TL;DR

• ​We’re building a private insights group for agency leaders interested in real data about what’s going on in the market. Sign up now.​
• For agency leaders who have their strategy, revgen, and structure in place, employee experience (EX) is the next step that can drive significant long-term growth.
• Developing EX through the service-profit chain provides agency leaders with a solid framework to link EX to agency performance.
• The S-P chain is essentially: Happy employees make happy clients.
• Internal service → Employee Satisfaction → Service Value → Customer Satisfaction → Customer Loyalty → Agency Growth
• Agencies can influence EX through: investments in employee development and tools, fostering supportive values-driven cultures, empowering employees to solve client problems, and measuring+linking EX to client/agency metrics.
• Improved EX can lead to significant profit improvements, lower turnover, and improved service quality.

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Employee Experience

This newsletter is for agency leaders who already have their strategy, revgen, and structure in place, and they’re looking for the next way to improve their shop’s performance.

Agencies aren’t known for work-life balance. The industry’s employee experience (EX) isn’t… great.

That may be a bit unfair today, as many shops have done a ton of work over the past decade or so to improve this, but it’s still a pervasive view of the industry.

It also isn’t totally unwarranted.

I’ve only come across a handful of shops that have solidly high employee satisfaction ratings. Most agencies are a single step up from startups in terms of how grueling the work is and the hours that employees are expected to put in.

This summarizes to employee satisfaction being a place for improvement for most of the industry.

Luckily, there’s a framework for this!

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The Service-Profit Chain

It’s a stupidly simple idea.

Happy employees make happy clients.

The Service-Profit Chain is an established framework that’s used widely in service management that links a company’s internal employee factors to external customer outcomes and ultimately to financial results. It connects the satisfaction and engagement of employees directly to the quality of service they deliver, which in turn drives customer satisfaction, loyalty, and profitability.

This is obviously important for front-line service employees who interact directly with customers, but I’d argue that it’s just as applicable to devs, designers, and marketers who may have less client interaction, but who’s work is equally important to client satisfaction.

This concept has been widely recognized in traditional service industries (e.g. hospitality and retail) as a formula for success, but it’s not exactly top-of-mind for leaders of digital agencies.

Many shops focus heavily on client deliverables and performance metrics, but they overlook the chain reaction that starts with their own team’s experience. The Service-Profit Chain reminds us that happy, empowered employees are the first link in creating happy, loyal clients who can underpin substantial growth for the agency.

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Chain Links

The core idea of the Service-Profit Chain is a simple chain reaction: happy employees lead to happy customers, which leads to improved business results.

Here’s how each link in the chain works in sequence:

Internal Service Quality → Employee Satisfaction: When a company invests in its people through training, support, and a positive work environment, it improves internal service quality. Employees who feel well-equipped and valued tend to be more satisfied and engaged in their jobs.

Employee Satisfaction → Service Value: Satisfied employees are more likely to go above and beyond in their roles. They deliver higher quality service and have a greater willingness to meet client needs, creating more value for customers. In other words, happy team members tend to provide better client experiences.

Service Value → Customer Satisfaction: When clients receive excellent service and see the value delivered, their customer satisfaction naturally increases. Consistently good service makes clients feel their expectations are met or exceeded.

Going to pause on this one.

Most shops do good work, but this can be derailed for two main reasons:

1. Sales can set expectations too high which sets the team up to underdeliver from the client’s POV even if they’re doing better than average work. Fix this with sales.
2. The good service isn’t communicated effectively to the client stakeholders and they don’t know or appreciate everything the team’s doing for them. Fix this with account managers.

Customer Satisfaction → Loyalty: High satisfaction fosters customer loyalty and retention. Satisfied clients are more likely to become repeat customers and even advocates for the agency, sticking with the firm over time. Even a modest increase in customer loyalty can yield significant profit gains.

I wrote a recent newsletter on operationalizing referrals that uses high customer satisfaction and loyalty to unlock substantial growth for shops. This is one of the key spots that fast-growing shops get right almost every time.

Customer Loyalty → Profit & Growth: Loyal customers who continue to do business (and refer others) drive stable revenue. Thus, greater loyalty translates to higher profitability and growth for the company. Over time, this link between client loyalty and financial performance becomes a major competitive advantage.

Each link in the chain is built upon the one preceding it. You cannot skip steps. For example, you can’t expect strong customer loyalty without first ensuring your employees have the support and motivation to deliver great service.

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Applying This to Digital Agencies

Here are a few practical ways we’ve seen agency leaders apply this framework to improve both employee experience and client outcomes:

Invest in development and tools: Prioritize employee training, upskilling, and providing the right tools or technology that support your frontline teams. This boosts internal service quality by empowering staff to work efficiently and feel confident in their skills. For instance, a digital agency might offer continuous learning programs for new marketing techniques or equip teams with better project management software. These are investments that make employees’ jobs easier or allow them to grow their skillsets and it signals that the company values their growth.

Foster a supportive, values-driven culture: This sounds fluffy, but it matters. Agency leaders should cultivate a workplace culture where people feel respected, heard, and aligned with the company’s mission. Encourage open communication and gather employee feedback regularly on what could improve their work life. (frontline employees learn of issues affecting clients long before managers do, so creating a feedback loop is vital) Also, ensure the company’s core values are more than just words. For example, if “innovation” or “client-first service” is valued, recognize and reward employees who exemplify those values. When employees see that their well-being and values matter, they stay engaged and deliver better service as a result. Incentives matter a LOT here and it typically takes management training for managers to get this right consistently during day-to-day agency operations.

Empower employees to solve client problems: Give your team the autonomy to go the extra mile for clients. Rigid processes can sometimes hinder service quality, so allow some flexibility for employees to tailor solutions to a client’s needs when appropriate. Trusting your staff with this freedom not only improves customer satisfaction but also increases employees’ own sense of ownership and satisfaction. For example, an account manager might be permitted to offer a quick bonus service to resolve a client issue without multiple approvals. Such empowerment helps employees feel “invested” in client success which is a win for service quality and morale.

Measure and link both employee and client metrics: Just as agencies track client satisfaction (e.g. via Net Promoter Score or retention rates), it’s important to track employee satisfaction too. This can be done through (truly) anonymous surveys or an Employee Net Promoter Score. Monitoring both sets of metrics can highlight correlations and pinpoint internal areas to improve. Employee satisfaction and customer satisfaction go hand in hand, so treating internal team well-being as a key performance indicator can ultimately boost client loyalty. In practice, this could mean regularly polling your staff about their workplace sentiment and addressing concerns, just as you would promptly address client feedback.

Each of these actions reinforces the earlier links in the Service-Profit Chain. By improving training, culture, and empowerment, a digital agency strengthens employee satisfaction (the first links), which improves service quality delivered to clients. The payoff is seen in happier clients who stay longer and contribute more to the agency’s growth.

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Quantifiable Implications

Teams that move their employee experience (EX) from average to top‑quartile see materially better business outcomes. Gallup’s latest meta‑analysis shows 23% higher profit at the top‑quartile of engagement, alongside better customer ratings and fewer defects.

Improving client retention is disproportionately valuable. Research from Bain/HBR work finds that a +5‑point retention lift can drive +25% to +95% profit (via repeat/expansion and lower cost to serve).

​Another Gallup survey showed that highly engaged teams show lower turnover and absenteeism (21% to 51% lower turnover depending on baseline, 78% reduction in absenteeism) and 32% fewer quality defects, all of which mitigate delivery and key‑person risk for agencies.

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Another Step Up

Your team’s experience directly influences your clients’ experience and loyalty, which in turn drives profitability and growth.

By taking care of employees, ensuring they are satisfied, engaged, and equipped to succeed, an agency is effectively investing in client satisfaction and long-term loyalty. This internal focus is not as soft of a science as it sems at first blush. There are plenty of ways to measure and improve EX and link it directly to CX and agency performance.

It’s easy to argue that EX is the next best investment for agencies that have their strategy, revgen, and structure mostly dialed in. It’s still important to make incremental gains across those three areas, but EX is where shops can find additional step-growth. This is especially important for those looking to exit in a few years, as a strong employee base and loyal customers can drive reliably profitable growth that acquirers will pay above-market multiples for.

Until next time!

-Nick

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