agencies aren't glorified contractors

Imagine you’re in the market for custom software. Say a pretty simple mobile app with a few integrations.

You get two bids - one from an independent contractor and another from an agency.

The contractor gives you an estimate of $50,000.

The agency gives you an estimate of $50,000.

Which one are you going to pick?

You might be inclined to think the contractor’s bid represents the actual price of the application - so how are they the same? You know the agency has administrative overhead and margins to consider. Something feels off, so you pick the contractor.

Now let’s say the agency gave you an estimate of $75,000.

Overhead and margins. Why would you pay extra? You pick the contractor.

This thought exercise begs the question - why do agencies exist at all?

Examples and metaphors are dangerous things, because they are often oversimplifications and oversimplifications can short-circuit your thinking about a subject.

In this case, an agency is not a glorified contractor.

Consider the first example. The agency might be able to bid competitively with a contractor for any number of reasons. They might have internal IP that allows them to develop apps quickly. They might have a few specialists and a great management process that allows them to develop apps like an assembly line. They might have developers working out of a low cost of living region - a whole subject unto itself, but not necessarily a bad thing.

In the second example, they might be offering more than just development. An agency can have UX skills, strategic offerings, wide industry connections, and deep expertise in every aspect of the relevant technology. The right contractor might also have this breadth (and depth) of skill - but that kind of contractor will be hard to find and probably just as expensive.

Your agency might not be the right fit for every prospective customer. In fact, it won’t be - and that’s a good thing. You shouldn’t be trying to work with people who would be better served by a contractor. The short term financial gain will be offset by bad habits, bad market positioning, and a bad reputation.

There are bad agencies and bad contractors, so this is all just a generalization. The point is that your agency is not a glorified contractor and if you think of it that way, you will participate in a race to the bottom on price. Agencies can offer commoditized, predictable efficiency or strategic and innovative value-added services more easily than a contractor can - so lean into your strength.