This week on the Digital Velocity Podcast, Jon Morris of Ramsay Innovations joins Erik and Tim to discuss how agencies can develop successful financial infrastructures to help make informed, data-driven decisions that will lead to growth.
Agencies have two basic resources and company growth is impacted by how those are managed. Jon says, “The idea is that all you have is time or money. If you spend your time and your money less effectively than someone else, then guess what? They're going to grow at a faster rate.”
On the financial side, there are four goals Jon says everyone should consider. He explains, “Everyone should have a revenue goal. Everyone should have a profit goal. Everyone should have a cash goal, and everyone should have an infrastructure goal. And that infrastructure goal are the investments you're making so that your business is better at the end of the year than it is at the beginning of the year.”
No matter which side of the business a company is on, budgeting is crucial. Jon says, “In my opinion, I don't care if you're client-side or agency-side, one of the most important things that you can do, period, is have a solid budgeting methodology. There are three things that generally will come out of that. The first is accountability. By creating a budget and locking it and setting it in stone, you're holding yourselves accountable to those numbers.”
Listen to this week’s episode to learn more about building a financial infrastructure that will create growth opportunities.
About the Guest:
Jon Morris is the founder & CEO of Ramsay Innovations and a serial entrepreneur. Prior to Ramsay, he established Rise Interactive in 2004, with prize money from his second-place finish in the University of Chicago’s prestigious New Venture Challenge. Over the next 16 years, he grew Rise from a one-person shop to one of the largest independent marketing agencies in the world, selling in 2018. While pondering his next move, he realized that he was most energized when connecting and helping fellow entrepreneurs grow their businesses.
Ramsay Innovations is the product of this inspiration. Like at Rise, Jon developed a proprietary, tech-enabled approach for surfacing hidden financial insights that drive critical business decisions. Ramsay Innovations’ mission is to transform marketing agencies by providing them with world-class, agency-specific finance management and strategic planning at a fraction of the cost.
In his spare time, Jon enjoys spending time with his wife, three daughters, and two dogs. He loves soccer, having played on his alma mater’s team, Kenyon College, and he now coaches his daughter’s two soccer teams.
Tim Curtis: [00:00:00] Hello, and welcome to this edition of the Digital Velocity Podcast. I'm your host, Tim Curtis from CohereOne.
Erik Martinez: And I'm Erik Martinez from Blue Tangerine.
Tim Curtis: And today on the show we have Jon Morris, founder, entrepreneur, and marketing agency executive management. At the age of 30, Jon Morris started a digital marketing agency called Rise Interactive. When Jon sold Rise 16 years later, it was one of the largest independent digital agencies in the world. Jon's framework for growth is the foundation of this episode and is applicable across a variety of verticals to help business owners such as yourself, scale their companies. Jon, we are very, [00:01:00] very happy to have you on the show.
Jon Morris: Really honored to be here, Tim, Erik. Thank you so much for having me.
Tim Curtis: You do have a very, very unique story. It's fun to be able to talk about this. How did you start that journey? How did you start that growth?
Jon Morris: So, the first thing was when you go to business school, a lot of what they teach you is, you go raise money, you have this big exit in five years and then you kind of repeat it and it's all about, you know, going through a venture capital. And I had a very different perspective. At that moment in time, I was doing a ton of marathons. When you train for a marathon, it's an 18-week training program, and you start out running six miles and then you go to seven miles, and then you go down to five and then up to nine and up to 10.
And I took that philosophy and that approach and I applied it to business. And my concept was I was not worried about an exit. My exit strategy was I was gonna die one day. Instead, what I focused on was rather than weeks and miles, I thought about it as years and dollars. [00:02:00] And the idea was that every year I wanted an incremental improvement to the previous year.
And so I wanted to focus on growing the business in a very incremental manner, making investments into the company, but just building a great company. And so that'll be like one of my first big takeaways is really focused on building a great company is I think a key to general success. And if you don't worry about the exit, I think the exit ends up taking care of itself.
Tim Curtis: Sort of goes against conventional wisdom that you would see taught in, for example, agency management. They're often talking about clearly defining that exit. But instead, I think you really, you talked about focusing on that growth and making Rise the best it could possibly be, gaining a lot of insights. You know, we talked before the show about how you developed insights into smarter data. You know, all that is critical. You're kind of zagging a little bit, I guess you would say when others are zigging and that clearly was a winning strategy for you.
Jon Morris: You know, it [00:03:00] worked well and, you know, look, the agency world is not that hard. Okay? There are four things you need to focus on. The first is you need to focus on winning new business. The second you need to focus on is keeping that new business. The third is growing that business, and the fourth is making sure that your product and service is better.
And so as you sat there and talked about, you know, your data structure, a big part of our key differentiator was granularity. The idea is that if you are advertising, this is what I would recommend that you do. Go look at the advertising placement that you are spending the most amount of money on, the most granular, individual placement.
And oftentimes you'll find because you manage things on a portfolio basis, that when you look at that individual micro placement, you'll be shocked and probably disappointed. Holy crap, that's what I'm spending the most amount of money on? And that one play was able to help us identify waste [00:04:00] in a lot of our client's media spend.
We had a huge client that was in the textbook space, and when we took it over the number one word they were spending money on and paid search was books. Which obviously, yes, textbooks are a book. But it's not a good use of your money in terms of like, I'm gonna spend, I think I was spending like 17% of their budget on that word, books.
We analyze a massive office supply company, one that you're very familiar with. The number one word they were spending money on was office desks, which they did sell. However, the return on ad spend was one penny. And to make matters worse, when you clicked on the text ad, it took them to a landing page of chairs.
Getting into the micro is one of the most important things I believe any digital marketer needs to do. If you look at like what I'm doing today, we do budgeting and forecasting for agencies. It's really no different. It's all about how do you structure your data to answer questions. And that was a big part of Rise's [00:05:00] differentiator, is that we invested really heavily be able to answer questions faster as well as determine what questions to be asked. And it really was focused on two major themes, identifying waste in your media, and then redeploying funds that you took from the waste to scale what areas that generate a positive ROI for you.
Erik Martinez: And any business can do that, right? Whether you're an agency or you're sitting on the client side.
Jon Morris: And that's what I was talking about, like when I was talking about looking at that micro placement. It was actually, I was talking about on the client side. So, like if you are a marketer, if you are a digital marketer, and you are spending money across multiple different areas, let's just stick in the realm of digital media, of programmatic social search. And you just look at, Hey, what am I spending the most amount of money on, on an individual basis?
The more you can structure your data and organize it to answer that question and answer that question regularly, oftentimes you'll [00:06:00] find that a few placements represent a huge percentage of your media spent. And so optimizing, getting that done properly can have a huge impact to the business.
What I always recommend is that you wanna think about the questions that you're trying to answer and what are the key questions as it relates to marketing that you would wanna answer on a regular basis. Then, what you have to think about is what data do you need to answer that question?
Tim Curtis: Well, it might be helpful for us to kind of unpack that. You know, one of the things that was so interesting about you and your history is setting your goals and then connecting those goals to your budget plans, and how that kind of worked. To me, that really caught me as a aha kind of thing because, you know, when we tackle budgets, it doesn't matter if you're on the agency side or if you're on the client side, when you tackle budgets, it's a tedious process and it's often something that you're under the gun to do. And you may or may not have really [00:07:00] incorporated goals into that budget. That'd be really interesting to hear you kind of unpack that a bit.
Jon Morris: Absolutely. So, in my opinion, I don't care if you're client-side or agency-side, one of the most important things that you can do, period, is have a solid budgeting methodology. There are three things that generally will come out of that. The first is accountability. By creating a budget and locking it and setting it in stone, you're holding yourselves accountable to those numbers.
The second one is that you should have informed decision-making. And this goes back to the questions I was talking about. So, if you wanna know what is my cost per acquisition, or what is the return on the ad spend I'm getting for my sales and marketing, or how effective is each individual channel from your sales and marketing. Obviously, I'm picking questions that relate to sales and marketing. How many new customers am I getting a month? You want to think about how do you need to organize the data to answer those questions and answer them in a repeat regular fashion in a timely manner.[00:08:00]
And then the third one is deliberate planning. The thing about sales and marketing is it's an ecosystem. You're selling a product or service, and that product or service is either good or it's bad. But the more that you invest in that product and service, the easier it is to have your sales and marketing be effective. So, you wanna think about what are the major investments that you wanna make in order to have your sales and marketing be as effective as possible.
And I'm gonna give you four goals that we generally recommend everyone think about. Everyone should have a revenue goal. Everyone should have a profit goal. Everyone should have a cash goal, and everyone should have an infrastructure goal. And that infrastructure goal are the investments you're making so that your business is better at the end of the year than it is at the beginning of the year.
That infrastructure could be, we're going to be investing in our marketing automation program and improving our sales and marketing. Or it could be, we're going to be investing in our product or a service to make it [00:09:00] more effective. But the idea is that all you have is time or money. If you spend your time and your money less effectively than someone else, then guess what? They're gonna grow at a faster rate. I really believe that your sales and marketing initiatives is a huge component to how you do your budgeting and your planning. And I'll give you an example.
People come to me all the time. I really want to grow faster. Awesome. Well, what percent of your revenue do you spend on sales and marketing? Well, you know, we don't really spend money on sales and marketing. Then you don't really wanna grow faster. You can start seeing just in terms of how much money is given to sales and marketing starts with your budget and determining what's important to you.
I can tell you philosophically, I want people to spend as much money as a percent of revenue on sales and marketing as they possibly can because that's the only way that you're gonna grow. The way you figure that out and the way you know what you're gonna spend on sales and marketing is, it starts with that [00:10:00] budgeting process.
Erik Martinez: Jon, you know, you talked a lot about software tools to enable this budgeting process and iterate on it. Can you tell us a little bit about that process of incorporating software and automation tools to help you do that better?
Jon Morris: Yes. So, there are different tools for different purposes. So, for example, at Ramsay, we've built our own proprietary budgeting software that is specifically designed for agencies. Agencies are unique, or really professional services are unique in the sense that our inventory are people, and we have to look at the hours that we're delivering and what's the margin.
I went and looked up a definition called adjusted gross income yesterday, which a lot of the financial experts in the agency world tout is the way to go. And I looked at three major experts in our space, and all three of them had a different definition of what adjusted gross income is. And by the way, I actually have a different approach, which I cause the net [00:11:00] revenue approach, which I think is superior to that approach anyway. And the reason why is cuz it allows you to answer questions more efficiently and more effectively.
But I would say what's even more important than the software is your approach and your methodology to budgeting and forecasting. I want you to think about this. This is a really powerful statement in my opinion. Everybody has a strategic plan whether they know it or not. It is what they choose to spend their time and what they choose to spend their money on.
If you don't put a plan together, you're still spending money, you're still spending time, you can just do it better. So, the first thing is you have to come up with the right approach, and then once you have the right approach, then you have to make sure that you have the right tools that go along with it.
I'm gonna give you two quick examples. An old neighbor of mine was the handiest man I have ever met. Our backyards backed up to each other and he had this treehouse that was like, the most beautiful [00:12:00] treehouse you have ever seen. I mean, it absolutely was professional grade. And so I asked him, I was like, who did you hire to like, create your treehouse?
He was like, oh, I did it myself. I was like, well, did you like print out like a blueprint, like online, like how to create it? I was like, no, I just kind of had a vision in my head. And he goes, but I'll tell you the secret to building things great. Don't jerry rig and try to come up with the tools to like get it done. You gotta buy the best-of-breed tools to get the job done properly.
When I think about your budgeting and forecasting, our tool is specifically designed for agencies, but there are other tools that are designed for you. There are other industries or there are tools that are designed, you know, that in more of a horizontal way where it goes across multiple industries. But the first thing is you have to figure out the right approach. Once you've determined the right approach, what's the right tool to use for that approach? So, I'll give you an example. Are you familiar with EOS?
Erik Martinez: Yes.
Tim Curtis: [00:13:00] Very familiar with the EOS. Yep.
Jon Morris: Okay. So, I read Traction while I was at Rise. I fell in love with the approach and the concept and the simplicity of it, and I was like, if I'm gonna do it, I'm gonna do it right. So, we went and hired an EOS implementer. We ended up using Traction tools. We ended up using a lot of the features and functionality, and we went all in on it to do it right. And so that would be my general take is first find the right approach and the philosophy, then find the right tools that go along with it.
Erik Martinez: For the audience's perspective, Traction, the book, is by Gina Wickman. It is a really powerful framework for managing and operating any kind of business. The principles in there that Jon's talking about are absolutely concrete and solid and take some time to implement it properly, but it has a huge success story behind it.
So, [00:14:00] Jon, when we talk about budgeting and forecasting. You said earlier, what is the question I want to answer and what data do I need to answer that question in a timely manner? Having worked with a number of clients, I've got one who they are a retail operation mostly. They've got a direct-to-consumer business and a retail operation.
We wanna drive traffic to our stores. We wanna grow traffic. So, I said, okay, well, how much more traffic do we need to actually grow? One of the fundamental things that came outta that conversation was they weren't even measuring the number of people coming in at stores. How can we successfully measure our marketing efforts at driving new traffic in the stores when we don't even know on a day-to-day basis, month-to-month basis, year-over-year basis, how many people are actually coming in those stores and then converting those people into transactions?
So, for them it's really understanding, hey, we got people coming in the stores and how many of [00:15:00] those people are turning into transactions as a percentage. So, that's kind of where we started with them in order to lay the foundation.
Jon Morris: How many brick-and-mortar stores do they have?
Erik Martinez: This particular client has nine.
Jon Morris: Okay, so if you think about it, this goes back to my infrastructure goal. You just brought up a brilliant question that they should be tracking and analyzing on a regular basis. But it's probably not a light switch in terms of okay, we weren't counting it, now we are gonna count it. It's, what infrastructure do we need to put in place? Do we need to put like some like, beacon that when people walk in, we're able to count it and we have to put that beacon in all nine stores and where's that data gonna go to?
And then how do I organize that data to look at it and I don't wanna look at it overall, I wanna look at it by each individual store. So, I have to make sure that each beacon is unique to that store. And then I want to tie that to number of purchases per day. So, now I can start getting into [00:16:00] this many people walk into my store, this many people purchase a day, and so I know that the ratio of walk-ins to sales is X.
Then they're in a much better position from a budgeting perspective of saying, Hey, if we can keep the same quality of people and we can double the traffic, we should double the sales. You can test that theory, maybe do it in an incremental basis. Let's test that out and let's try this campaign to grow the number of people that come in the door. And so that's a perfect example of how I believe the power of budgeting and thinking of the investments you wanna make and thinking about the questions you wanna answer become really powerful.
Erik Martinez: Yeah, absolutely. I think the critical component there is realizing that some of this stuff just takes time. They didn't have the infrastructure. They had to put the infrastructure in. Then we had to start measuring, collecting data, before we could get to that budgeting and forecasting piece.For them that actually took almost a year.
Jon Morris: [00:17:00] Yep.
Erik Martinez: Almost a year in order to implement that. But a year later, they are much better positioned to forecast and plan and understand that their marketing programs are or are not succeeding.
Jon Morris: And now just imagine their competitor who happens to own nine stores as well, didn't make that investment. What a better position they are to determine waste in their spend versus effectiveness in their spend, and then when you find the effective areas, scale it.
Erik Martinez: Yeah, absolutely. I'm gonna pivot this conversation a little bit because I think there's an important topic in our industry right now in terms of measuring and data with the impending Google Analytics change. Some companies are ahead of the curve. Some companies are a little bit behind the curve.
I think one of the key things, as a digital business or the Ecommerce portion of any of our client's businesses, fundamentally the way Google Analytics measures today is wildly different. Maybe not wildly, [00:18:00] but it is substantially different enough from the way Google Analytics measures today that it will measure in a future that it will impact those budgeting conversations that you're talking about.
When you see something like that on the horizon, where you see a major change in data structures or the type of data that you'll be able to collect, we might actually be able to collect more data and more precise data after this change comes about. But how do you prepare your clients for that type of change?
Jon Morris: Let's just say we truly go to a cookieless world. Advertisers still are highly dependent upon cookies to analyze conversion rates and all of this different information. Really, the question comes down to what replaces it. What I think you have to start thinking about is one of the reasons why digital marketing has been able to gain so much market share from traditional media is the [00:19:00] measurability of it.
If that measurability goes away, or it takes a different form, it is very possible that new channels become much more important than the current channels you're investing in. So, what you have to really understand is what are those new channels and do I wanna reallocate some funds or do I wanna test putting money in a different area than I was before.
Tim Curtis: One of the, I guess you'd call it, obviously a fluid situation with the cookies and you know, we're all envisioning what that impact's gonna look like on the backside, but as clients are navigating this, we're sort of losing focus on a couple of things.
One of the things that I see clients beginning, they're rushing to leaning into some of the digital marketing, they have begun to commoditize. They have sort of lost some elements of their own distinctive in the middle of marketing digitally.
How would you suggest, and how do you suggest when you're working with clients and you're working with them, in this case, let's take the digital example. They're going to have to compete in a world that we don't necessarily know what it's gonna [00:20:00] look like yet. There are other elements or other channels of marketing emerging.
And at the end of the day, we've gotta be well positioned to have our brand and our voice and our distinctive intact through that. You're sort of balancing the tyranny of the urgent into running into these new channels, trying to figure out what it's gonna be. But at the same time, you know, you can't lose the element of what elicits that response to your brand, the consistency. How do you begin to go through all that muck?
Jon Morris: So, a couple of things. One, the first thing I always recommend people, like when it comes to testing a new channel is you wanna spend the minimal amount of money possible to gather enough data to determine if this is something effective or not. If you go and put a bunch of mini-tests together and you're like, okay, this place actually seems to resonate. Then you wanna determine the scalability of it.
So, the idea is that you have to be investing in emerging channels and emerging tools. If you think about where Google and a lot of these companies are headed in terms of AI, the [00:21:00] difference to me is the fundamental pieces of information you feed that AI tool. And how can you...
Tim Curtis: Exactly.
Jon Morris: ...have a better and unique data set than your competition? If you can think about that and you can come up with that and you invest in it, you're really investing in the future. I don't think there's any doubt with ChatGPT that the world is headed towards AI.
Tim Curtis: Yeah.
Jon Morris: Before ChatGPT I probably was more of a skeptic. Every time I tried anything with AI, I just found like the decision-making provided lackluster results until I saw ChatGPT, and clearly, the evolution is pretty amazing.
You need to know where your wind is blowing. I'm gonna go back, you know, I gave the marathon example. I'm now gonna give a triathlon example. I did my first Half Ironman, and it was a cold September day, around 33 degrees, and the winds were like 20 to 30 miles per hour. It was one road in farm country for [00:22:00] 28 miles straight, and then I turned around and did 28 miles back for the biking portion.
I normally averaged about 20 miles per hour when I would bike at that moment in time. I averaged between six and nine miles per hour for the first 28 miles, and I averaged about 30 to 35 miles per hour on the way back. In my opinion, there is a ton of wind blowing behind AI right now. There's gonna be headwinds in other areas, and it's your job to understand where are the winds blowing in terms of the opportunities to take advantage of it, and how can you be first to market in that respective area.
Tim Curtis: I attended the uh, MAICON conference in Cleveland last, I believe it was last August, marketing of artificial intelligence, and so it's all about artificial intelligence and marketing and the impact of ChatGPT and a host of other platforms were discussed.
But you bring up a really important point and one that was, let's just say was not answered or was unable to be answered, and that [00:23:00] was related to the data. And as we move from a world where it was essentially the Wild West, there was all sorts of things that you were able to learn and know, and there were very few guidelines on that data, and there was a lot of really rich, specific data being poured into AI to enrich those insights. So, AI was feeding on that and improving the algorithms.
Jon Morris: Yeah.
Tim Curtis: Which is what deep learning networks do, right? Now we're talking about much of that data no longer being able to be transported across to feed AI. So, the question comes up, yes, AI is an arms race and yes, it's going to be here. You know, we're gonna have to really set back and do some heavy thinking about how we deploy it and what our expectations are for that deployment when the data's just not gonna be as rich as it was. There is an impact to that. And in the AI community right now there's not really a great answer on what that's gonna look like.
Jon Morris: So, here's what I'd first say is, if you think of the word data, it's a broad word. There's [00:24:00] media data, there's customer data, there's consumer data, there's pricing data, there's inventory data, there's competitive data. I think that the AI engine is going to be the same AI engine for everybody.
You know, like if ChatGPT is the tool, then everyone's gonna have the ability to have ChatGPT. And we're talking about with cookies going away that, you know, a lot of the analytical data will decrease in value. But what I would start thinking about is, one, what questions are you trying to answer or what optimizations are you trying to conduct? And then how can you come up looking at all these different data sources of something that's unique, that's valuable? You know, it's gotta matter, that you can invest in so that your brand is going to be stronger than anybody else.
Erik Martinez: You're really talking about the idea of niching, whether that's on a data point, a product, or a service, whatever it is, you're [00:25:00] really talking about honing in on whatever your unique differences, right? That's one of the key principles in traction in order to compete with the larger competitors out there that already are deploying a lot of these tools.
Jon Morris: So, what I would say is, Tim talked about brand earlier. I believe that your differentiator is your DNA and that it is your brand. I also believe that it's a journey that you constantly invest in to make better and better. I call it the two-question test to determine if you really have a differentiator. So, the first question is real simple. What makes you unique? What makes you different? I can tell you in the agency space, the answer is generally one of three buckets. We are data-driven, you get to talk to more senior people, or you get better customer service.
So, it's the second question that I think is crucial and it really applies to any industry, which is awesome. I just talked to 49 other companies that said that they have the same [00:26:00] differentiator as you. How are you better than those 49 other people? Just to put in perspective, in the agency space, there's 120,000 agencies just in the United States. If you think about you're more data-driven, well, how are you more data-driven than those 49 other agencies?
The first thing you have to do is figure out what niche do you want to go into. And that niche could be based on a vertical or that niche could be based on a feature or function that goes across multiple industries. Then what you have to do is say, well, how much am I going to invest, going back to budgeting and forecasting, in making that differentiator real over time?
It's very similar to my comment before, if I wanna grow fast, you know, I'm not spending any money in sales and marketing. Well, you know, if you wanna make that differentiator real, you gotta invest in it. It's gotta be a line item on your budget that says we're going to invest and make it real.
Tim Curtis: Earlier in the conversation you talked about in sales and marketing and you know, what's that percentage of reinvestment in the business that you are putting [00:27:00] in? It didn't matter if it's a clothing brand or it's an agency. What is your commitment to that? That's exactly what you're saying here.
Jon Morris: I'll just give you a cool stat. Of the agencies we have benchmarked, 77% of the agencies spend no money on R and D. So, I'm just gonna go back to this. There's 120,000 agencies in the United States, and 77% of my microcosm that I'm tracking, don't spend any money on R and D. How are those companies going to compete if the other 27% are spending money on R and D? By the way, the most any of them have spent was up to 3%. None of them are spending a lot of money on R and D as a percent of revenue. To put that in perspective, my company spends over 20% of our revenue on R and D.
Tim Curtis: Wow.
Erik Martinez: Interesting. Jon, you know, if we take this over to the retail side of the house, in your experience in working with hundreds and hundreds of [00:28:00] clients over the years, how much should they be spending in R and D, and how do they determine what to spend that on?
Jon Morris: You know, look, I don't know retailers' metrics as well as I know the agency metrics. But, if you just think about what products you choose to put in your stores, where you choose to position those products, how you do research on where your store should be, all of those things require insights and data to really maximize your sales. And I realize that's not like on the marketing side. You're as good as your product. Yes, you might be a brilliant marketer and get someone to buy something that maybe they didn't need or maybe there was a superior product out there.
And I can give you a couple, you know, good examples. The QWERTY keyboard that we all use today was actually an inferior keyboard to another keyboard that came out, but they outmarketed the other [00:29:00] keyboard and then this became the standard for all of us to use. So, had they failed, we'd actually be able to type more words per minute if the other keyboard took off. Same thing is true with beta and VHS. Beta was a superior product, but got outmarketed. That might be the investment they chose to make was to be better at marketing.
But the idea is that you need to be constantly investing in doing things better. My number one sales goal is always never lose a client due to performance. I think that holds true for a retailer. You know, is someone willing to drive an extra mile to your store because the experience is so much better than a competitor right down the street? If you can make that happen, and I'll give you actually the best retail example in the world, in my opinion, is Amazon.
Is Amazon a retailer or are they a delivery company? They focused on innovating on how they can do delivery better than anybody else. And it still [00:30:00] amazes me, I'll buy something at Amazon and later that day it'll be at my house. Just think about how incredible that is. That's all because they focused on R and D and they invested in it.
Tim Curtis: Yeah. I look at R and D I look at sales and marketing. You know, take the agency space for example where we all are. You know, I always made the comment and even make it to clients that you can't be good at the showroom or the back room, you gotta be good at both. If they're shortchanged, it's always the showroom. The showroom is that important aspect where you build excitement, you connect with potential customers, you're drawing them into your product.
And, you know, you've given some really good examples of the QWERTY keyboard that was just simply out-marketed. I go back to Lotus 1-2-3 and WordPerfect, and Microsoft just marketed the heck out of Word and Excel. Where a world was entirely dominated by WordPerfect and Lotus 1-2-3, gone, right? Completely gone.
So, we do need to make [00:31:00] those firm commitments and understandings, but it's just astonishing to me that here we are what, 2023 now, we're still having conversations about the need to make investment. It just blows my mind, that 77% stat of agencies that don't really make it. I guess the other question is 3% really an investment.
Jon Morris: So, the challenge of the agency world is you have 50% for gross margin, you have 30% for SG&A, and you should have 20% profit. So, at the most, it can really be 20%, but most companies don't have a 50% gross margin.
Tim Curtis: Yeah.
Jon Morris: And so teaching them how to get a higher gross margin and deliver for their customers. And then the cool thing is you can invest in R and D and it can be a capitalized expense, so it doesn't impact your EBITDA. I'm recommending at least 5%. It all depends on the size of your company, but it can be a good starting point. And the idea is that it all becomes incremental, generally your first year.
You know, I'll give you an example. We go live with our [00:32:00] budgeting and forecasting software for agencies in 13 days. I've been building it for the last year and a half. So, it took me a year and a half of patience and refinement before I have any customers actually using the platform.
Erik Martinez: That's a big investment and commitment.
Jon Morris: Better work.
Tim Curtis: Yeah. Yeah. Well, no, no pressure. Right? Thirteen days and we'll find out. No. I know we have some listeners that are agency owners and agency execs and Ramsay Innovations is Jon's company. Encourage you to go out and take a look at that, ramsayinnovations.com. Would just be curious if there's any last piece of advice that you typically like to give listeners that we haven't already covered.
Jon Morris: Two things that I've noticed. The first is the more you can take a data-driven approach to running your business, I don't care what industry you're in, whether you're in a retail, an agency, manufacturing, you're gonna make better decision-making. So, that'll be my first [00:33:00] component. The second thing is, oftentimes you're not gonna like what the data says. Have the courage to make the tough decisions when the data is telling you that you need to do something.
Erik Martinez: It's funny that you say that, Jon because we at Blue Tangerine are going through that process and peeling back all the different onion layers of our business. And we see some things that are great and are fine, and then there's, there's things that we're finding that we're like, oh, we're really not great at that. So, we need to make a really hard choice on do we become better at that or do we refocus our energies in the areas that we're already doing great.
So, I think that's a key principle that people need to keep in mind as they're running their businesses from year to year, that looking at those numbers will uncover the things that they're not great at, and they either need to improve or they need the shed. Jon, thank you so much for coming on the show today. I think you've given our audience a [00:34:00] lot of stuff to think about. You know, the most important one being spend some time budgeting and planning and sticking to it. And I think that's probably one of the most difficult things for all of us to do is to stick to our budgets and our plans when things are topsy-turvy on a day-to-day basis.
Jon Morris: Yep. I completely understand and I appreciate being on here today and hopefully, audience found value.
Erik Martinez: Jon, if somebody wants to reach out what's the best way to get in touch?
Jon Morris: They can always email me at email@example.com. It's R A M S A Y innovations.com. Follow me on LinkedIn. I do a lot of posting specifically to agency owners, but there's some good insights about budgeting and forecasting. You can also go to ramsayinnovations.com as well.
Erik Martinez: Awesome. Awesome. Well, thanks again for all your time and insights. It's been a pleasure learning from you today. That's it for this episode of the Digital Velocity Podcast. I'm Erik Martinez from Blue Tangerine.
Tim Curtis: [00:35:00] And I'm Tim Curtis from CohereOne.