AgencyLand – nearly broke and we need to fix it

I’ve come to the conclusion that it’s becoming extremely difficult for a medium sized UK agency to actually make enough money to stay afloat.  Factor in a desire to produce creative and effective work (and of course, the two things are connected) and it’s a seemingly impossible task. Why?

1) Work has massively shifted from contracts and fees to projects and tendered rosters.  With every single project having to be competitively pitch/tendered for, the opportunity to charge the kind of management and creative fees that a business needs to develop and evolve (rather than merely survive) aren’t there.  Price is now such a significant element of the tender appraisal process that you can’t afford to charge the sort of money you really need to keep moving onwards and upwards.

2) Many clients now seem to lack basic marketing skills and knowledge.  I was a bit taken back the other week when I had to explain to one of my VIP clients what the difference between retailer press and trade press was.  This seems to me to be down to a combination of spreading staff too thinly across sales and marketing functions and/or categories, putting staff with category but not specialism experience into senior roles and allowing senior staff without a marketing background to override strategic marketing recommendations whenever they see fit.  Which brings me nicely to…

3) …the mantra Think Global, Act Local seems to have been replaced with Think Global And Query Everything Local, Then Act Global Anyway.  See my rant about European Marketing Managers for more details.

4) Thanks to the current economic climate, in my experience every pitch seems to necessitate a pitch list of a dozen agencies and every tender has anywhere from 30 to 130 firms going after it.  The economics of this just don’t add up – if the value of an average (outside London) marketing pitch is £250,000 and an agency could expect to make, say £50,000 in revenue off that, twelve agencies each spending £10,000 worth of time and resources to pitch doesn’t add up.  Because the law of averages states that they’re only going to win one pitch in twelve, thus spending £120,000 to win £50,000 of revenue.  I oversimplify.  But you get the point.

So the agency model is, if not broken, then severely cracked.

broken business model

Got any ideas about how to fix it?

One thought on “AgencyLand – nearly broke and we need to fix it

  1. Honestly, there are too many media agencies. And two solutions.

    – Some of them find other things to do and new revenue streams (research, consulting etc.)

    – Some of them go bankrupt.

    In reality I think we’ll get both. The ones that don’t find new revenue streams will be the first to go bust.

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