How to Build a Lean Agency Without Underpaying Yourself or Burning Out

About six years ago, I started noticing a weird pattern.

Successful freelancers would come to me excited. They’d started landing bigger projects at higher prices. They had more work than they could handle alone. They had money in the bank.

They’d brought in a subcontractor, and scaling up into a lean agency looked very promising.

Then, a few months later, all that excitement had changed to a frustrated confusion.

They were working longer hours. Cash flow was tighter. Subcontractors were less reliable than at first or wanted to charge more. One or two clients had complained.

In one of our sessions, the now-dejected agency founder would say, “I don’t think this lean agency model is for me.”

As much as I felt for them, the model wasn’t the problem.

When we slowed down and took a hard look at the numbers, processes, and relationships with individual subcontractors, the same issues kept appearing, issues that weren’t edge cases but structural points of failure.

If you try to run an agency without changing how you think about your business model, responsibilities, and compensation, then you’ll have those issues.

I wrote this post to pass on six pieces of advice based on my own experience operating a lean agency and what has worked for my 1-on-1 coaching clients.

Keep reading if you want to build a lean agency without underpaying yourself or burning out.

(Note: I’ve written before about what a lean agency is and why it’s a bad idea for most freelancers. Check out that post if you haven’t already.)

Building a Lean Agency Without Underpaying Yourself or Burning Out

1. Recognize and pull the extra earning levers.

When you’re a solo freelancer, you sell your time, talent, and expertise. If you want to raise your income, you have a limited, predictable set of levers to work with:

• Work more efficiently and reduce your time investment in each project to raise your EHR
• Reposition or repackage yourself and your services to increase their perceived value (so that you can charge more without doing more)
• Ratchet up your prices as high as your current market or niche will tolerate
• Pivot to a different market or niche that places higher value on the outcomes you deliver

When you become a lean agency, you can still use these levers. I’d recommend it.

However, you gain access to a new lever: other people’s time, talent, and expertise. You have more “inventory” to sell, and profit becomes a real possibility. That is, the cash left over after you pay subcontractors and yourself.

For example, let’s say my coaching client Hannah sells a website project for $10,000. She pays her subcontractors $7,000 and herself $1,500 (for being the account executive and project manager and doing a bit of quality control). That leaves $1,500 in the agency’s bank account.

I’m assuming here that Hannah priced the project well and that she managed her team and time well and came in under budget. I’m also assuming that some of that $1,500 will go toward taxes and operating costs.

Still, the implications are exciting. A lean agency can pay Hannah what she wants to make and leave her with a surplus (aka, profit) that didn’t require significantly more time, effort, or risk.

Where lean agency founders go wrong is acting like glorified project managers because that’s the comfort zone. The bigger opportunity for Hannah lies in selling more inventory that isn’t bound by her own time or capabilities and thereby increasing true profit.

2. Change how you think about your compensation.

As a solo freelancer, I charge as much as possible for a project and put as little time into it as possible. Maximizing my EHR is how I make more money as a freelancer.

When an agency founder like Hannah shifts to selling her subcontractors’ inventory, so to speak, the way she thinks about their EHR and a successful, or well-paying, project needs to change.

This fake scenario will illustrate:

• Hannah pays a subcontractor his requested rate of $75 an hour.
• She charges her client $125 an hour.
• Her margin is $50 per hour sold.
• The project takes 10 of her sub’s hours, so her take is $500.
• Managing, reviewing, or directing the sub’s work and managing the client takes 1 hour of her time.
• My EHR for the project is $500.

Now, before some of you get all up in arms about how charging $125 an hour isn’t fair to the client, remember this:

• Hannah’s reputation is on the line.
• She found the client and sold the project.
• She created the systems and processes we use.
• She provides editorial oversight and/or creative direction.
• She fixes problems when something goes wrong.
• She has to eat the cost if she charges the client a flat fee and the sub takes longer or charges her more than expected.
• She assumes the business and legal risk, not the subcontractor.

(That risk is why some people never want to run an agency. Fair enough.)

$125 is much lower than what she would charge if she were the one doing all the work, yet she is still responsible for delivering an outcome the client is happy with.

If Hannah farms out most or all of the work while maintaining quality, the client is actually paying less. The client isn’t suffering.

Hannah isn’t suffering or losing either. As an agency, she can make $500 an hour charging clients $125 an hour.

Though I still recommend premium pricing, which improves positioning and attracts better clients, it’s worth noting that charging lower prices can make you more competitive in certain markets and niches. Agency owners can charge lower rates and still have a winning economic model, assuming that they can sell enough hours or projects (volume) and control their costs and time investment (management).

With the lean agency model Hannah can charge clients a lower price and raise her EHR. Solo freelancers who sell their time and talent exclusively don’t have that flexibility.

3. Always pay subcontractors what they ask for when you can.

One principle I stand by is this: Pay your subcontractors what they ask. Don’t become the cheap client you always complained about.

If I pay a designer $75 an hour, it’s not because I talked her down on price. It’s because I asked her what she wanted to make, she stated her preferred rate, and I said yes.

Taking good care of subcontractors isn’t just ethical. It’s practical. When subcontractors feel undervalued, you will suffer the consequences:

• They will leave at the first opportunity.
• They will resent you while working with you.
• They will complain about you behind your back.

When subs feel respected and fairly compensated, you will enjoy the consequences:

• They will be loyal.
• They will prioritize your work.
• They will not nickel and dime you.
• They will often agree to faster than normal turnaround times.

Meanwhile, paying what subcontractors want to make may not always be possible.

Say, for example, that a client will pay $500 for a blog post. The content writer wants to make $75 an hour and needs five hours. Paying her $475 leaves you $25. If the job takes you an hour to manage, you’re effectively making $25/hour while taking on all the risk.

Underpaying yourself and leaving no profit in the agency isn’t noble. It’s short-sighted and unsustainable.

It doesn’t serve you or your subcontractors who can’t benefit from your lean agency if you revert back to working solo.

So how do you handle situations where your budget can’t stretch to cover their fees, your compensation, and a little profit? Be direct and mature when communicating about your constraints:

“I think you’re worth it, but I can’t afford to pay that. This isn’t me negotiating. It’s just math.”

“Based on the project budget, the most I can offer you is X. If that works for you, great. If not, I understand completely.”

It’s then up to the subcontractor to work with you on price or to pass on the project.

What you don’t want to do is underprice projects, overpay subs, and then resent your clients, your subs, your business, and yourself most of all.

Underpricing and overpaying is how lean agencies fail.

4. Don’t let guilt sabotage your agency.

One pattern I see over and over is freelancers feeling guilty and overpaying because they know what they’re charging and they know what it’s like to be underpaid.

Here’s an unpopular opinion: Freelancers don’t all deserve to charge the same fees for the same piece of work.

Not everyone produces the same quality of work at the same speed. Not everyone has the soft skills and personality and character traits to deliver a more premium client experience.

Not everyone has the pricing confidence and discipline to command higher fees.

Put two freelance writers with comparable writing skills in front of the same client, and the one with more sales talent will sell a thought leadership package of five long-form articles, with a price tag for piece of writing double or triple what the other writer would have asked for.

This is the world we live in. Things are worth what people will pay, and what people will pay goes up based on perceived value. Perceived value goes up or down based on a variety of factors, including the buyer’s context, the seller’s positioning and confidence, the timeline, and the list goes on.

Lean agency founders hamstring themselves when guilt causes them to ignore the fact that their subcontractors could charge the agency’s premium prices—clearly, it’s possible—but they won’t charge those prices for myriad reasons.

I wrote Free Money, my pricing and money mindset guide, in part because I want to help more people from all backgrounds and walks of life to charge more, more confidently.

Making money from their work isn’t exploitation when I’m paying people what they are content with, and it’s fair for me (and you) to charge more than subcontractors because we’ve put significant effort into learning how to do it.

A sense of fairness is a beautiful thing. So is a high value for equity and social justice.

And either of those beautiful things can make you feel guilty if you don’t challenge them with logic. You must manage the guilt, or it will wreck your lean agency.

5. Subcontractors should follow your processes or better ones.

Whether or not it’s true, I think it works to your advantage to believe that every job can be taught.

Taste is hard to teach. Pattern recognition takes time. But execution at a consistent and predictable level of quality can be taught, or at the very least supported with strong systems and processes.

Remember how I said that you don’t want to be a glorified project manager? Good SOPs make the lean agency. They enable you to provide less oversight and quality control while producing work product and overall experience that keep clients happy.

If you hire talented, high-character folks and give them robust SOPs, you don’t have to micromanage. The right people want to do good work; they don’t have to be told to do good work. They have the intrinsic motivation.

Conversely, it’s unfair to expect subcontractors to figure out what you want and give it to you without SOPs to make your standards and expectations clear.

My advice is to do everything required to be the best client your subcontractor has ever had by providing the following:

• Well-defined processes
• Checklists, cheat sheets, and templates
• Examples of past work that meet your standards
• Success statements that enable them to use their judgment and fill in gaps: “You know you’ve succeeded with this project if… .”

If you provide the SOPs, tools, and training, and a sub still can’t meet your standards and expectations after several tries, then you stop hiring the sub.

And when a talented sub finds gaps or flaws in your SOPs, ask them to help you improve them.

6. You need a deep bench.

This final piece will have become obvious to some of you: Don’t rely on one subcontractor per role.

Don’t have one stupid-good identity designer you can bring in; have three. Don’t have one trusted content writer you work with; have five.

If your favorite subcontractor gets sick, takes a vacation, or goes on maternity leave, your business won’t grind to a halt. Your deep bench gives your agency redundancy and resilience.

Now, this deep bench approach only works if the following are true:

• Your processes are codified in SOPs. See #5 above.
• Your training exists independently of any one person.
• New subcontractors can onboard and get up to speed quickly.

Smart agency founders don’t train people. They create training and give people access to it.

The best subcontractors will improve your training and SOPs along the way, and if they ever move on to greener pastures, all of those improvements stay with your agency.

Remember, redundancy creates resilience. Without it, a lean agency is even more fragile than a solo practice.

Closing Thoughts (and Boring Work)

Your lean agency model can only be as strong as 1) your marketing, sales, and pricing discipline, 2) your systems and process, 3) your subcontractors, and 4) the depth of your bench.

Most freelancers whose lean agencies fail never figure out the redundancy piece. They find one reliable identity designer or copywriter, feel relieved, and bask in a false sense of security. Loyalty to their favorites cause them to build a fragile agency.

As admirable as that loyalty is, one fumble—and they always happen—cracks the egg.

If you’re going to scale beyond yourself, you have to think like a business owner, not just a freelancer-with-help.

Thinking like a business owner may motivate you to take on clients and projects that would have seemed boring in the past. As an agency founder, your own enjoyment or creative fulfillment becomes secondary to selling out the team’s capacity.

Certain kinds of predictable, plentiful, and profitable work may fit the agency’s needs, if not your preferences. Boring work can be very attractive as long as you’re not the one doing it!

Mindset shifts like these are the real work for lean agency founders.

If you’d like to scale up into a lean agency or if you need help stabilizing the one you’ve got, reach out to me about 1-on-1 business coaching.

When you’re ready, here are ways I can help you:

1. ‍Freelance Cake Community. Build the business you really want with people who really get it
2. Free Money. A pricing and money mindset guide for freelance creatives. If you’re unsure about your freelance pricing, this is the book for you.
3. Morning Marketing Habit. This course will help you build an “always be marketing” practice, become less dependent on referrals, and proactively build the business you want with the clients you want. My own morning marketing habit has enabled me to consistently make 6 figures as a freelancer.
4. Smart, Strategic Pricing Bundle. For setting freelance prices you’re really confident in - priced meant to be so laughably low that you think there must be some mistake.