you today. I actually sat down with Andrew Ferris, who is an awesome media buyer and really great online marketer, someone who I trust and and he went through and we talked about our survey that we did with hundreds of advertisers and agencies around what they are seeing in their agency, what they're seeing work, what it looks like.
(00:25) We talk about everything this episode of talking about margins in agencies to lead flow to, you know, so much more. If you're an agency or even if you're a brand and you're thinking about or have hired an agency, this episode is definitely going to be interesting to you. So, go ahead and check it out. I appreciate you being here. And as always, if you want to give feedback, feel free to email me at andrew@foxvilledigital.com.
(00:49) And now, let's take a listen to the Scalability School podcast. Hello, Andrew. Hello, Andrew. welcome to this joint podcast. I think many years ago you tweeted something that we needed to start a podcast together called Ferris and the Fox and uh it's already a hit. I know. And I always thought that it stuck with me.
(01:11) It was a simple tweet a long time ago, a friendly gesture and outreach. And I remember it because I thought that's got a nice ring. Ferris Fox could be good. Listen, you ditch Brad, I'll ditch Patrick and uh we'll just go start our own Ferris, you know. No, I'm kidding. Perfect. Yeah, exactly. Let's go. co- co- co-released episode with scalability school interference podcast together.
(01:32) Look at us doing marketing while we're talking about marketing. Unbelievable. Good job. Okay. I called I called this meeting. Uh yes, you did because I loved your tweet thread about your state of agencies report and then your state of agencies report information in general. Uh and I thought it was relevant to people way beyond the agency space. This is my this is my theory. you.
(01:54) I said, "Can we please talk about this on a podcast because I was thinking like what agencies are doing matters a lot for what brands are doing. It matters a whole lot for them because it's just changes changes how money gets made and how money gets spent and all that kind of stuff. So, um I how should we how do we need to intro this anymore? Do people need to I think people know who you are and who I am probably in our audiences.
(02:13) Do you want to say how you Why don't you tell people who don't need to do an intro? Okay, great. I'm a marketer. I grow businesses. you are a found you run founder a founder community and that's how you got an agency report right that's it yeah and uh so we have the we have a lot of folks in our group it's about 600 people and in the group about 65% of our folks are people that run agencies or are in-house at agencies and so we took and we had hundreds of people take this survey and then I collaborated as well to get motion to give a little bit of uh send it to their list as Well,
(02:48) and predominantly this is like 80 well 90% really our data. Um, and it's great. I mean, it's it's crazy really. Um, the stuff that's come out of this if you haven't seen it. Um, this is the Foxwell digital motion state of agencies report 2026. Um, and we'll include it in the show notes of course for you uh to grab if you if you haven't grabbed it.
(03:13) But, you know, a lot of really interesting data in here and some that you I really didn't expect to be totally honest with you. So yeah, listen on. What did you not expect? Should we start there? That's interesting. That's a good hook. Sure. Totally. I mean, what I didn't expect out of the gates was one, I was really surprised at how many people sort of saw AI as the opportunity, but also the threat.
(03:35) I think I I would really I I hear more about it as an opportunity because we're all sort of building in this phase of building stuff now. And I know that it's a threat, but um the percentage of people to which it's like I haven't told anyone this, but I'm really worried about this um is is vague. I hear it in private coaching that I do. But that's one thing.
(03:52) I'd say another one that I that I thought was really interesting was, you know, just the percentage of of of labor costs and really how slim a lot of margins are for folks in their agencies. A lot of folks are not paying themselves enough.
(04:10) And the biggest one I would say that I found interesting is how many founders are still involved in the day-to-day delivery. You know, how many people are still in the trenches, which I'm not saying that's necessarily bad, and I think that's a good thing to a degree, but it also can hinder growth for a lot of agencies um if that person is is in there and and really involved in the day-to-day of pulling the levers. And so, that's an interesting one that I that I found.
(04:31) So, I mean, there's a ton of other things we can talk about, but those are some good starters. Andrew, you said three things there that were interesting to you. I think we should go through each of them because I will tell you my experience of every single one of them uh was to relate to the finding of them. So, I too feel that AI is an opportunity and a threat.
(04:54) Uh I too am involved in the day-to-day of delivering work though act very actively pursuing not doing that anymore. And you're absolutely right that it is a is a hindrance to our growth actually and critically I think it is not the best way for me to serve clients. I I think my clients will be much better served by me working on the machine because of what an agency is.
(05:11) Um so it's just a matter of getting to the financial place where that works. And then labor costs I think was the other one. Uh labor labor cost is is the is the second one. Yeah. Yeah. I mean also a concern for us and for our agency because probably partly because it's a concern for other agencies. What I mean is like that drives the if that's true across agencies, it means it's driving the market the market price for services down relative to the labor costs, right? Like if the labor costs are high relative to the
(05:36) service pricing everywhere, then it means that when I go out to pitch a client that the client is comparing my costs to others and so yeah, it's a sort of like, you know, if it's true that your margin is my opportunity, then if my labor costs were very low relative to my service cost, then I would just get computed away.
(05:59) So my So you have to you can't have your margins be that that that fat. So let's do them all one by one. So let's talk about the AI. Let's give me this give me the stats. So this is not just like your reflections. Give me the I'll play interviewer here a little bit. Tell me what what what people said about AI and its place in the agency work. Absolutely. AI is simultaneously number one risk and number one growth opportunity.
(06:16) People said the duality is the story. Almost 26% say AI powered services is their biggest growth opportunity. the single top answer beating out creative differentiation and owning strategy and vertical specialization. Uh only 6.3% are not yet using AI for research and ideiation. Um everyone else is uh which is interesting.
(06:37) So a lot of people are using it and a lot of folks are doing it for generating ad messaging and angles, analyzing customer reviews for insights. These are all 67% 64% respectively and competitive analysis 50%. Um so agencies are shifting hiring philosophy away from volume toward upskilling teams.
(06:56) And then some ad creative uh 46% say that the number one challenge in AI in ad creative right now is maximizing speed, efficiency, and quality um in ad production. So it's interesting. So anyway, there's a bunch to say there. I guess the overarching piece is we're all sort of figuring it out. People are using it a ton for ad creative right now.
(07:20) That's predominantly where it's been used, which is obviously it's the biggest lever. I think from my standpoint and talking to other founders, the big one that has seemingly come out even since we did this data, which was literally in January and February, now it's in March of 26, is that now people are utilizing it for optimization on agency processes and and standardizations on SOPs and agency uh organizational frameworks and things like that.
(07:48) So it's started to shift from we have this you know process established now it's over here. I think one thing I'll say on the threat side is that it's become so exponentially powerful that we just don't know what's going to happen with it next. Like you know there's sort of the manis out there's these other pieces out there that we just don't know what they look like. We don't know how they're going to manifest.
(08:09) And that is what brings fear because it's obviously just fear of the unknown of what it looks like. Um, and we can talk about what you can do about that as a agency owner or a brand owner, but um, that's kind of where that stands. Have you gotten any subjective feedback about sort of what people are trying to how they're handling the threat? Like what are they thinking about it and or even from the or from the brand side? I'm curious like you know I'm just curious for the sort of different perspectives that you're getting in terms of what agencies are doing about it. You
(08:36) mentioned one thing which is they're building more standardization of process which is absolutely what the last couple months of our agency efforts have been uh with AI. Yeah. So I would say on the you know on the threat side you know what are people doing about it? What can they do about it? You know I think it's never been um a greater time to understand what your true differentiators are as an agency of understanding you know is it the service? Is it that you're going to do a different selection of services? Is it that you're going to help your clients integrate AI
(09:08) and what they're doing? Um, is it, you know, is it is it a whole bunch of those different pieces? Right? I think that we've gone from this phase of being agency where you're running the ads and that you're pulling the levers to now, you know, in the last couple years, you become the creative arm and the creative strategy arm that's pushing things forward.
(09:28) Um, and you're helping people on that. Then it's, you know, also simultaneously become a true business partner. You're looking at the numbers. You're looking at their financials. You're understanding what the contribution margins are, what the net new customer percentages are, right? You're really involved in that.
(09:43) And I think now it's the next phase of this. So, everybody's thinking about AI and are you going to be an agency that helps them do that? And I think that's and and that could mean a lot of different pieces. Um, so that's one. Are you going to add different services? And what's the value proposition that you're bringing to them? um and and and you know, not just pulling levers.
(10:06) Sometimes that that value proposition can just be that you're freeing up a lot more of their time. Uh which is great and that's something they're willing to pay for, but it's also, you know, what else are you going to offer them that's different and unique. That could be that could be uh an extension on to creative services. That could be competitor competitor analysis.
(10:27) That could be deeper um reporting that you're able to provide them than you were able to provide them before. Um that you're building them dashboards and bots and things like that that they can talk to. You know, there's a lot of pieces in this where it's like what am I really good at with these folks and how can I offer it as an agency that makes it sticky? To your second question around what are operators seeing? Yeah, I would say it's it's a mixture. I would say that people have said, I feel that my agency is definitely
(10:53) producing a lot more and that's awesome and we're able to do that a lot with that. I've also heard the reaction to that which is, you know, it's a mess. We're testing 200 creatives and there's no system. I don't feel like there's a system. So, I think when you start to ramp up AI efforts, it's really important that you build systems into it.
(11:14) You understand what the frameworks are and how you're measuring it with the client. um so that as you start to increase creative production uh you know to help this person grow that they that there's a why behind it. I think you also agencies don't do a great job in in large part I think I try to really push this in the founders community but those that are outside of it that haven't heard me say this you know I think it's really a matter of how well are you listening to the client in terms of what they what their concerns are and what you can do to make them successful. So whether that's their stakeholder is themselves
(11:45) or whether that's their spouse or whether that's their boss if they're the the in-house marketing person, it's like what are they nervous about? I always ask tell people have that conversation. What are you nervous about that you're going to need to get answers on? Um you know that keep you up at night and how can I help solve those things? Because that's ultimately what's going to make it really sticky.
(12:07) I've also heard from from other brand owners that they're like, I can do a lot of this stuff myself now. And um I mean, let's just talk about CRO. I'm building, you know, with Claude Code, I'm building my my stuff. I talked to a guy yesterday that was doing this building all my own landers. I'm launching them. They're crushing and my ad people are running and it's doing great. Um and I'm just making sure that these two things match.
(12:26) I just look at the top creatives are running. We have our persona maps and we're just making sure that they map to the creatives that I'm building. So, I was able to fire my CRO agency. So unfortunately there I mean there is like some cutting that happens. I think it depends on how technically enabled that operator is right in the way that they're thinking about it but I but there certainly is a bullish feeling from those that are you know really leaning forward like you think about somebody on X like Ron Ecom who's technically enabled very smart young scrappy and
(12:56) can get it done. I talked to a brand owner in the group um who is let's see I think she's 45 um and she loves that her agency is moving a lot faster. She's not has no intention of hiring her agency. She's going to keep them around but she loves that there's like a lot more happening and there's systems and frameworks and they're doing AEO and GEO the agency is now as well right and they're like pushing that with LLMs and she feels more confident in that and so the activity is a function of making her feel more safe in that relationship. So there's a whole bunch of stuff,
(13:28) but everybody's kind of interpreting it different. And she doesn't have the time, nor does she want to make the time to become the marketing person. And so I think, you know, you kind of always have to look at it through that lens. But those operators that are listening to this podcast, you know, that are listening, I mean, probably they're you're going to be the people that are building stuff on your own.
(13:48) And if that's the case, then I would just encourage you to to to work with your agency as it stands now to let them know what you're building and how and why. because you want to try to keep that stuff close to the vest sometimes. But I think if you have a true growth partner, the more that you tell them, it can become that yes and standup type of relationship.
(14:09) I mean, where they're just building on what you're building and it becomes an incredibly uh powerful growth engine. probably part of the the reason that the technically enabled founder is building it themselves is because they're the kind of founder who started their business like like me launching a brand or something like that where it's like somebody who is like coming from a digital ads background.
(14:27) There's different this is definitely an archetype of found a founder. So it's like absolutely it's it's a digital marketer who sees an opportunity to build a brand and so that's their core skill set they come in with and that that founder probably ought to hold that skill set close to them because if that's the thing you're really good at.
(14:39) I mean, I've gone through this where I've sort of like come into running brands as a digital marketer and then was asked to move into other parts of the business where I was actually much less equipped to do it. It's not really the reason I got there and uh and you know by the a by the investors and all that kind of stuff and it was a mistake like I should have just spent my time in in that and not used agencies and other people in that instead like hired smart people who were enabled with the
(15:02) best tools to do the other parts of the business and report to me on those things. So there's a certain kind of founder who's that person who's like the digitally like savvy performance marketer founder. Um those founders very often have a really hard time scaling past some threshold or another because as good as they are like that unless they are truly elite tier and I think most people are not they're going to run into a cap and that cap is represented by things like product development, marketing calendar, brand all of that stuff. So, they're going to get to 15
(15:36) million or something like that, you know, and it's a good business. It's nothing to sneeze at at all. They're going to be spending a few hundred,000 a month, but they're going to hit some spot where given all the AI tools and everything. It's not going to it doesn't matter. Like, they they can't get through that that next thing because they haven't been able to do the rest of what is required from a brand.
(15:56) Engineer their cash flow, think financially about their business, think about their supply chain, all that kind of stuff. And so, on the other hand, I think there's there's a group of founders who are going to benefit from this whole thing who are exactly the kind of person that you described. second that 45-year-old woman who is like and speaking as a 42-y old man who's not like it's like been a stretch for me to generate to get better with AI and stuff right like I would say she actually might be some of one of the best suited people to to to win from this whole thing because um she's if she can actually if if her agency is good and
(16:25) it sounds like they are right she's happy with them then they are going to generate a bunch of benefits from this that they're going to actually get leverage from across all of their views right like Nobody has more incentive to to have their COO spend two months building out an operating system that collects all of the clients assets and data and build a lander launching machine and create a machine, all that kind of stuff than an agency, which is exactly what my COO Patrick just did, right? Like uh because we have to deploy that against a bunch of different brands and that's the
(16:53) only way we exist, right? So, we're going to spend all of our time on that. that founder you're describing needs to go to China at some point and talk to her her manufacturer, you know, and if she want whatever. So the point is I think there's a way in which there's a sneaky way in which I think in some ways the services that the the AI win for that person is going to be the increased productivity of really talented people who are part of your organization who are not you where you do the thing you're great at. Uh and in that respect it's no different than a traditional
(17:22) agency relationship. a good agency would have been providing that kind of value all along the way while you provide unique value in your brand in different ways. Now, I think I think getting that right is super important. Uh because I think I think it's the pathway to to being successful on both sides of the fence there. I completely agree with you.
(17:41) You know, one of the pieces that becomes abundantly clear when people hit a growth ceiling, and this could be in an agency relationship or or in an agency or a business, uh, like a ecom business, is when the founder starts to uniquely understand and operate on the why and operate from that point of like this is really what I know I can do well. And, you know, I think AI makes it so accessible.
(18:08) So, it's very difficult to, you know, like if you lived on on the beach and you thought you were going to surf every day and then you just assumed by living on the beach you were a surfer, like that doesn't work like that. Like, it takes time, it takes attention, and it takes energy. And if you're giving it, you know, you're going to surf every two weeks, you're not going to build up the understanding of what to do, the timing, the muscle memory. And so, I think I've seen that happen a lot.
(18:29) People are hurt hurt hurting themselves in that growth. And so the more that you can push forward on that and say, "Look, this is what I'm going to do. Operations, supply chain, you know, this is really where I shine." Um, the better off you're going to be because I think you're the one that had the unique idea as the founder, you know, I mean, in an agency relationship, it's like going with the vision, trying to push it forward.
(18:52) And I think so many people are bogged down in the day-to-day that they don't give themselves that time. And it feels selfish. I mean, when I do I do, you know, a lot of coaching, like I said, and I always have people list out 0 to 10. I learned this from a from my coach many years ago. 0 to 10.
(19:09) What are the things that you love to do and you feel like you're great at? And you list them out. And then anything under a seven out of 10, you just start to try to eliminate because the goal with that person is to try to free up what they are uniquely adding to the business while you're giving other people who are great at what they do the operational of independence to say like go and run with this and make it great.
(19:27) So yeah, but I mean obviously there's financial constraints and all that too, but I think it's one of those that feels like a it it feels like I don't know that feels too much. I can't do that yet, but actually it might be one of the most powerful things that you can do for yourself. All right, friends. This episode is brought to you by Northbeam, the marketing attribution solution we love over here at the pod. And you know, Zach, good news. Northbeam is launching Northbeam incrementality.
(19:50) Have you guys used this? We have. We've gotten a little bit of access to it and so far so good. Max is stoked. Who's my CMO? He's digging it. Yeah. I mean, out of the gate, we're we're super happy. Yeah. I mean, I North Beam incrementality gives you easy automated self-service incrementality tests uh right there in the platform.
(20:11) Um, and it gives you sort of like actionable data and allows you to operationalize a lot of these. I think that's a big difference between North Beam's incrementality tool and what we have other places in the market. It can, you know, run basically it runs end to end with lift testing with your MTA and your MM.
(20:28) So, you can scale what works and cut what doesn't, which, you know, I know for for you guys at your companies are is huge, right? Yeah. I mean, the fact that we use North Beam as our our northstar for all of the dollars that we spend to have this functionality built in right into MTA is just like not only a timesaver, but it's just makes the workflow much easier. So, big fans. Yeah.
(20:48) And it's something that you trust, which I think is huge. So, they're giving right now really good deals, pretty cool uh 50% off offer to listeners of the Scalability School podcast. You just go to northbeam.com/incrementality and you get to be the first on the list. So tell them what we sent you. 50% off all tests for a year for those who join out. So check it out.
(21:11) Lots of awesome features that you have and uh look forward to hearing how it goes for you. While we're on the AI subject, let's talk about one thing in particular that came up in your report that I think is really interesting. You said on AI generated ads, only 11% of agencies say they've produced clear top performing winners. 35% say results are mixed or inconsistent.
(21:30) 21% aren't using AI generated ads at all yet. Uh now I think there's a question about what does AI generated ads actually mean? Like uh does that mean fully done creative? Does that mean copy? Like what you know it's a little tricky but but that top number 11% say they've produced clear top performing winners.
(21:45) One of my one of my concerns in AI right now I had somebody email me this after an episode that Patrick and I put out about about sort of our investment in AI. And basically his his email said in so many words, convince me convince me that this is actually benefiting your clients. Um, and the idea was like it looks really cool that what you guys are doing and I see that.
(22:08) But are you sure this is actually benefiting the kind of work that you're doing? Now I I have a lot of thoughts about that, but specifically with AI generated ads, I'm really curious about this. Like I I have a little theory right now that um that AI voice over is like is materially less like uh like performs materially worse than a human voiceover.
(22:35) Uh and I have a theory that that will only get worse uh over the next bunch of years because even if AIVO gets better, if it's detectable at all, uh customers will take that as a sign of inauthenticity. Uh this is an interesting factor in the AI thing. I I heard this stat recently from uh the AI Daily Brief, great great podcast about this kind of stuff that I don't listen to every day, but is has some really helpful episodes.
(22:55) He would the host of that show was saying that it's like 60 to 70% of Americans have negative feelings about AI. And so if they are predisposed negatively against AI and particularly my guess is generative AI visually generative AI it seems to me that there's a real possibility here like AI stills I think will probably work as well as stills can work because they will just be good enough and they'll just look like any other still particularly AI video. I'm really curious.
(23:22) I mean, it's getting really good, I know, but like I'm really curious if there's going to be like a thing here where it turns out that you actually really have to pick up a camera and shoot still and like, you know what I mean? Um, so I I don't know. Reflect on that however you want.
(23:34) That was a little bit rambling, but like that that stat is interesting to me. 11% say they've produced clear top performing winners. That's a low number. Totally. I think some of it is timing. I think some of it is this report was done in January and February of 26 and that's a little bit different than March. We're we're mid-March of 26 where we are now. I think that's one.
(23:54) I think the second one is a lot of what was happening with AI in the early part is just what what happens when you get excited about this type of generation which is oh [ __ ] I can do this. I'm going to make a bunch of this and you just and you you replace you sort of volume is the goal over quality because you're like can it do all this? I'm curious and you launch them into accounts and you know it's not working and you know generally you're like hm that's interesting it didn't work for me and I think I've heard from a lot of people in the founders community that look I try I tried it it didn't work all right
(24:28) and okay that's fine and I think that's a function of maybe that you tried it a while ago it could be a function of the inputs obviously that were given to it so it's like they're not necessarily the format that's converting.
(24:46) They're not the type of ad that they, you know, you didn't, you weren't able to give it, hey, these are winning ads. Make more things similar to this like you are able to with more sophistication now, even a few month a month later or a few weeks later. And so, you know, I think that's part of it. I I do think that AI creative will start to be more, you know, top top performing and you'll see that happen.
(25:12) on your theory about AI video and and or about AI voiceover specifically. I completely agree with you and and this is totally detectable and I think one of the things that um will keep you know those of us that are doing creative stuff or you know people like in our hive house community for creators that's definitely a question we get a lot and I think meta's going to detect that and Meta is is is able to see that.
(25:34) What you're going to have to do is declare it. You're gonna have to declare Yes. that this is AI generated in some way. And legally, I think you already have to. Yeah. Right. And but they're gonna keep doing that. And and the thing is the enforcement is not going to happen at the federal level or whatever it is.
(25:51) Like there'll probably be some big big high profile cases that do this just to like sort of send the scares out. But there's no way that like you know just like the FDA doesn't actually crack down on all the supplement brands right now even though they probably should like the at this for making all kinds of crazy claims about you know what their supplements can do.
(26:03) But uh but they'll do it sometimes and they do that enough to scare people where I think the actual onus is going to be is on the social networks uh and that and that sort of people will just demand this of them that they that they are the ones who are going to have to say yes you must declare that this is this is the case and the social networks are going to want to get ahead of that to some degree.
(26:21) I think I think that look what I don't have a crystal ball but that's my theory about what will happen what will happen next because I think yeah anyway so yeah you're right and and and they're also going to be able to detect it like you said and they're they're going to do whatever their users respond to positively if it creates a bunch of really negative sentiment from c from their users they're they're going to penalize it in the algorithm.
(26:42) Yeah, I would say that you know where AI sits now obviously in the creative workflow being the most powerful arm for those you know for those of us in growth like the biggest it's helpful you know the biggest place where it moves the le the you know pulls the lever is on research I mean you know you're able to discover different pieces you weren't able to discover before you're able to discover new avatars to go or personas to go after you know you're able to look at competitive research more effectively and efficiently you're able to come up with maybe some new language you didn't necessarily think about through frameworks
(27:13) you know you had wanted to do and so it gives that part of it in terms of the briefing in terms of the creation and in terms of you know the effectiveness and efficacy of that is is is going up and is getting better which is good and that makes our lives easier and that does save time and I think that side's great.
(27:36) I think the idea of it going from, you know, here's what it is to all the way to creating a banger ad that's going to really win. You know, I think we're getting there, but I don't know that it's necessarily there at this point in time. And I don't know that it'll ever be there because I think there's going to be you're going to have to disclose it like you said and you know, Meta will know and um so will Google for that matter.
(27:53) Like yeah, I'm not saying it's necessarily going to be frowned upon. I think that they're going to want the core input though to be human created especially if it's video um and a person talking about it and that's going to be an important weight on the creative um and obviously they're going to screw with it as it goes on and you know put the headline on your forehead and whatever but like the input core is going to be something that's human related and I think that will continue to be weighted and maintained that way because I if if meta doesn't do that they know that's going to be a problem moving
(28:21) forward you know that it's going to be overrun run with all this people saying stuff even if there's disclosures that aren't necessarily true or aren't necessarily real and people want to see you know real things from real people and and that's ultimately going to keep people on the platform and they they know that they don't want to hurt DAUs in that way.
(28:38) One of my little theories is that uh the reason that some AI creative does work so well when it does work even if it's not as not as much as people might think it's just that a lot of creative is really bad to begin with. And and so uh the reason that there will be a place for winning creative along the way it's just that it's really hard.
(28:58) It's really really really hard to produce consistently really good quality creative that actually sells product. It's it's very Oh it's incredible. So a machine that can just do it at volume probably is going to get some things right and and it's going to beat the beat be the average.
(29:14) And it does still reinforce to me that the real magic and a lot of this stuff is in is in the context. Basically it's it's in it's in your ability as an agency to have real point of view have real real uh point of view that is right about what makes good creative and to to actually be able to to use AI to to amplify that. That's that's where I think it's going to win. The thing that's easy to forget is AI amplifies slop just as well as it amplifies really good things, right? So, uh, so it's so and they often present actually kind of similarly.
(29:40) It's it's hard to tell the difference at times. And so, uh, so it'll amplify anything that you want to amplify. And, uh, and so you better get good ideas, you know. Let's go to another thing that you brought up, uh, in this, which is, uh, labor costs and margins. And I I want to talk about this because I kind of think that like this is an interesting topic for operators to think a little bit about actually uh agencies certainly but for operators as well.
(30:06) Think about this question of what kind of margins is my agency making and why. Let me tell you my perspective on this and then I'll be curious what the data actually says here. Okay. My perspective on this is is partly informed by things I've talked about with other founders over time, but just that like standard agency gross margin by which I mean the people and software directly connected to doing the actual work itself is between 40 and 60%.
(30:32) And that that's kind of the range that it ought to be at basically uh gross margin uh on the work itself. That's before any sort of layer of opex on top of that which is a real thing in agencies. uh and that in the end the net margin of agencies can get up to like 30% uh maybe even 35% at the very very best but really uh if you push either of those numbers much above that the net or gross margins uh you just create your own risk for yourself as an agency and so it actually isn't you actually don't want to go any higher than that it's better to actually apply more services that create cost rather than maintain the super
(31:03) high margins especially in the AI world because people will just come for those margins again your margin is my opportunity so if that's true that that's the case. There's another factor though, which is that it's very hard to scale revenue fast like it is in an ecom business, right? Like agencies don't go to $10 million in year two in revenue. They just can't.
(31:22) Uh and so agencies must operate at a higher percentage margin on a lower revenue number. Whereas an ecom business might look and go like, oh, 20% margins for an agency or something like that. That's pretty good. Even 15%, right? That's better than a lot of brands are doing, except it's of a of a much smaller pie.
(31:35) Uh, and so like the reason an ecom business can exist at 10 to 15% margins while being extremely cash intensive is because scale is the way you win in a lot of ways and you need to get the revenue number up and that's where you create opex leverage and some of that. And so uh so yeah, so there's there's like it's just a very different kind of model.
(31:54) And my take here is that brands actually ought to be okay with their agencies making a higher margin on a lower revenue amount and that what they should expect them to do is expect them to make pretty good margin on the services but apply really really good quality services. And that's basically the way they auto measure things that trying to sort of in reinhouse that work or go shop for just cheaper.
(32:10) It's actually the wrong way to do it. The agencies are are uh controlling often your largest single line item in your business. You want to give them a strong incentive to do a great job on that. Um and yeah, and so that's that's like my approach to thinking through agency for us versus our versus our brand partners, etc. Like, yep, I'm going to exist at a higher percentage margin than you.
(32:29) Uh which we're not at the numbers I just quoted, by the way. Um so we're we're working towards it, but we're not there yet. And so that's the case for us, right, is that we we want to be there. Um, but we're going to grow slower than than the brand. Our top line is not going to push up nearly as fast, and we're going to do that in part because that's if we try to push that top line up too fast, that's the fastest way for us to do really bad work is because we tried to grow too fast, etc.
(32:51) Um, and so you should actually want us to make if if we start trying to go do that because you're going to squeeze my margin if you're if you're a partner. All you're going to do is just make it you're just going to give me a really strong incentive to do crappy work for you.
(33:00) So that's the way I approach it. what is it actually what is actually happening in the agency world? We in the founders community, a lot of our folks, um, you know, we certainly have a a percentage of people that are in the solar practitioner world. Um, and they might have a couple contractors. Um, I would say, you know, that's probably, you know, we we represent as well 30 countries. We have members in 30 countries.
(33:21) Um, and so this is mostly in the Western world. So, you know, I think that's caveat to put that in there. But a lot of folks are have seen seen the other colleagues of theirs grow um and try to grow too quickly and they have said I want to stay small and keep it small and their margins are high and it's small pie like you said and I think that works really well.
(33:44) Um you know I think where we see people that have really high margins um is the their entire team is outsourced um or offshore. Uh, and I don't, you know, think there's necessarily anything wrong with that if you do it the right way. Um, and if you take care of those people the right way and, you know, pay them a livable wage and things like that.
(34:06) I think where, you know, I guess I would jump back and and say the the margin thing is interesting just because I believe people think and you would if you were on X as an operator, you would look at this and be like, look at these freaking agency people. They're buying cars. are always making a lot of money, you know, and I think it's less than you think it is.
(34:27) One one um and I think most people are having a really hard time and I think those that are having in terms of growth and I think those that are having the hardest time that have the smallest amount of margin are those that are in this phase of trying to grow their agency. And there's a lot of unintentional agency growth that takes place because they're just growing because they want to get bigger and want to be seen by their colleagues as a bigger agency. That's a very that's a a more common thing when I get on calls with members than
(34:57) I than I would have ever imagined I would hear. I want to be at the big kids table is always I want David Herman to know who I am. That's what I hear. ever underestimate the human desire to to be part of something to be part of something and to look successful than you are. Totally. Yeah.
(35:14) It is a fundamental motivating factor particularly when there is algorithmic and financial incentive to doing that. Yeah. You're just taking that desire for humans and algorithmically shoving it right back in their face. Yeah. So that's really interesting. So I think if you're depending on where you are in this, you know, you're an agency.
(35:33) Wait, actually I want to go back and clarify something. I'm sorry to interrupt you. You said you got on calls and are you saying that on those calls what you're discovering when you talk to people is they're actually not making very much money and they're struggling. So there are a certain group of people that join the founders community and their why to join the founders community is because they need a place for support and they're sort of feel like I'm doing all this work.
(35:56) We're not making any more money and I don't know what I'm doing wrong. and we do, you know, intro calls with every new member and in those conversations and in getting to know these people, a lot of it is that they're they are like, man, I'm really struggling. I'm trying to grow and I'm just not really happy. So, yes, there there's a lot of that internal struggle that takes place and it's and you know, it's it's led by like we talked about, it's led by imposter syndrome, wanting to be cool, um wanting to appear a different way.
(36:22) It's wanting you know when I ask people why do you want to grow? You know, they have one or two answers. One is is it's like an eagle one or one is is that I want to aim for a sale. Okay. Well, that's a different that's completely different type of a thing that I want to grow it so that I can get above a certain number so that my multiple when I sell is higher. Okay. Totally legitimate.
(36:41) I understand that. And so how what you by pushing on the I'm going to hire. I'm going to go out and you know find more clients. I'm going to crank up a pipeline. You know this type of stuff. by pushing on that without first establishing the why of what you're doing this for is like the craziest thing because it's sort of like going in if you do therapy and you're like trying to do therapy because all this stuff in your family bothers you but you yourself haven't done that work to understand what you need you know like this is this is the same thing like you have to fix
(37:16) yourself and put your own mask on first before the before you assist others and that's really what this comes down too. I think a lot of people they just they grow for the sake of growing. And look, as an entrepreneur, I get it. I am 100% in this and have done this where I love I love selling.
(37:32) I love pulling on it. And then I'm like, the more I focus actually on making pure money, the less money I make. And the more that I go back to the why am I building this founders community or why am I coaching these people is because I care and I want to help people to be successful.
(37:49) And you know, there's a whole bunch of other stuff around that that personally motivates me. And that's a very different thing. And so I think the more that you do that work, the better off it goes. And I think generally when you get on, yes, margins are a lot smaller. Um, and there's a lot of different things that you can think about with that.
(38:02) But it it's interesting and surprising to see. Uh, certainly because it outwardly it looks a lot different. I mean, it's interesting because what you're describing is some individual experiences that in some ways are a little bit different than the data. Said 42% of agencies are running margins above 30%. And of agencies of six to 15 employees, 36% are at 40 to 50%, 16 to 30 employees is the same.
(38:23) 40 to 50% on gross margins. Gross margins. Um that's not net. So net margins 40 40% above 30%. And then of the 6 to30 group, the gross margin of 40 to 50. That fits very well with basically what I just laid out, right? Which is like that kind of thing.
(38:37) But then you're saying at the same time there's people who are really struggling. I'm going to just like put in a different bucket. That's that's a freelancer, not an agency. And it's a really different job. And I I don't I did it for a while. Like I I don't I'm not saying that on any kind of account anyway. It's just and I understand like it's actually it's so hard to build an agency.
(38:55) It's it's enough so that I think yeah, you can just make a lot of money being a solo founder and save yourself the headache of trying to build whatever. But it's like um yeah. Anyway, it's interesting though that that there's those there's the mix between what you're hearing subjectively on calls, but then what the subjective data is showing. Uh totally.
(39:12) I mean the data the reason I say that is because I think the data does show that there's a group of people that are in the founders community that we have assisted and helped you know it'll be 5 years that we've had this thing in June that like obviously we didn't we played a small role in their success but like that are people that are running higher margins because we've worked on this together in terms of like how do we run organizations and then there's the new thing so the reason I say this is because if you're listening to this and you're getting advice I think people listen to the scalability school podcasts are tend to be on
(39:38) the smaller end of a founder and they're growing and they're figuring it out. And so if you're one of those people, I just want to validate for you always that like you're not alone in that, right? Like there's not I think and that's important to to point out.
(39:49) But yes, it does some of the data does go contrary to what I was saying previously. Yeah. Yeah. But it's interesting because I mean I think both are real. Did you want to talk about churn? We didn't I didn't bring that one up. Uh yeah, let's do let's do talk about churn. In yes number one reason agencies lose clients. Um, did you get anything subjective about that or do you have any 30% number one in-housing 30%.
(40:09) Well, I I think it's the I think it's the worst move that many brands make. I think it's like it sounds so good and I guess maybe what I would say is that a lot of in-housing in fact is is like you know you have 17% of churn happens from perceived lack of performance 30 30% is in-housing. I would say those are actually kind of the same thing that like that the reason somebody inhouses is not really because they just want to save on the cost of their agency or they just want to bring something in house. It's because they feel like their agency can't get them to the next stage. And
(40:42) my theory about this is that actually it's not really the solution. It's not about more hours or being closer or something like that. It's it's about the fact that it's really hard to get past certain thresholds of revenue and it requires a different set of muscles and it's not really about your agency. It's about you spending your time on other things, you know.
(41:00) So, uh that that's all it's so it's such a good idea to people. I mean what I also don't have a problem with in housing a priority like I think there's often a good reason to do it which is that you find incredible talent that you can bring in house. If that's the case do it great. You know like you should get the best talent you can working on your business.
(41:17) But it's a sort of a the approach the the idea that in-housing is going to solve your problems I think is often illconceived. That's the point. I think a lot of it in with in-housing is you know there's a lack of resourcing people properly. One of the main things that is a value prop for an agency is that they're seeing a lot of different things on a daily basis and are able to react generally quicker um because they've seen it and have been there and with another thing and oh yeah I'm going to try that over here. as it relates to in-house folks, many of them just aren't resourced as well
(41:47) as they could be and they're sort of brought in u I think a little bit sometimes as an ego move for that particular person and that person then goes and says what I says go or what I say goes and it becomes like no I'm the expert I was the one that got brought in as the head of growth and the learning sort of shuts the door at that point and it's rare to find somebody that's a true in-house house growth director or whatever you want to call this person, you know, that is comes into it and says, you know, I know that I don't know and I'm going to keep learning
(42:20) and that's part of this position. Usually they come in and say, well, look, I've done all this stuff. I've grown all this and the person hires them because of that because of that ego. Um, you know, I do recruiting as well and I hired I think last year was like seven or eight heads of growth. And that's a big conversation we have with our clients. I know.
(42:40) I just had a guy that we're hiring for a head of growth for for their company now and they're doing really well and he he said, you know, look, I want a killer. I want somebody to come in. And I'm like, I understand, but you also want somebody that's curious and is really hungry to be like continuing to make sure that they understand cuz you know, even for me, I mean, it's crazy the amount of of of tactical as much as stuff is even automated, the amount of tactical media buying stuff that changes. I mean, VA, you
(43:06) know, min value or min rorowaz with value bidding like one week you're like, "Oh, yeah." It's like that stuff changes so fast, you know, that you want to be able to have somebody that's hungry to bring that in. So, I think that's always really important. Um, and and in the in-ousing thing, it's generally, I agree with you, uh, born from a uh a place without the right framework in terms of what it looks like to be successful in that role. Um, yeah. I think people ask me sometimes like,
(43:32) "Is is AI going to take away your media buying job?" And I just can't see it yet. And there's a lot of reasons for that, but it it's to your point that there's things are changing so fast all the time on these platforms. And uh, and at the same time, what is partly required to win is point of view on what works. Like it just it just actually matters. Like I I don't know.
(43:52) There's there's like a debate, I think, out there of like is there a playbook versus there's like the playbook versus no playbook people. Like there's the there's the run the playbook team and then there's like every brand is different team. Uh I'm definitely on team playbook. Uh and I um I and I think that the playbook the problem is that it is like it first of all it matters that you master it and secondly the reason the reason people think there's no playbook is because somebody did a bad job delivering something they called a playbook or because they had the wrong playbook or something
(44:20) like that. But uh it's not actually because their brand is different. It's because it was delivered poorly. But then secondly, uh I think it's, you know, there's this thing where pe where people um people are disconnected from knowledge as it comes in all the time.
(44:34) And so exactly to the point that you're making, it's much harder as an in-house person to stay current on those things because you just don't see as many reps. You just and it's not anybody's fault. It's just you just don't. And so you just sort of get stuck in your lane and it's really hard to do things well.
(44:48) I've seen this work out very well for some brands where actually they sort of people who willingly say, "I'm going to ignore all that noise because a lot of that stuff is actually shiny objects. I'm just going to do the thing that I know works and I don't really care if it's not fully optimized because I know it will I know it will accomplish the big goal.
(45:05) " And I I actually have seen that work decently as well. Um, in that person, in that case, the person may be actually admitting that they know that like it's not the most optimized way to do it, but they don't care because they're able to deliver the thing that they want over a long, you know, and I think there's actually some wisdom there.
(45:16) But, but yeah, it's uh it is interesting to see. I I just think I think the real the real shiny object of in-housing is this idea that I'm going to save money and have a fully dedicated team myself. And I just think that that's kind of not true.
(45:32) like it's just you're gonna lose money, but it's just in different places or you're gonna end up paying that person so much money that who's who's really good that it's gonna be more expensive than you think or or something like that, you know? So, well, let me say this. The places I've seen it be the most successful are where the founder has an understanding of of growth marketing in terms of that playbook and understands this is what we do.
(46:01) this is hey you know I can see this over here that you're doing and we need to adjust that that that flow or that lander or you know whatever um and and that person the growth person says totally let's do that and revamps it that's where I've seen it where it becomes a real issue is when the founder hires the expert inhouse before they've hired an agency sometimes and they don't have that in-house knowledge and they look at this person and say why isn't it growing why isn't it growing why isn't it growing and that growth director sits there and feels that they're under pressure all
(46:27) the time and then you know that their boss doesn't get it and that just becomes this area where you know the average tenure of a growth director I haven't done a study on this but I should I mean it's got to be like a year and a half like it's not long because there there usually is there's so much miscommunication between those two in terms of not miscommunic there's general miscommunication but then there's also a general um misunderstanding of each other's motivations desires and and like what you what it takes to get there. And I think that has to be there needs to
(47:00) be a lot more time spent there to make sure that they truly understand one another. You should get this data for for a future thing like I will much operate and find out. I'm doing an out like a sort of a general employment one now um with uh we're working on with Leandro from uh Propel, which you probably know Leandro Cabrini. Um so we're working on that now.
(47:20) It's a little bit kind of in there but nothing on this that particular topic. We could we could we could maybe weave that in. It's a really interesting thought because I think I think what it reflects is a sort of short- termism in general in DTO to C.
(47:34) And I think part of that is because like sometimes that path from 0 to 10 can be really fast for brands. So then they sort of expect everything to work that way. Um and those are the brands I think that are the ones set up for you're going to bring in a directive of growth and expect them to like make everything like the good old days and it just doesn't go as fast as you want, you know? So yeah. Um all right, man.
(47:52) Did we leave anything out? What? Tell me people are going to have to go check out the whole thing. But but read the report. All right. Yeah. Yeah. Yeah. I think it is interesting. I This is really good conversation. You're you're I'm I'm enjoying how much when I'm talking to you about this uh how much I hear all of the conversations you're having with founders in your answers.
(48:10) You know, you're able like it's obvious that you're seeing and hearing real things in the space that are really insightful. So, it's it's really good. Yeah. I mean, you know, that's really what my job is now and what I live to do. And I wake up every day. I have like 30 to 40 direct messages from people around the world that are bringing me questions that are everything from personnel to margins to everything media buying related um diagnosing issues and and I love that work.
(48:34) I mean it's it's like totally I'm in the EK guy of my life doing this. So, uh, it's fun and it's interesting and I think it's not just my opinion, you know, it's it's like, yeah, this is generally what we see and this is kind of where people struggle and, um, hopefully this report as well can illuminate. I've heard from a lot of people, oh, that makes me feel less alone or makes me feel better.
(48:54) And that's like totally why we put it out honestly. It's kind of put it out there to see benchmarks and we're going to try to do a lot more benchmarking work because I think we all kind of there's just we just wonder about different pieces like have you do you see that? What does that look like? And so that's always really important to go on to help people understand what they can do to improve and what other people are seeing.
(49:11) What should people do if they want to join Fox Founders? Yeah, Foxville Founders. Uh just check it out foxhilfounders.com and you you apply and we read all the applications. Uh and we yeah would love to see see your application. Um otherwise, you know, you can always check out the Foxwell Digital blog. We've really cranked up our content um this year.
(49:31) We're really trying to put out a lot of great content. So check some of that out. Trying to keep it really relevant. uh and really out there with good stuff uh that can be really useful to you in your day-to-day. Um so yeah, I look forward to hearing from you and anybody can always email me andigital.com. I'm happy to hear from you.
(49:49) Links for all of that in the show notes of course and if you want to work with uh AJFrowth for your agency, you go to afgrowth.com and uh fill out the little intake form that's on the website there so that uh I can learn a little bit about your business. Uh got just a little bit of client space right now as we are growing. Like I said, not too fast.
(50:04) Uh because I want to keep the work high. So, but tell me a little tell me a little bit about uh tell me a little about your brand there. I'll get back to you. That email goes straight to me and then uh we'll talk about if I can be any help.
(50:17) Even if I can't be any help, I might know somebody like Andrew who knows somebody who can be some help or I know somebody directly who can be some help. So, so uh so reach out when that happens. This was very fun. Thanks for doing this joint episode, Andrew. Appreciate it, man. This episode is brought to you by the Foxwell Founders membership that Andrew and his wife Gracie run.
(50:41) It has been absolutely pivotal for not just the Homestead team, but the Easy Street Brands team. We've had I don't even know how many members are currently in there that are a part of our ecosystem. But when it comes to anything from learning ads to understanding what's going on to building an agency to knowing retention, it's been absolutely useful for our team when they get stuck or they need help to just go there and resource all the other experts.
(50:59) So definitely would recommend it for anybody that's looking to, you know, take it a step deeper, try to get a little bit more knowledge on on growth marketing and all the world DTOC is. Yeah, I think one of the most incredible things about it is you can just like open up the Slack group every single day.
(51:16) You can pin your favorite channels for the topics you care most about and like every day there's going to be somebody who just like because they want to contribute something valuable to the group. You can go learn something every single day and it's going to be extremely useful. There's there's some ballers in there. You just get like the benefit of learning from that like for the for the cost like you couldn't pay them that for their time but through the membership like you get access to some some incredible people and tons of resources. The Yeah.
(51:37) I mean I think the biggest resource to me too is like the events that you know Foxwell Founders does. They've been able to do some even in Wisconsin, even in the the boring state of Wisconsin, which is pretty awesome. Getting people together in person and able to have really just like honest conversations of what's going on, what's working for them now, you know, where where they're at in their business and knowing that there's going to be, like Brad said, some real killers in the space in this in this membership that can that can help and are willing to take the time and help. So, that's been
(52:03) a huge part of why a lot of our team have really enjoyed it as well. And the applications are now open if you're looking to join. So, founders. Yeah, foxfounders.com. Go check it out. Coply. Yeah, please go check us out on YouTube. Rack up those views for us. We'd love to see it. And then subscribe. Make sure to subscribe on YouTube as well.
(52:26) And I relentlessly refresh the YouTube comments because it dictates my mental health for the day. So, please say something nice about all of us. Thank you everyone. Thank you for listening. Honestly,
