Is your agency unsuccessfully searching for the first of these mythical beings..? This fresh out of the UK, thanks to Campaign for the story:
“The profitability of UK marketing services agencies nose-dived by more than 50 per cent during the first half of 2011.
Operating profit fell to 5.4 per cent of revenue from 11.63 per cent in the first half of 2011 compared with the same period in 2010, according to the latest figures from the Marketing Agencies Association.
The body, which represents a range of integrated and below-the-line agencies, including Iris, which is led by the MAA chairman, Ian Millner, said that the fall was down to a squeeze in client budgets.
Due to reduced client spending, staff costs have risen to a record 68 per cent of gross income at MAA member agencies, compared with 56 per cent last year. Effective cost-cutting by agencies has led to a reduction in building and IT costs, but operating profit per head still declined by 61 per cent year on year to £2,062.
Scott Knox, the MAA managing director, said that agencies cannot cut staff further “without jeopardising client service” and called on clients to “realise that they can’t keep squeezing agencies on fees”.
Knox added: “Agencies are losing ground despite keeping their business broadly in balance year on year, so to cut any more would be to the bone.”
There are some unfortunate realities around this news. The days of strong profits in agencies appear to be well and truly numbered, despite the best efforts of managers to trim and tighten as much as possible.
This isn’t just a UK issue either.. it’s happening in agencies all around the world, particularly in the mature advertising economies of Europe, North America and locally in Australia & New Zealand. Also note that this news is focussed on integrated and below-the-line (primarily DM & digital) agencies. These are the businesses that are traditionally the solid money-makers in the industry.
Disruption is an oft-used word in business.. and rarely used appropriately. However in light of the direction the ad industry is heading, where clients are paying less, salaries are increasing and the work is being scrutinised more than ever for effectiveness and ROI, a better way has to be found.
While the Really Useful Crew can provide cost & labour efficiencies from a production perspective, there clearly needs to be more done across an entire agency to make the most of the steadily decreasing amounts clients are paying for communications services. Let’s face it, nothing is going to happen that will increase the level of agency remuneration, it’s downhill from here under the current model.
Creative, Strategy, Account Management, IT & Finance teams within the agency will need to change the way they operate.. drastically in some cases.
It appears disruption may well be the perfect word in this instance.