While the first year of starting your very own agency is about building momentum and the second year often involves hitting key milestones, by year three, many agencies find themselves struggling to keep afloat. 

Here’s a closer look at why most marketing agencies fail in their third year, and how you can avoid the common pitfalls, with tips from our digital marketing reseller team.

The typical growth trajectory of marketing agencies in the first 3 years

In the first year, marketing agencies focus on finding their footing. This involves creating a business model, acquiring a handful of initial clients (often through personal networks), and delivering results to build a reputation. Your energy levels are high, and many founders thrive in the adrenaline-fueled hustle of starting up. 

In year two, agencies often see an increase in revenue and team size. With more clients onboard and initial credibility established, there’s a push to scale operations. Processes start to formalise, but this is also when cracks may begin to show because the novelty starts to wear off.

Year three is the tipping point. Agencies must handle more complex projects, meet evolving client expectations, and sustain growth. Many founders realise that what worked in year one, when hustle and confidence could get you through anything, doesn’t cut it anymore. 

What makes year 3 risky?

Agencies in their third year often grapple with scaling challenges. As client rosters grow, maintaining consistent quality becomes harder. Processes may not scale as easily as expected, leading to operational inefficiencies.

Plus, hiring the right talent fast enough to meet demand will become what keeps you up at night! Agencies often face a gap between their ambition and the resources available to execute.

Lastly, early clients may have been forgiving, but as your agency grows, so do client expectations. They want faster results, more customisation, and greater ROI, putting pressure on your team and systems.

Client turnover kills off sustainability

Retaining clients (specifically recurring clients) is critical for predictable revenue, but new agencies often prioritise acquiring new clients over nurturing existing ones. Don’t fall into this trap! Without strong relationships and ongoing value delivery, client churn can erode your agency’s foundation.

To avoid this issue, focus on client success by setting clear expectations and delivering consistent results, and create a client retention strategy that might include regular check-ins, value-added services, and proactive communication.

We cannot stress this enough: Build long-term partnerships instead of chasing one-off projects.

Scaling too fast

Rapid scaling might sound like a dream come true, but it’s often a recipe for disaster. Agencies that expand too quickly often outpace their ability to deliver high-quality work, which leads to overworked teams, unhappy clients, and damaged reputations.

Avoid this by scaling incrementally and ensuring your processes, technology, and team are ready to handle growth in the early years already. Invest in automation tools to streamline operations and improve efficiency, and prioritise quality over quantity to maintain your reputation.

Founders becoming bottlenecks

Founders often wear multiple hats in the early years, but as the agency grows, this can become a liability. When every decision funnels through the founder, it slows progress and frustrates team members.

So, delegate responsibilities to trusted team members and managers. Building a leadership team to share the workload and bring fresh perspectives ensures you can trust your team to make decisions within their areas of expertise.

Hustle culture burns out teams

The high-pressure environment of a growing agency can lead to burnout—both for founders and their teams. Overworked employees can become disengaged, affecting productivity and client satisfaction. All of this often comes to a boil after year 1 or 2.

While there will definitely be some hard work involved, try to foster a healthy work culture by promoting work-life balance and offering mental health support to your team (and yourself!). Recognise and reward hard work to keep morale high.

Referrals run dry

Referrals are often the lifeblood of new agencies, but they’re not a sustainable long-term strategy. Over-reliance on word-of-mouth can leave your agency vulnerable when the flow of referrals slows down, which often happens after the first few years when your network and their network are tapped out.

To avoid this, diversify your lead-generation strategies by investing in content marketing, paid ads, and partnerships and building a strong online presence to attract clients organically.

Basically, be sure to develop a sales process that doesn’t rely solely on referrals.

Pricing problems

Many agencies struggle to price their services appropriately…and these chickens often come home to roost in year 3. Underpricing can lead to thin margins, while overpricing without delivering commensurate value can scare away clients.

To dodge this bullet, regularly evaluate your pricing structure based on industry standards and client feedback, or offer tiered pricing options to cater to different client budgets.

Focus on communicating the value of your services rather than justifying costs to your clients. The ones who stickle over a few hundred rands here or there are likely not going to make good long-term clients because they don’t value marketing as a whole and your services in particular. 

Luckily, with our digital marketing reseller team’s help, your agency is much more likely to make it past the 3-year mark and beyond! We help thousands of agencies just like yours deliver exceptional marketing content to clients on a daily basis. Take a look at our wide range of white label services.