QUARTER 1 2016

WELCOME TO AGENCY FOOD

This, the most recent Agency Food report compiled by The Agency Works with the highest level of response to the industry survey we’ve had to date, gives a detailed insight into Agencies in the Creative sector, looking at the outlook and current perception of their trading landscape in Q1 2016, versus Q1 2015.

The feedback and engagement of the industry has been hugely welcomed and we hope that Agency Food continues to spark debate, provoke thought, and place a spotlight on the growth of the UK’s talented and creative businesses.

As part of this Agency Food Barometer, we have split respondents by whether the majority of revenue is obtained from B2B or Consumer clients. We have then been able to profile the landscape for each of these, looking at how the land lies for each Agency focus. This has highlighted key differences between B2B and Consumer, particularly in the operational and financial challenges faced.

Looking at the overall picture and comparing our year-on-year Agency Food reports, we can see that Agency life is stabilising. The results for 2016 show there is an increase in those who see their organisation’s performance remaining the same and although there is a consistent perception of improving conditions, a decrease in those predicting an incremental improvement is observed.

Increasing new business leads remains the key challenge for Agencies, also of note is the year-on-year dramatic increase in those citing talent recruitment as an issue, as well as an increase in the number of Agencies feeling challenged by client budgets and competition compared to this time last year.

Is this a picture of Agencies that are stagnant and not finding the right talent to move forward, or Agencies that are settled but preparing for growth by wanting to expand their head count?

Your participation in this survey is hugely valuable and we thank all those who again gave their opinions and thoughts so readily for us to use for this report. All questions asked are listed at the back of this document.

At The Agency Works, we support more than 450 Agencies in all creative sector disciplines – from digital and social to design, PR and integrated marketing. Thank you again for helping us relay this insight back to an industry about which we are so passionate.

Jay Neale, co-founder The Agency Works Team Ltd

SCOTLAND 9%

WALES 0%

LONDON 15%

EAST MIDLANDS 9%

NORTH EAST 0% 0-5 5-15 15-30 30-50 50+

NORTH WEST 13%

EASTERN 7%

SOUTH EAST 18%

SOUTH WEST 10%

THAMES VALLEY 4%

WEST MIDLANDS 5%

YORKSHIRE 9%

ANNUAL TURNOVEREMPLOYEES

DIGITAL AGENCY 29%

MARKETING/COMMS AGENCY

18%

ADVERTISING/FULL SERVICE

AGENCY 18%

DESIGN/CREATIVE AGENCY

29%

PR 5%

£250k-£749k 25%

£2m-£4m 18%

£4m-£5m 2%

£5m+ 15%

£750k-£1m 16%

£1m-£2m 24%

WE SPOKE TO… B2B

55

AGENCY LEADERS

RES

PO

NSE

RAT

E

10%

20%

30%

40%

SCOTLAND 0%

WALES 0%

LONDON 39%

EAST MIDLANDS 0%

NORTH EAST 0% 0-5 5-15 15-30 30-50 50+

NORTH WEST 6%

EASTERN 6%

SOUTH EAST 11%

SOUTH WEST 28%

THAMES VALLEY 0%

WEST MIDLANDS 6%

YORKSHIRE 6%

ANNUAL TURNOVEREMPLOYEES

DIGITAL AGENCY 28%

MARKETING/COMMS AGENCY

17%

ADVERTISING/FULL SERVICE

AGENCY 22%

DESIGN/CREATIVE AGENCY

33%

PR 0%

£250k-£749k 11%

£2m-£4m 22%

£4m-£5m 6%

£5m+ 22%

£750k-£1m 16%

£1m-£2m 22%

WE SPOKE TO… CONSUMER

18

AGENCY LEADERS

RES

PO

NSE

RAT

E

10%

20%

30%

40%

OUTLOOK?

WHAT IS THE GENERAL OUTLOOK OF YOUR AGENCY’S PERFORMANCE OVER THE NEXT QUARTER?

IMPROVING SLIGHTLY IMPROVING

REMAINING THE SAME

DECREASING DRAMATICALLY DECREASING

Q1 2016

Q1 2015

RES

PO

NSE

RAT

E

10%

20%

30%

50%

40%

CHALLENGES?

WHICH OF THESE IS A KEY CHALLENGE FOR YOUR AGENCY AT PRESENT?

INCREASING NEW

BUSINESS LEADS

GROWING EXISTING CLIENTS

RETAINING EXISTING CLIENTS

RECRUITING TALENT

RETAINING TALENT

DECREASING CLIENT

BUDGETS

INCREASED COMPETITION

RES

PO

NSE

RAT

E

10%

20%

30%

40%

50%

60%

80%

70%

Q1 2016

Q1 2015

THE FINANCES

LATE PAYMENT

ACCURATE FORECASTING

OVER- SERVICING

MANAGING CASHFLOW

INCREASING PROFITABILITY

PAYING TAXES/ BUSINESS

RATES

RES

PO

NSE

RAT

E

10%

20%

40%

50%

30%

70%

60%

Q1 2016

Q1 2015

WHAT ARE THE BIGGEST FINANCIAL CHALLENGES YOU FACE IN RUNNING YOUR BUSINESS?

When presented with these year-on-year comparisons, you might have cause to think about the landscape of your own Agency this time last year compared to the beginning of 2016.

Are you, as with the majority of Agencies, feeling that performance is improving over the next quarter and that increasing new business leads is your biggest challenge? Or is your story different?

Looking further at the results of the report, there are other changes which might be a more familiar story.

In terms of financial challenges, it will undoubtedly resonate with everyone regardless of the maturity of your Agency, that over- servicing continues to dominate as the top financial consideration for Agency leaders.

No surprise there you many think, however, in the context of the full results from Q1 2015 v 2016, the outlook of an improving performance remains relatively unchanged but concerns have risen in relation to increasing profitability. Over-servicing therefore, has never been a more pressing issue.

With two thirds of respondents consistently citing over-service as their biggest challenge; a year-on-year increase in Agencies reporting decreasing client budgets together with increasing competition presenting a hurdle for them, control over billable resource seems like an incredibly important issue.

As we also noted as part of this survey for Q1 2016:

79% OF AGENCIES ARE GENERATING THEIR REVENUE THROUGH PROJECT WORK

21% THROUGH RETAINERS

86% OF AGENCIES STATED THEIR PROFIT IS FROM FEES AS OPPOSED TO

14% FOR WHOM IT IS COST MARGINS

With this in mind, perhaps a review of project costing versus work delivered would be timely for your business. It may be that over-service at your Agency is seen as investment to ensure competitiveness, and longevity of client relationships. Whatever the reason, over-service can always be explained away, but is this a sustainable model for your business?

FOCUS ON WHERE ARE YOU NOW?

JAY SAYS:“ At the beginning of 2015 we were seeing a similar mix of challenges compared to now, but with the year-on-year rise in the number of Agencies seeing increasing profitability as a financial challenge, Agencies cannot ignore the barriers to growth that constantly plague them. Without increasing profitability there is no growth so now is the time to take stock at the beginning of this new financial year, and take charge of driving your Agency forward on a path of growth.”

FOCUS ON B2B V CONSUMER FOCUSED AGENCIES

In a special review of B2B and Consumer Agencies, we look at the variances in the make up and outlook of the two differently focused businesses.

From those participating in Agency Food, 75% mainly see revenue from B2B clients, and 25% from Consumer.

Reviewing in which sectors each Agency type is operating, we see that currently their focus is completely different:

Top two sectors for the majority of clients:

B2B:1. Professional and

Business services

2. Healthcare and Communications & Technology (joint 2nd)

Consumer:1. Food & Drink/Catering

2. Communications and Technology

Is the majority of your revenue from:

How is the majority of your profit created?

B2B: CONSUMER:

77% PROJECT

WORK23%

RETAINER WORK

83% PROJECT

WORK17%

RETAINER WORK

B2B:

89% FEES

11% COST

MARGINS

CONSUMER:

22% COST

MARGINS

78% FEES

JAY SAYS:“It is hugely informative to see from the information on this page and the following data charts just what the nuances and characteristics are that make up the B2B and Consumer Agency landscape at the beginning of 2016. With more reliance on project work and profit from cost margins in the Consumer Agency, but as you will see on the charts following, a greater talent recruitment challenge for B2B Agencies, there is food for thought in all of this data.”

FOCUS ON B2B V CONSUMER FOCUSED AGENCIES

FRAN SAYS:“It’s interesting to see that consumer agencies are also predominantly project based, reflecting the fundamental shift that the industry has gone through over the last decade.”

Fran Brosan, Chairman of Omobono

DANNY SAYS:“It’s interesting to see the post recessionary behaviour from clients and agencies reflected in a worryingly low level of fee based income, however I am pleased that one of these has been a move away from margin based charging which is archaic and not transparent. It’s also heartening as a B2B practitioner to see our sector with higher levels of retained business and less reliance on mark ups. I would expect this to be a reflection of our client relations which are more closely aligned to other professional services providers”

Danny Turnbull, Managing Director of Gyro

ALEX SAYS:“Data and reporting is getting better which is highlighting where the pressure points are, hopefully most knew that already! Now we have the clear evidence and we see B2B and B2C struggling in the same areas. We have to get tighter on scoping, better on briefing and delivering first time. We have to take action.”

Alex Brayshaw, Business Partner, OgilvyOne Business

OUTLOOK?

WHAT IS THE GENERAL OUTLOOK OF YOUR AGENCY’S PERFORMANCE OVER THE NEXT QUARTER?

IMPROVING SLIGHTLY IMPROVING

REMAINING THE SAME

DECREASING DRAMATICALLY DECREASING

RES

PO

NSE

RAT

E

10%

20%

30%

50%

40%

B2B

CONSUMER

CHALLENGES?

WHICH OF THESE IS A KEY CHALLENGE FOR YOUR AGENCY AT PRESENT?

B2B

CONSUMER

INCREASING NEW

BUSINESS LEADS

RECRUITING TALENT

GROWING EXISTING CLIENTS

DECREASING CLIENT

BUDGETS

INCREASED COMPETITION

RETAINING TALENT

RETAINING EXISTING CLIENTS

RES

PO

NSE

RAT

E

10%

20%

30%

40%

50%

60%

80%

70%

CHALLENGES?

WHAT ARE THE BIGGEST FINANCIAL CHALLENGES YOU FACE IN RUNNING YOUR BUSINESS?

OVER-SERVICING

INCREASING PROFITABILITY

ACCURATE FORECASTING

MANAGING CASHFLOW

LATE PAYMENT

PAYING TAXES/BUSINESS RATES

RES

PO

NSE

RAT

E

10%

20%

30%

40%

50%

60%

80%

70% B2B

CONSUMER

JAY SAYS:

“The comparisons we have been able to draw as part of this report in to the first quarter of this year compared to 2015, and between B2B and Consumer focused Agencies have made for fascinating reading. The greatest cause for concern I can see for both types of Agency lies however in the last chart on the previous page – the financial challenges. There is a marked difference between how B2B and Consumer Agencies feel about the challenge of managing cashflow, with B2B Agencies feeling the pressure almost four times more than their Consumer counterparts. When paired with their heightened concerns over

increasing profitability and over-servicing, it highlights further support needed in helping B2B Agencies operationally. Our report has shown that Consumer Agencies too feel particularly challenged to increase new business leads, more so than B2B Agencies, and feel most financially troubled by over-servicing and increasing profitability. It may be that businesses are settling in to the year still, and whether that translates to a performance plateau or indeed gearing up for growth, getting your financial confidence back could be the most important acquisition of 2016.”

WHAT WE ASKED…

IS THE MAJORITY OF YOUR REVENUE

FROM B2B OR CONSUMER

CLIENTS B2B OR CONSUMER

CLIENT?

HOW MANY EMPLOYEES

WORK AT YOUR

COMPANY?

WHAT ARE THE BIGGEST FINANCIAL

CHALLENGES YOU FACE IN RUNNING YOUR BUSINESS?

WHAT IS YOUR

AGENCY’S DISCIPLINE?

IN WHICH SECTOR DO THE

MAJORITY OF YOUR CLIENTS

SIT WITHIN?

IS THE MAJORITY OF

YOUR REVENUE FROM RETAINER

OR PROJECT WORK?

HOW IS THE MAJORITY OF YOUR PROFIT

CREATED?

HOW DIFFICULT DO YOU FIND

FORECASTING FOR THE

BUSINESS?

IN WHICH REGION OF THE

UK IS YOUR COMPANY BASED?

WHAT IS YOUR BUSINESS’

ANNUAL TURNOVER?

WHICH OF THESE IS A KEY

CHALLENGE FOR YOUR AGENCY AT

PRESENT?

WHAT IS THE GENERAL OUTLOOK OF YOUR AGENCY’S

PERFORMANCE OVER THE NEXT QUARTER? (COMPARED TO LAST

QUARTER)

The Agency Works helps agency owners, MDs and senior teams with the financial and operational aspects of running their businesses offering both strategic counsel and workable solutions, depending on their needs. The insight that we have gained over the past 10 years means that we’re ideally placed to understand the challenges agencies face when looking to launch, build and grow a sustainable, profitable business.

We hope you’ve found our Agency Food Barometer an effective way to share collective experiences, trends and feedback. If you are interested in taking part next time we would welcome your input.

IF YOU’D LIKE TO SPEAK TO US:For further information on how The Agency Works can make an impact on your business please call Jay Neale on 01455 553 246.

www.theagencyworks.co.uk

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