The Real Economics of Marketing Agencies

I've hired agencies. I've run an agency. And I've built and sold a company where I knew exactly what drove growth.

These three experiences gave me something most founders never get. A control group.

Running my own agency is where I lost my innocence.

I was shocked how little of what we achieved had anything to do with us. When we worked with a brand that had momentum, everything clicked. Our work looked better than it was. The dashboards glowed green. We looked like geniuses.

When the momentum wasn't there? Same playbook. Same fees. Different story.

That pattern repeated across dozens of clients. It forced me to confront an uncomfortable question: How much of this is us, and how much is the underlying business?

The answer wasn't flattering.

The Control Group

At TrueCoach, the company I co-founded and later sold, I had the opposite vantage point. I wasn't an outside vendor trying to move needles. I was inside the machine. I knew exactly what drove growth.

It wasn't marketing.

Marketing amplified. The real engine was everything else: the product, our understanding of customers and their problems, the speed and quality of support, pricing that delivered obvious ROI. Coaches who used TrueCoach saw the value immediately. They told other coaches. Those coaches signed up. The flywheel spun.

If you forced me to quantify it, I'd say 80% of growth came from product and word of mouth. Marketing poured fuel on a fire already burning. You can read the full story of how I scaled TrueCoach to exit—but the key insight was this: without product-market fit, no amount of marketing spend would have mattered.

Had we hired an agency during that run, they would have pointed at dashboards and claimed credit for momentum they didn't create.

Last-Click Attribution Applied to Business Relationships

This is how most agency relationships work. They draft on your success and sit close enough to the transaction to claim it.

Think about it from their perspective. They run your ads. They see conversions in the platform. They report ROAS every month. Looks like they're driving results.

But that customer who converted on a Facebook ad? Maybe they heard about you from a friend first. Maybe they saw your founder's LinkedIn post. Maybe they used a competitor for two years and finally got frustrated enough to switch. The ad was the last touch, not the cause.

Agencies love last-click attribution because it makes their work look valuable. You get credit for showing up at the end of a journey you didn't create. This is exactly why proper server-side tracking and attribution is so critical—without it, you're making decisions based on who touched the customer last, not who actually drove the outcome.

The Economics

Now for the part that matters: what you're actually paying for when you write that monthly check.

The agency model has transformed over the past few years. AI tools have automated huge chunks of media buying. Creative production has been commoditized through AI, offshore talent, and templates. The "strategy" most agencies sell is free on YouTube and LinkedIn. These are the same shifts that broke traditional growth—and most agencies haven't adapted.

What does this mean for margins? Lean, modern agencies pull 70-80% gross margins on client retainers.

For every dollar you pay, maybe thirty cents goes toward delivering value. The rest is profit.

I understand why the model exists. Marketing feels like a black box. Founders don't have time to look inside. Agencies fill that gap. Some do it well.

Most stay just competent enough to keep the contract.

Spotting the Storytellers

Not all agencies are bad. Some are excellent. The problem is that excellent and mediocre often look identical from the outside.

Both have polished websites. Both have case studies. Both speak confidently about strategy. The difference is in what happens behind the scenes.

The charlatans are storytellers. They've learned to use words to look valuable. They speak in frameworks and jargon. Heavy on strategy decks, light on execution details. They have an answer for everything, but the answers are generic enough to fit any business.

Real operators talk differently. They ask hard questions about your unit economics. They want to understand your customer before proposing tactics. They're honest about what they don't know. They tell you when something isn't working instead of spinning it.

The biggest red flag: when an agency can't articulate what they did that caused a specific result. If every win is vague, if there's always a story but never a mechanism, you're dealing with someone drafting on momentum they didn't create.

I wrote about what separates a real growth marketer from people who borrowed the title. The same framework applies to agencies. Ask for specifics. Watch how they respond.

The Four Questions

Before you sign another retainer:

Have they done the thing you're trying to do? Not "worked with clients in your space." Have they been in the seat? Scaled a company? Managed a P&L? Consulting about something and doing something are different skills. Understanding what a growth marketer actually does helps you evaluate whether someone has real experience or just good talking points.

Are they honest? Pay attention during the sales process. Do they push back on your assumptions or tell you what you want to hear? Do they acknowledge limitations or promise the moon?

Are incentives aligned? A flat retainer means the agency gets paid the same whether you grow or stagnate. No upside for performance, no downside for mediocrity. The incentive is to keep the contract, not maximize your results. This is why we structure our engagements differently—we cap clients and align incentives because the model only works if we deliver.

Are they honest about attribution? When they report results, do they acknowledge the difference between correlation and causation? Or do they take credit for every conversion that touched their campaigns?

A Better Way

If you're spending $15-25k a month on agency fees, you have options.

Option one: hire a full-time expert. Someone who's done the job successfully somewhere else. Or a hungry, curious, self-motivated learner with skin in the game. You'll want someone with the right growth marketing skills—T-shaped expertise across channels with depth in one or two.

The cost is similar. The asset you build is different.

A full-time hire gets embedded in your business. They learn your customers, your product, your positioning. They attend the meetings. They hear the feedback. They understand the context that makes marketing work.

More importantly, you own that competency. When an agency walks away, they take their knowledge. When you build internally, it compounds.

Option two: find a partner with real incentive alignment. Base retainer plus a percentage of attributed revenue. The base covers the cost of delivery. The upside kicks in when results materialize.

This changes how the relationship works. I only win when the client wins. No incentive to pad hours or stretch timelines. If something isn't working, I'm motivated to fix it or kill it, not spin a narrative to keep the contract.

The Uncomfortable Truth

Most of your growth will come from you, your team, your product, and your ability to understand and serve customers.

Marketing amplifies what's working. It accelerates existing momentum. It can be the difference between good growth and great growth. But it can't create something from nothing. And it can't fix a broken product or confused positioning.

The agencies that thrive attach themselves to companies with momentum and take credit for the ride. Good business for them. Bad deal for you.

If you're evaluating marketing help, ask yourself: What's actually driving my growth? Is it the marketing, or is marketing just capturing demand that would exist anyway?

The answer should change what you do next.

What Matters

Build something people want and talk about. That's the engine.

Marketing amplifies. It doesn't create. Don't expect outside help to fix fundamental business problems.

If you hire external help, align incentives. Flat retainers create flat effort.

Consider building in-house. Same cost, but you own the asset.

Good agencies exist. They're hard to find. Ask the four questions before you sign.

Ready for a Different Model?

If you're tired of paying premium rates for agencies that draft on your momentum, there's another way. Apply for Q1 implementation to work with a growth partner who owns the entire funnel—not just the ad account—with incentives tied to your actual results.