Usage Fees Are Killing Your Agency

[00:01:01:22 - 00:01:04:20]

Jake Hundley

Chat GPT is in the news again.

[00:01:06:08 - 00:01:14:17]

Cody See

Here's the headline. Chat GPT. appears to drop utm tracking making AI referral traffic harder to measure.

[00:01:16:23 - 00:01:21:13]

Jake Hundley

Yeah, I remember. uh i don't know that did they just do it like Yesterday?

[00:01:22:26 - 00:01:33:27]

Jake Hundley

Cool. We love that. uh i remember seeing this for the first time like seeing links and then the bottom of it seeing like chad gpt um having UTM. Sources there's like oh cool. They put that in there Uh...

[00:01:35:15 - 00:01:41:04]

Jake Hundley

And then... I also saw in another article recently, probably just like a couple weeks ago. Who was it? Disney Plus.

[00:01:44:28 - 00:01:47:06]

Jake Hundley

ah Disney Plus had like their home page.

[00:01:48:09 - 00:01:57:22]

Jake Hundley

indexed on Google, like when you searched it. Anyway, if you hovered over the link, it had the chat GPT. UTM source in it.

[00:01:58:26 - 00:02:05:10]

Cody See

What?

[00:02:06:29 - 00:02:20:18]

Jake Hundley

Like, like what people were speculating was that like. their SEO team or their web dev team. Um, had like an AI agent or something. uh do the seo like so like the indexing and everything or or set the canonicals And it probably said. a canonical to the chat. uh gpt utm source

[00:02:22:06 - 00:02:22:16]

Cody See

Wow.

[00:02:24:16 - 00:02:31:03]

Jake Hundley

So like that that's what I I didn't read that full article because I think it was like a search engine land thing. I just saw it on LinkedIn from. 

[00:02:32:08 - 00:02:37:10]

Jake Hundley

ah from like like a search engine land writer and i was like this is silly this is straight up really silly

[00:02:39:28 - 00:02:54:08]

Cody See

Yeah. You know what? anytime there's big brands. I kind of feel bad for him. Right. whoever is doing that because you know that they're under a lot more scrutiny I mean, I guess you sign up for the job knowing that. if you're going to be doing big corporate SEO.

[00:02:55:19 - 00:03:06:04]

Cody See

Bye. ah SEOs in particular pay more attention, I think, than most. So anytime something like that pops up. you know Somebody's going to call it out. You're going to get a LinkedIn post about that.

[00:03:06:04 - 00:03:22:27]

Jake Hundley

Yeah. like We were just talking to somebody too on the podcast recently. I can't remember. who was But it's like, you don't. Like you don't really even need to focus on like Disney plus doesn't need to focus on their SEO. That's just, that's not a thing. like they have That much branding that that you don't they don't need it.

[00:03:24:25 - 00:03:38:01]

Cody See

Yeah. i I don't know Some of those things, too, I'm just like, i'm I'm so far from this that I don't even know what to say. like You say Disney to me at this point, and I'm like, I'm i'm not anti Disney. I just don't care. like I don't pay for anything Disney at this point.

[00:03:38:01 - 00:03:50:10]

Jake Hundley

I just started watching Vision Quest which is like the sequel to the WandaVision series and it's pretty good. I just started watching last night. Lauren's out of town, so I'm getting my Disney fix in while she's, my Marvel fix in while she's gone.

[00:03:51:19 - 00:03:55:04]

Cody See

I feel like. I'm definitely in the crowd that got it. Superhero fatigue. Ends.

[00:03:56:17 - 00:04:02:13]

Jake Hundley

Oh, yeah. we I mean, we all did. I know. I mean, I think there's like... the the big movies are coming out you know they're like Uh, like.

[00:04:03:15 - 00:04:19:14]

Jake Hundley

uh end game encore and then doomsday and it's like well i'm excited for doomsday whether or not i'm excited for any of the other properties that came out but i feel like i have to catch up on other properties despite how terrible they might be And so I've been doing that. lately, just in preparation for doomsday.

[00:04:20:28 - 00:04:25:10]

Cody See

I'm excited for Godzilla. It's probably me and four guys. but... Us and the, 

[00:04:26:19 - 00:04:29:07]

Cody See

there's dozens of us and we're all excited for Godzilla. 

[00:04:30:29 - 00:04:49:17]

Cody See

ah I feel like I got to tell people, though, because if I just say that, they're like, OK, weirdo Godzilla. I'm like, no, listen. Every Godzilla movie has been pretty terrible. for the most part. Until the recent ones. that are actually really good so i say reasons it's been one it's been literally one and this is the sequel to that one So. Anyway. 

[00:04:50:22 - 00:04:58:08]

Cody See

uh godzilla minus one was the the latest that if you've never seen a godzilla movie and you only see one go see that one because it's good 

[00:04:59:08 - 00:05:05:28]

Cody See

And this is the sequel to that, and it's supposed to be in New York. so I'm hyped. That's probably the the first movie I've been hyped to see in them.

[00:05:05:28 - 00:05:12:09]

Jake Hundley

So the original one... Not the original one, but the one prior to this. That was in Tokyo, right? That was a Japan-based one?

[00:05:12:09 - 00:05:21:21]

Cody See

Yeah. yeah it actually does the prop it basically redoes the the very OG Godzilla of post-World War II. nuclear fallout.

[00:05:22:28 - 00:05:33:26]

Jake Hundley

So this is a sequel. This is a sequel by the same production same Japanese production company. And they're like, we're gonna... Terrorize New York now. That's pretty cool I like that.

[00:05:35:19 - 00:05:40:13]

Jake Hundley

Wait, so how did... how did So he went from the... ah The Pacific to the Atlantic. He's not like terrorizing LA. 

[00:05:41:28 - 00:05:43:02]

Cody See

ah Look man, I'm just a guy.

[00:05:43:02 - 00:05:44:26]

Jake Hundley

Let's go. that's That's a long way to go, man.

[00:05:45:26 - 00:05:48:22]

Cody See

I'm just a guy in the world I don't. I don't know. I'm just hyped.

[00:05:48:22 - 00:05:51:13]

Jake Hundley

that's That's my biggest. question. uh right now So.

[00:05:51:13 - 00:05:54:01]

Cody See

don't Don't think about it. Just let it happen.

[00:05:54:01 - 00:05:58:22]

Jake Hundley

Alright. Well, OK, well, I'll think about it on my own time. But coming back to Chad GPT. 

[00:06:00:16 - 00:06:12:17]

Jake Hundley

yeah there's there's like other things that i want to do to track and i don know i've mentioned this to you before because like tracking with lms is getting so so weird. And we're seeing like search volume drop for all of our clients and everybody else's too.

[00:06:13:26 - 00:06:27:28]

Jake Hundley

so um like how do you how do we track that then because everything's just getting dumped in direct um the direct attribution bucket. So I know like some bigger brands, especially media brands are playing with like using Cloudflare.

[00:06:29:27 - 00:07:07:03]

Jake Hundley

Cloudflare. um Like. Redirecting. When it's an LLM agent. and redirecting to a site that is all marked down for the LLM agent to be able to to read it easier. That's the theory. But if you're doing that. Then use a different phone number, use a different email, use a different form submission, use a different everything. And then you. you're 100 % tracking all LLM traffic. the the the barrier just becomes. Do we have the technical capabilities to do those redirects? End. um you know keep up to date with the different bots that are they that are doing that so i want to try it but i don't i don't know That sounds like a lot.

[00:07:10:09 - 00:07:43:02]

Cody See

Yeah. It sounds cool. Cloudflare is one of those things that... i've not gone deep into really anytime in there it's just how do we deal with the redirect in a relatively simple way just through cloudflare as opposed to going and dealing with somewhere else End. For that, it's great. but i know they have a ton of features that they've added in there and They're probably one of the Leaders. when it comes to Bye. analytics tracking everything around it. Mostly because they have to be. because they I mean, they're so big that they're dealing with it more than anybody else. So.

[00:07:43:02 - 00:07:50:01]

Jake Hundley

I don't know anything about Cloudflare. Except it's basically a CDN, right? It's got other things. I gotta to learn. I gotta learn about it.

[00:07:50:01 - 00:08:00:08]

Cody See

That's a part, yeah. i mean they've ah that They do a lot. They do. Yeah. Video bots. They do stuff about bots. um That's the big thing. Here anyway.

[00:08:00:08 - 00:08:04:27]

Jake Hundley

Well, I'm sure they have. ah Some pretty hefty usage billing.

[00:08:06:00 - 00:08:10:11]

Jake Hundley

ah So that's my transition for this episode topic. 

[00:08:11:29 - 00:08:54:16]

Jake Hundley

ah this is This really hasn't been one thing I wanted to talk about for a long time. It's it's something that's always been really intuitive. to me and to us um regarding like usage billing for platform fees and i i think we're We're really talking about it now because we've transitioned. from HubSpot to high level. And a lot of the A lot of the complaints with. ah HubSpot or not HubSpot, high levels, like low kind of barrier to entry. flat rate fee and unlimited seat pricing is that um the usage fees sneak up on you and it's like every time i heard that i thought that was so ridiculous because i'm like how do usage fees sneak up on you like you should just know about these things that that happen.

[00:08:54:16 - 00:09:20:29]

Cody See

Let me give an example. for if you guys are listening and you aren't in high level land for the record this is This is the... First time we're saying. I got the email this morning. Bye. Jake. uh had cancelled the i don't know why i couldn't i didn't have access in the permission so i was like yeah go for it let it rip But Jake pulled the plug on. um The HubSpot subscriptions, that won't renew for us. we're about to save a lot of money A whole lot of money.

[00:09:20:29 - 00:09:26:17]

Jake Hundley

Yeah, it was we were paying $14 .75. a month. weren't we?

[00:09:28:02 - 00:09:32:22]

Jake Hundley

No, no, no, no, no. $14 .75 a quarter. Yeah, so divide that by three. That's what we're paying a month. 

[00:09:33:27 - 00:09:41:06]

Jake Hundley

um And you're locked in. annually you can't cancel until you're so we were paying the last quarter right now we renew in january 28th but not anymore

[00:09:42:19 - 00:09:53:29]

Cody See

Yeah. So. they they have their base fee which is much cheaper than HubSpot. And then they have usage billing. And the one the first one that came up for us more than anything else, because step one of the whole thing was, OK, well.

[00:09:55:04 - 00:10:26:01]

Cody See

verify proof of concept let's replace HubSpot. with high level for our agency before anything about clients let's just do it ourselves and see you if it's capable of doing that, and if so, what that looks like. And part of doing that was. then um going to the website and integrating the contact form. so the CRM is speaking with the website when form submissions are completed. now that requires a web hook and every time the web hook fires. This was the first one that we ran into. It's a penny. 

[00:10:27:12 - 00:10:47:15]

Cody See

So... Um, We talked about this. I think it's hilarious to say out loud, but If we receive... 100 Inquiries. to our business do we want to pay a dollar for that Yes we do. That sounds like a great deal. I would. I will yes. Here's my money. Please take it.

[00:10:48:29 - 00:10:57:26]

Cody See

Um, So. That's just one example. Now keep in mind. Uh, That's the first one. there's going to be a whole lot more and we've already started running into more of them. So. 

[00:10:57:26 - 00:11:02:09]

Cody See

They do. um they do gradually add up and sneak up on you 

[00:11:02:09 - 00:11:05:17]

Cody See

but i wanted to give you a ah very real world example of one that we 

[00:11:05:17 - 00:11:19:15]

Cody See

had run into where people might Initially, just think. Okay. Yeah, sure. Let it rip. And that's fine. uh until It happens again. And then again. And then again. And then you see your bill and you're like, what?

[00:11:19:15 - 00:11:27:12]

Jake Hundley

Yeah, well. yeah i think i think that's perfectly acceptable with platforms like high level if you're just using it for yourself like your own agency because as those usage fees increase like presumably.

[00:11:28:13 - 00:11:56:11]

Jake Hundley

Your business is also. getting ah stronger and and you know kind of absorb those. And I think a lot of... The the problem with usage fees is that. people like they create these automations for their clients in the sub accounts. And then. like, yeah, it's still only like a dollar or whatever, but then you multiply it by how many clients over how many months and how many days and how many automations, and then it starts to really add up. I've got an example for you guys later on in the podcast, but.

[00:11:57:12 - 00:12:22:15]

Jake Hundley

um i did want to start off and say that I hate the concept of usage fees. um I understand them. That makes sense. And I think if I was a SaaS company, I would probably. charge based off a usage fee. But like what makes it really hard for us and the reason why I don't like it is because we're a productized agency and it's really hard to charge a flat rate fee every single month. with the unpredictability of. ah whatever our clients are getting in the usage fees based on how they're using the platform and also how many leads they're getting. Like. 

[00:12:23:20 - 00:12:24:22]

Jake Hundley

They could be on one retainer.

[00:12:24:22 - 00:12:33:24]

Jake Hundley

And the more they succeed on that retainer. the worse our margin gets if we start eating that. cost so we have to put things in place to to kind of accommodate for

[00:12:33:24 - 00:12:35:07]

Jake Hundley

that. Um,

[00:12:38:06 - 00:13:10:08]

Jake Hundley

And so. i ah But like. The usage fees for clients aren't just like those webhooks that that you were mentioning. like It ranges from everything, like voice AI. to call tracking, to form tracking, whatever you're doing. like if you have fifteen If you have a client on the one management fee, let's say it's $500. I guess the price doesn't matter. but you have a client on one management fee as a retainer and they get 15 leads and let's just say like based on their usage fee for whatever reason it costs you 20 bucks a month to facilitate those 15 leads.

[00:13:12:04 - 00:13:29:22]

Jake Hundley

Um, Obviously, I'm... i'm kind of exaggerating the cost. But. um if you have the same client the same management fee but in a different market maybe like a like a more lucrative market so for us it'd be like a client in denver colorado versus one in like Pittsburgh Pennsylvania.

[00:13:30:27 - 00:13:34:11]

Jake Hundley

Like Pittsburgh is like a hot market for landscaping or like in that Pennsylvania area. 

[00:13:35:19 - 00:13:54:26]

Jake Hundley

um Maybe like even in the Philly area, but like. Aye. If that client in Pittsburgh gets 10x the leads on the same... Volume. Or on the on the same... um retainer that your client in Denver is getting. Your usage fees for one client is $20, but the other one is $200. So like.

[00:13:56:06 - 00:14:07:01]

Jake Hundley

just because one is performing better in a different market, your margin on one of them is significantly lower. And therefore you have to question is like, do I even want to keep them because they're so successful? 

[00:14:08:06 - 00:14:09:11]

Jake Hundley

So.

[00:14:09:11 - 00:14:16:20]

Jake Hundley

I just think it's absolutely crazy that there are agencies. out there not passing off usage fees to their clients. 

[00:14:16:20 - 00:14:21:15]

Jake Hundley

or at least Or at least like the very least creating like a tiered pricing structure.

[00:14:22:19 - 00:14:33:14]

Cody See

True. At least paying attention. Right. I mean, that's Take a look. Just to make sure you know. i think a very simple version If nothing else. is hosting. Right. Um,

[00:14:35:06 - 00:15:10:08]

Cody See

If you are doing reseller hosting in any capacity. And you've got... Let's say you're a generalist agency of some sort. you have an e-commerce client. with 1000 products. in the portfolio. And that's 1000 images. and a A minimum. All right. and all the data associated with that. Versus a five-page local legion site That really just gets contact form submissions. and Maybe they have a portfolio. Like those are not comparable. the The usage between those is going to be so dramatically different that if you're not. paying attention 

[00:15:10:08 - 00:15:12:16]

Cody See

Yeah. It'll eat you. I'll eat your money.

[00:15:14:03 - 00:15:30:29]

Jake Hundley

Yeah. And another thing that like usage fee that people don't really think about, and it's not really a usage fee. um I mean, it kind of is because every time it gets used, it's a fee. i am but um payment processing. Like Stripe. It's a 2 .9 % plus 30 cent per transaction. uh fee on whatever you take in. 

[00:15:32:08 - 00:15:49:25]

Jake Hundley

So... Um, If like. And there's nothing legally you can really do, at least in the US from what I know, there's nothing legally you can do to avoid that processing fee with cards. um unless you're on like a Stripe premium plan. And I can't remember the name of the the law. 

[00:15:51:14 - 00:16:27:11]

Jake Hundley

um but ah but or it's an act really but um You're not allowed to charge, just just for clarity's sake, you're not allowed to charge or pass the fee on to a ah a customer. If it's a debit card. So if it's a credit card, you can in some states. Right. And you start to know which state that is. But federally. debit cards are exempt from that rule. on the free version of stripe if you're not paying for like the ah additional stripe fee or whatever You don't have an option to differentiate that. automatically so you either have to turn that on or like charge people for the card and give only the card option Um,

[00:16:29:02 - 00:16:52:23]

Jake Hundley

But if they use a debit card. you're legally crossing into you know troubling territory the other option is just only charging people by ACH, which is what we did by default. Initially. And then. We thought about it more and realized that that just creates so much friction because a lot of people just don't want to pay with a credit card. And so at a certain point we just had to kind of eat that margin.

[00:16:54:01 - 00:17:05:19]

Jake Hundley

um But that's just like another usage fee that gets added onto. So we did end up accounting for that. uh that 2 .9 fee and it's in a very simple way that a lot of agencies um handle it Uh,

[00:17:06:22 - 00:17:28:25]

Jake Hundley

um Well, especially if you take an ad spend. but um that's really how we accounted for it i'll talk about it a little bit later but those things like that plus your usage fees with like high level or call tracking metrics or or call rail or whatever those all like seriously add up and it's not like I guess a death by a thousand cuts. It's like a slow. boa constrictors squeezing the life out of your agency.

[00:17:29:25 - 00:17:43:12]

Cody See

Yeah. but I think that there's a lot that. clients themselves don't understand. intuitively when it comes to this sort of pricing. hands. ah Something as simple as the relationship between pricing and ownership.

[00:17:44:13 - 00:17:48:29]

Cody See

That's one of them. Thank God. This lives on my phone. It's a blog post I have not written. 

[00:17:50:05 - 00:18:02:02]

Cody See

They don't. Maybe I will someday. I don't know if it's it's worth it. you know taking the time because it's usually just a conversation that needs to happen but Uh, If price is cheap, 

[00:18:03:19 - 00:18:07:07]

Cody See

They usually don't have direct ownership of something. Right. I'm not going to say it's bad. 

[00:18:08:09 - 00:18:28:22]

Cody See

Right. I don't think that it is uh price is reflective of what it is that you're buying so whatever that feature is. then If it's cheap. then I think the client should expect that there's going to be... However, you want to view it or call it nickel and diming upsells. uh Based on. any sort of usage. Right.

[00:18:30:04 - 00:18:31:06]

Cody See

If they pay a premium. 

[00:18:32:08 - 00:18:39:25]

Cody See

then they expect probably to have more direct ownership and then maybe you know I think usage in particular.

[00:18:41:22 - 00:18:46:07]

Cody See

um I think you pretty much always expect that. but You might expect more things to be included. 

[00:18:47:14 - 00:18:54:12]

Cody See

So something like. Uh, Stripe processing fees just marking up to include those and factor those in Um,

[00:18:56:27 - 00:19:00:21]

Cody See

It's it's ah the The meme. right of like free shipping

[00:19:01:24 - 00:19:10:05]

Cody See

okay versus paying extra for shipping. It could cost more, but you get it included and you're like, yeah, that's awesome. And then it's cheaper, but you have to pay for it and you just don't feel good about it. so

[00:19:12:01 - 00:19:15:02]

Jake Hundley

Yeah. That's something you could do is just increase increase your... You're. 

[00:19:16:08 - 00:19:21:10]

Jake Hundley

If your margin's at stake or whatever, just increase your prices. by 2 .9 % or whatever. 

[00:19:22:13 - 00:19:40:14]

Jake Hundley

um Which, by the way. When you're adjusting for a percentage-based markup, there is a formula you should be using that is not. just adding a percentage, like a... 2 .9 % example or 10%, for example, you don't just take 1000 times 1 .1. that's not That's not the correct way to do it.

[00:19:41:14 - 00:19:55:01]

Jake Hundley

um there's another there's a margin markup formula that i'm going to go over in the premium version So in the premium version, we're going to talk about that. And then we're also going to go into. kind of the things that we look for in platforms that do have usage-based billing if we have to apply them to clients.

[00:19:56:07 - 00:20:24:11]

Jake Hundley

Call tracking metrics is one of those platforms. And there's a lot of features in there that that are extremely important for agency owners. And depending on whatever agency you are, whether you... bill directly, have want to have separate payment methods or whatever. or an automated way to build them. like they thought of it all. And it's like, every platform should be like that. so We'll go over that. I'll go over the formula, why it's important to... to charge a certain or to to calculate the formula a certain way.

[00:20:25:14 - 00:20:34:21]

Jake Hundley

um and there's some other goodies in there but i'll We'll get to those once we get to the... our high-level solutions. So. Uh... What was your story in here?

[00:20:36:20 - 00:20:39:26]

Cody See

Powell and I worked at a previous agency. And we were.

[00:20:39:26 - 00:20:43:24]

Jake Hundley

yeah yeah yeah Sorry, I glossed over my story, but you say yours because mine's a little bit longer.

[00:20:43:24 - 00:20:51:06]

Cody See

Yeah, there's... I mean it This was a while ago at this point. And I guess. That's part of why I wanted to share it. so 

[00:20:51:06 - 00:20:59:22]

Cody See

I worked at a past agency where I was manually entering in. usage billing, specifically for call tracking. so that we could... rebill it 

[00:20:59:22 - 00:21:00:16]

Cody See

so let me 

[00:21:01:29 - 00:21:04:08]

Cody See

It was terrible. 

[00:21:04:08 - 00:21:12:08]

Cody See

So let me say it. So you guys are really understanding what I was doing. It was. I log in. to the the call tracking software 

[00:21:13:11 - 00:21:37:10]

Cody See

I look. I. All right. Download the invoice, I think. I look at the minute usage. I then open that up in one monitor. The other monitor, I log into our billing platform. I'm typing in. all of that and then i have to write write a note explaining what the details of what that you know what it is, ship it off. This is already after we've been billed. here night is We're hoping that they're going to pay us back.

[00:21:39:11 - 00:21:42:10]

Cody See

And. ah It was awful. 

[00:21:42:10 - 00:21:43:08]

Cody See

It's terrible.

[00:21:43:08 - 00:21:49:09]

Jake Hundley

That sounds... That sounds stupid. There's probably a listener right now who like literally does that in their agency. And they're like, what?

[00:21:49:09 - 00:21:51:00]

Cody See

Yeah, don't do that guys 

[00:22:52:06 - 00:22:00:11]

Cody See

um I do want to say. it It was a good thing to do. I was glad that it was being done. I did not enjoy doing it. Nobody would.

[00:22:01:19 - 00:22:08:25]

Cody See

Uh, Bye. I recognize that. It was a valuable thing to do and was glad that, you know. it was happening 

[00:22:10:16 - 00:22:15:15]

Cody See

Uh, It was a different time. And I hope that nobody's doing that anymore. If you are doing that, because you can 

[00:22:16:21 - 00:22:24:29]

Cody See

What would have needed to have happened back in the time is Lupin a dev. Right. to Good. an api connection that would then just you know 

[00:22:26:03 - 00:22:28:13]

Cody See

update. are invoicing or whatever. 

[00:22:29:29 - 00:22:42:09]

Cody See

Uh, You can vibe your way through that now. I think So. I don't. So. Don't do that. pass it through i'm a big believer in it but don't Don't be doing that. It's not a good use of your time.

[00:22:42:09 - 00:22:57:09]

Jake Hundley

We will go over what yeah what you should be doing. with that versus like laboriously going through every month and and and billing that because um we we had considered that too well we didn't but it was brought to our attention like we you could do that and like well we're not going to do that 

[00:22:57:09 - 00:22:59:10]

Cody See

Um, That's a good idea. No thank you. 

[00:22:59:10 - 00:23:01:05]

Jake Hundley

Yeah. That's an idea. 

[00:23:02:26 - 00:23:45:06]

Jake Hundley

all right so okay so in in february of this year uh so caesar had uh mentioned i think he we were talking and on Facebook. And he had mentioned that. He set up call tracking for like 80 Google business profiles, like ah out of his accounts. um And notice that 90 % of the calls were just spam, which is like a great thing for agents to know, right? To know. what kind of traffic you're getting your clients and being able being able to actually listen to those calls versus being like, wow, we got so many calls. And then the client being like, I don't get any, you know, didn't get any sales from that. So it's a good insight to have. um so i had asked him if he was passing on the usage billing or just like how he was If he if he was just eating it. into his margin. 

[00:23:46:08 - 00:24:03:23]

Jake Hundley

And. ah I was he didn't understand he's like isn't it like the same thing and then I was like so I was explaining that he's either billing his clients directly for that usage or he's just eating it and not billing them additionally. And so he goes, okay, yeah, I'm eating it. i'm like that's That's fine. Like, it doesn't matter what you're doing. I'm just curious what you're doing. 

[00:24:05:03 - 00:24:12:16]

Jake Hundley

Um, So his thought his thought process was that the usage billing was so minimal. that it was like the value it was like a value add of having that in a service.

[00:24:13:26 - 00:24:16:17]

Jake Hundley

um integrated with his marketing efforts to keep his clients around.

[00:24:16:17 - 00:24:19:10]

Cody See

I feel my blood pressure rising. Right now. 

[00:24:20:21 - 00:24:42:14]

Jake Hundley

He, he, didn't say it directly. He didn't, he like, but I kind of, that's what I kind of took from it. And... on i like I know you and I would never do it this way. So like... For for an example, even if the cost is minimal per client, it seriously stacks between multiple clients and you'll be staring down the barrel of a massive operational cost that doesn't even need to be there.

[00:24:44:04 - 00:24:45:14]

Jake Hundley

So... In July. 

[00:24:46:14 - 00:24:55:03]

Jake Hundley

uh this is what four months later or five months later. He had posted that for the first time in six and a half years he looked at his P and &L statement.

[00:24:56:06 - 00:24:56:20]

Jake Hundley

Which... Brother. 

[00:24:58:15 - 00:25:00:17]

Cody See

Brother. You missed. I just feel it on my chest 

[00:25:00:17 - 00:25:07:12]

Jake Hundley

It just hurts. You... You missed 78. to 80 chances to look at a P and &L statement. 

[00:25:10:27 - 00:25:24:10]

Jake Hundley

Yeah. Damn it. Anyways, I know we have brought this up on the podcast before. I can't remember when, but... Anyways, he thought he was spending about 800 bucks a month for lead tracking through WhatConverts. It was actually $2 ,200. 

[00:25:25:24 - 00:25:41:03]

Jake Hundley

He thought Zapier was $104 per month, but it was actually $310 per month. I'm only bringing, I'm only saying this on here because he posted this publicly on like like on LinkedIn. Right? Like, I'm not just putting a Caesar on blast because... private DMS, like this is all in his message are all in his posts.

[00:25:42:05 - 00:25:59:23]

Jake Hundley

So what he thought was $900 a month in total is actually $2 ,500 per month. You know what you can do with $2 ,500 per month? I can pay my rent. I can hire a part-time employee. I can save that one year. I can save that for one year or across the 12 months and literally fly the team to Greece for a team meetup.

[00:26:02:06 - 00:26:07:19]

Jake Hundley

I... Can't imagine. not accounting for this. so like Just it hurts me 

[00:26:09:11 - 00:26:25:13]

Jake Hundley

So 20. $2 ,500 per month doesn't seem like a lot, but when you divide it, but ah because like when you divide it by 80 clients on like 500 to $1 ,000 retainers, it's only like $31 per client. Right. It's not like that big. Okay. So on a $500 retainer. 

[00:26:27:11 - 00:26:48:16]

Jake Hundley

Um, If you're already at a 20 % net margin, your net margin is actually like 14 % to 16%, which is still significantly lower, right? because like you're like if your net margin on 500 20 100 now you got to take that cost of goods sold out or I guess you'd do it the other way, but still. Like your your margin is dropping. Now, if you, on a thousand dollars. Your net margin is actually. 

[00:26:52:03 - 00:27:09:03]

Jake Hundley

ah Sorry, it's like... uh six it's like 14 no 16 right so between four and six percent um between those, but you're losing that out on just the usage billing per client. It doesn't seem like a lot monetarily. But when you're looking at net margin. It's a pretty significant amount.

[00:27:13:20 - 00:27:32:20]

Cody See

Um, two things. One, I think If you are productized. and you're trying to be price competitive thinking about a percentage of net margin. is cool. I think it's a smart way to think about it. Every time that you're looking at a cost. Think about it. of How is it going to impact? 

[00:27:34:28 - 00:27:36:27]

Cody See

on ah on an individual basis. Right.

[00:27:36:27 - 00:27:46:18]

Cody See

Because you'll you'll think, oh. It's not that much money. We can pay that. but it's not about the one time. It's about the multiples and how that impacts things. The other thing is. 

[00:27:48:19 - 00:27:56:25]

Cody See

There are... better and worse situations. uh to accidentally run into this. 

[00:27:57:26 - 00:27:59:27]

Cody See

And I'm just going to tell you. personally. 

[00:28:00:28 - 00:28:20:01]

Cody See

that. Um, Doing it with SEO. is worse. than doing with ads because ads is predictable and scalable. Right. You can have a general idea. of what you're gonna be getting in usage. As you. move up or down with your ad spend. right SEO. 

[00:28:21:03 - 00:28:48:12]

Cody See

seo If you're just starting you don't even know what you're starting with. right you don't know what sort of volume they're getting you can have a rough estimate if you're looking at like the analytics but That doesn't tell you still what the potential cost might be. So. That. Uh, If you're going to entertain. that stuff. of of eating it. with tears or anything like that. Just know that It is not equal. based on the traffic source.

[00:28:48:12 - 00:29:46:16]

Jake Hundley

Yeah, I i saw I adjusted the formula, by the way. So like ah you have to take your cost of goods sold, which would be the usage fee minus the. your retainer. then multiply that by your average net margin, which is 0 .2%. or 0 .2. It's 20%. But that actually on a $500 retainer, your margin goes from... 20 % down to 18 .8%. A $1 ,000 retainer, your margin goes from 20 % down to a 19 .4%. margin. So you're losing that 1 % on everything, not to mention the 2 .9 % that you're taking from credit card processing fees. Not to mention like the 1 % using for for reporting. So I just did like this huge like. this huge thought leadership write-up for agency analytics. I don't know if they're gonna, they're gonna publish it here soon. I don't know when they're going to. But I talked about the considerations that we had for that because every time we have a new report or campaign in agency analytics, it adds $18 to. the cost of that client per month. So it's a big operational cost and it's about. It's like 0 .8 % of our margin. 

[00:29:47:23 - 00:30:15:11]

Jake Hundley

ay for every client so we have to adjust we have to we have to understand that We're going to lose 0 .8%. So if I'm doing this, I'm losing 0 .8 % on, um, on edges analytics. I'm losing, uh, 1 .2 % on. Um, on usage billing for whatever this example is, I'm losing 2 .9 % on the credit card processing fees. Like we're already at like five or 6 % right now. And it's like. At a 20 % margin, you're dropping you're getting really close to like 10%. You're not even going to be that profitable anymore. 

[00:30:16:12 - 00:30:34:05]

Jake Hundley

So like these things seriously add up. So I literally sent a message after he posted on LinkedIn regarding it, looking at his PNLs. And I literally just said. Hey, remember when I asked you if you charged usage and explained why I preferred CTMs or call tracking metrics billing system where we can pass usage onto clients? 

[00:30:35:17 - 00:30:43:22]

Jake Hundley

And he just laughed at it. And he was like, then he started asking more questions. I'm like, okay, so like now you're thinking and you're understanding. kind of the way that you and I do.

[00:30:45:09 - 00:31:28:11]

Cody See

I think. um We think about this. we're I don't know manufacturing. Minded. like that's I think agencies. People start agencies and they think, well, it's fine because It's a people business. There's plenty of everything is profit. Everything is margin. And so there's all this wiggle room to go. Ends. Ah. You can think that. Right. And you can just keep charging more. I guess but. If you don't. If you don't look. then you're just never going to realize that. like If you come from a different background, you'll know how these things can impact things. But if you if the the agency is the first thing that you've done, or like any sort of people business is the first that you've done, then you don't realize just how much this can creep up on you.

[00:31:28:11 - 00:31:36:07]

Jake Hundley

this is why This is why usage fees are a boa constrictor. like They will slowly suffocate you. ah if you if you don't pay attention. 

[00:31:37:11 - 00:31:45:11]

Jake Hundley

So um I got a few like high level solutions to solve this. So now we're talking about the problems of usage for you. So then what do you do with them? And then how do you address the different ones?

[00:31:46:19 - 00:31:49:25]

Jake Hundley

um So my first one I had was. past the usage fee to the client. 

[00:31:50:27 - 00:32:02:25]

Jake Hundley

Like the easiest one, just make them pay for it. um Or like if you can do it with an upcharge too. So if you're, you you know, if you're getting charged like two cents per minute for a call tracking, charge them four cents per minute.

[00:32:04:18 - 00:32:07:18]

Jake Hundley

Um, and So the but the best solution. 

[00:32:09:17 - 00:32:21:18]

Jake Hundley

ah But there there are some caveats to that, I think. And we're going to go over those caveats in the premium version because like you can't just do that. There's other questions that come into play like is. If you're upcharging while... 

[00:32:22:21 - 00:32:51:06]

Jake Hundley

the what will the client think of that does that paint you in a bad light because they could just go and get the usage billing cheaper from something else like how do you pitch that if they know that you're upcharging. um And then how do you manage those invoices and those billing? on top of... Like the... actual monthly retainer because you don't want to be sending like eight different invoices automatically for you know eight different platforms that you're you're charging usage fees on and then you also don't want to be going in manually 

[00:32:52:17 - 00:32:55:09]

Jake Hundley

ah to consolidate them every single month. into one.

[00:32:56:09 - 00:33:10:02]

Jake Hundley

Right. So um that that that that'll be an operational overhead cost that you won't even be able to quantify because it's not tied to money. It's tied to labor, which is if you're struggling with. usage fees you'll definitely struggle with calculating that 

[00:33:12:11 - 00:33:41:12]

Jake Hundley

Um, But definitely find platforms like call tracking metrics in which you can automate those usage fees. So even if you're using like voice AI, you can automate that and it's purpose built for agencies. So there's tons of different ways that you can use it. ah If you want to support. the podcast in any capacity or support our agency there's a uh There's a link in the description for our what do you call it, referral link? I don't think you get anything better. other than like a longer free trial. So like it's not like we're getting that much. But. It supports us.

[00:33:43:18 - 00:33:50:28]

Jake Hundley

Yeah. ah Next one, I had created a tiered service approach on performance. I don't like this one very much, but I've seen agencies do it. 

[00:33:52:04 - 00:34:23:02]

Jake Hundley

So. This solves like the whole dilemma of 15 leads. um for that one client in that one market and the 150 leads for the other client the other market like if they're getting 10x the leads you charge based on the volume of expected like tiered breaks. And it doesn't have to be based off of that. It could be based off of usage. So it's like, hey, we have this this voice AI. If you're getting you know zero to 10 calls a month, it's this price. If you're getting 10 to 100 calls per month, it's this month and or this price. And it's like a flat rate and it's easier to digest and understand.

[00:34:25:20 - 00:34:40:20]

Jake Hundley

Um, But. I don't. like this for a lot of reasons i know software that does this um but typically like this what the software does is like if you exceed because like what happens if they get 11 calls in one month you're gonna then charge in the next

[00:34:41:26 - 00:34:51:18]

Jake Hundley

The next. tier or the next price. um So usually software will do like if you do like exceed two or three months in a row. then you're automatically updated to that. that one or the the higher tier versus like 

[00:34:52:26 - 00:34:56:26]

Jake Hundley

i Just... having to go in and manually adjust that every time. 

[00:34:56:26 - 00:35:14:12]

Cody See

So. I think. Early on. If you're still small. relatively small. um And. Small is relative. like i I think you can still get. pretty big doing this if you want to. It can be a good differentiator. Right. I think that that's not necessarily. Bad. 

[00:35:15:24 - 00:35:34:02]

Cody See

Uh, But. SaaS is do this for a reason and it's because the entire thing is automated for them. they can do it in a way that it's automated. So they're not doing any human involvement to fix things. If you are relying on human involvement, you'll reach a size where that's going to get very difficult to do. And that at that point. 

[00:35:35:15 - 00:35:43:03]

Cody See

um I mean, I guess we kind of. have done that ourselves in a way. were getting to that position where it was a good differentiator at first and then you get big enough where 

[00:35:45:09 - 00:36:04:07]

Cody See

It's just... you're adding in way more complications than you need. And. That's kind of. That's positioning, right? You do it early because you differentiate yourself with that positioning. You do it later because you're established. You don't need to differentiate yourself anymore. You don't need to be. Um, unique or different you just have to be good and then you you find that through simplifying

[00:36:05:14 - 00:36:14:26]

Jake Hundley

Mm hmm. Yeah. Yeah, I mean, you could just eat the usage fees too when youre first starting as a good differentiator, but you will have to change at some point the more you scale. So.

[00:36:14:26 - 00:36:42:22]

Cody See

Yeah. I remember we had that talk with. ah a sas company where they told us their pricing and we were like There's no world. And what you continue to maintain this. You guys are. Um... Living on VC money. Or... Uh... Your. breaking even and assuming that the payout is going to come from you selling. because there's no way in which this price... stays the same price that it is.

[00:36:42:22 - 00:36:43:08]

Jake Hundley

Was this us? You mean?

[00:36:43:08 - 00:36:43:28]

Cody See

Yeah. Yeah, yeah.

[00:36:43:28 - 00:36:46:04]

Jake Hundley

Oh, was this the email provider that we talked to?

[00:36:46:04 - 00:36:50:24]

Cody See

We talked to him. ah It was... i don't want to drop their name because i don't want to dump on them

[00:36:50:24 - 00:36:52:08]

Jake Hundley

Yeah, well, usually what do they what do they do?

[00:36:54:04 - 00:36:58:23]

Cody See

Uh... It was a lead gen support. Horde. tool.

[00:36:58:23 - 00:37:02:14]

Jake Hundley

Oh. Oh, okay. I remember who this, okay. I, yeah, this, yeah.

[00:37:02:14 - 00:37:07:25]

Cody See

And they just they they walked around it. They're like, yeah, you know, like our pricing is subject to change.

[00:37:07:25 - 00:37:10:28]

Jake Hundley

Well, like, yeah, we we know. We were looking at... We're aware it's going to change. we're it was an autoresponder

[00:37:10:28 - 00:37:11:20]

Cody See

Yeah.

[00:37:11:20 - 00:37:15:25]

Jake Hundley

Yeah. and i remember that i was like that's stupid low

[00:37:17:11 - 00:37:20:19]

Jake Hundley

yeah Yeah I remember that. I forgot about them.

[00:37:22:00 - 00:37:22:06]

Cody See

Yep.

[00:37:23:11 - 00:37:23:29]

Cody See

That was funny though.

[00:37:25:29 - 00:37:32:26]

Jake Hundley

Yeah. ah anyways I think the tiered approach is sloppy i just I just think it is. It also creates added friction, like like severe added friction. 

[00:37:34:00 - 00:37:37:26]

Jake Hundley

um and i'll go over more of that in the premium version about why there's why there's friction in there 

[00:37:39:00 - 00:38:11:05]

Jake Hundley

Um... The other one, this is markup ad spend with a margin percentage. So this is what we do. um so this doesn't account for fees associated to organic So. um in in One example, I guess I didn't really write this down, but um What I what I like about this is I talked to Cody about this, too. And it's like if you're accounting for a certain amount of margin impact from usage based fees. on leads that you're getting for your clients. and you know your average cost per lead, 

[00:38:13:08 - 00:38:17:14]

Jake Hundley

ah But. I swear I wrote this down. Did I write this down in the premium version notes?

[00:38:19:24 - 00:38:23:05]

Jake Hundley

No, it's not. we I died didn't write this down. I just wrote it and down in my head. 

[00:38:24:24 - 00:38:35:22]

Jake Hundley

um But like. For example, Cody and I know that our average cost per lead, or at least our target, is like $100 per lead for our clients. So if we can expect. If we're only doing tracking or like some of this automated automation, 

[00:38:36:26 - 00:38:48:18]

Jake Hundley

like usage based stuff for our clients and we can expect. one lead or a five-minute phone call on the high end. I... every hundred dollars and a client is spending a thousand dollars 

[00:38:49:20 - 00:38:54:18]

Jake Hundley

we We know we're going to get 10 calls at. uh what 50 

[00:38:55:20 - 00:39:05:05]

Jake Hundley

50 minutes and in charges. So if that scales up to 2 ,000, we'll now get 20 calls with. an hour and... 40 minutes. uh of usage-based billing 

[00:39:06:15 - 00:39:13:26]

Jake Hundley

So our percentage markup on our ad spend, as we increase the ad spend, we know we're going to continue getting those like very similar results.

[00:39:14:26 - 00:39:27:06]

Jake Hundley

ah We know that the percentage markup is going to account for that as we increase. So our our base management fee is going to increase. Therefore, our margin will stay the same, assuming that our labor. also stays relatively the same as well.

[00:39:29:08 - 00:39:37:11]

Jake Hundley

Um, The biggest reason we charge the... Bob. The margin mark is because as an agency, we take an ad spend and then spend on our client's behalf. 

[00:39:38:14 - 00:39:49:09]

Jake Hundley

So ah the biggest problem with this is like the Stripe processing fees. If they're taking 2 .9%, they're taking 2 .9 % of a cost of goods sold. And so and theoretically, we could actually go negative just by accepting a payment.

[00:39:50:13 - 00:40:05:22]

Jake Hundley

So. um You have to do the margin markup, not the markup. So most people would just take a thousand dollars and multiply it. But if it' if it's like 15 % markup, that's it. They'll do a thousand dollars times 1 .15 and call it 1150 and they're good to go. And that's the new margin.

[00:40:06:24 - 00:40:22:11]

Jake Hundley

um It's not the way you do it. That that is just the... That is just a markup. And that will still continue to eat into your. into your profit margin overall. so If they're just for that. I'm going to go over the formula in the the premium version. 

[00:40:23:29 - 00:40:28:12]

Jake Hundley

um If you already know how to do margin markup, then you don't. really need to listen to it because Pretty simple. 

[00:40:30:17 - 00:40:38:13]

Jake Hundley

um It's actually complicated. I was i was talking to Cody. and I was like, I don't know how I'm trying. I'm trying to explain how to do the math of here. And he was like, don't. We don't.

[00:40:39:13 - 00:40:45:20]

Jake Hundley

Don't explain it. Just dates. i'm gonna do it i'm gonna try to and if anybody can understand it you know Good on you. 

[00:40:48:00 - 00:40:52:29]

Jake Hundley

Um, Okay. So what's the next one I had here? So margin markup. Yep. Okay, cool. 

[00:40:56:00 - 00:41:04:07]

Jake Hundley

Um, ah high-level so The other option you can do is you can combine everything. You can do the margin markup on ad spend at a certain amount. I mean, if you're a paid media company, you should be doing that anyways.

[00:41:05:16 - 00:41:15:29]

Jake Hundley

An account spending $10 ,000 in ad spend versus an account spending $1 ,000 in ad spend should absolutely have more attention to it, i .e. more labor. and more resources You should be getting paid for that.

[00:41:17:11 - 00:41:24:22]

Jake Hundley

um Some agencies will do the tiered approach on ad spend, which I... I think that's okay. I still think it's a little sloppy and it creates that friction that I'll go over later. 

[00:41:26:13 - 00:41:38:07]

Jake Hundley

um But. And then the other one is pass usage fees onto the client. So do the margin markup. And then if there's any direct usage fees like voice AI, like call tracking, anything. anything like that. Pass them on to the client. 

[00:41:39:07 - 00:41:43:07]

Jake Hundley

Uh, do it in an automated way. Don't do it in ah in a manual way. Ciao.

[00:41:46:02 - 00:41:47:01]

Cody See

Yeah. Don't do that.

[00:41:47:01 - 00:41:48:05]

Jake Hundley

Yeah. 

[00:41:49:11 - 00:41:53:07]

Jake Hundley

Well, I hope everybody... took positive notes away from this. 

[00:41:56:10 - 00:41:56:28]

Jake Hundley

Uh, Yeah, I don't know. 

[00:41:56:28 - 00:42:05:20]

Jake Hundley

it's it's It's something that every agency owner needs to think about. And it it baffles me when... the initial answer is just no, we just eat it.

[00:42:08:05 - 00:42:08:28]

Cody See

yeah Yeah, don't do that. 

[00:42:12:11 - 00:42:14:02]

Cody See

Uh... Yeah, don't do that. Crazy. Crazy. Don't do that.

[00:42:15:07 - 00:42:32:18]

Jake Hundley

All right, guys. Well, ah thanks for joining. um Check out the premium version of the episode for the formula for the margin markup and then also what we look for in. Bye. And. platforms and softwares that allow us to software's software. Is there a plural software?

[00:42:32:18 - 00:42:34:09]

Cody See

Both. either.

[00:42:34:09 - 00:42:35:04]

Jake Hundley

Really?

[00:42:35:04 - 00:42:36:28]

Cody See

I don't know. I'm just deciding right now.

[00:42:38:05 - 00:42:54:24]

Jake Hundley

So anyways. Our margin markup formula, I'm going to have examples of of how this. of how it makes sense over the other one and then Try to. God. It sounds kind of like condescending when I say try to keep up, but like. It is kind of a complicated concept if you're not used to it. 

[00:42:55:24 - 00:43:13:08]

Jake Hundley

um and the second one is going to be uh yeah for the software that we look for we look for very specific things in their indicators in there that will make it compatible for our agency to be able to either pass those usage fees on or mark them up and send them in an automated way So. ah For everybody else, ah thanks for listening. We'll see you next time.

[00:43:13:08 - 00:43:14:11]

Cody See

See ya.