REFLECT, RECHARGE, MOVE ON: Creative Agencies in 2021 Introduction There has never been a past year quite like this one – so how are creative agencies responding to the challenging times? In early 2021, Campaign and Deltek surveyed more than 300 agency professionals around the world about how they’re faring in the pandemic and their expectations for the year ahead. The results provide insights for all those seeking to emerge from the current uncertainty with a stronger, more resilient and more future-proof business. Key trends 01 02 CLIENTS Encouragingly, most respondents (80%) have a similar sized or larger client base than a year ago. But the client mood is still cautious: three-quarters have a ‘wait and see’ attitude. And new business is a key focus for 77% of agencies in 2021. WORK Continuing last year’s trends, many agencies are working harder than ever to hang onto business: 61% are producing more work and offering extra services, but 36% are seeing lower profit margins. Profitability is a focus for 58% of agencies, and efficiency for 52%. 03 TALENT Attracting and retaining talent is the number-one 04 PAY Don’t count on a pay rise in 2021. Only 29% are expecting 05 TECH Agencies who have embraced digital transformation have area for agency improvement. Over a third (39%) intend to grow their team in 2021, while 33% plan to increase freelance resource. Another 33% say their agencies lack the specialist skills to drive digital transformation. pay per head to increase – although encouragingly, those in the know about remuneration are most optimistic. fared better in terms of growing their client bases and increasing profit margins over the past year. In total, 87% of respondents are in the process of evolving their digital systems or already have a mature system; but others are stagnating digitally and in danger of being left behind. Reflect, Recharge, Move On: Creative Agencies in 2021 2 Agency-client relationships D espite the challenging business conditions, many agencies report surprisingly positive experiences in terms of client numbers. The majority have either retained the same number of clients as they had 12 months ago (36%) or actually grown their client base (44%). Meanwhile 43% say their client relationships have lasted around the same length as before, while a similar number (40%) are enjoying longer relationships year-on-year. Only 15% of respondents have fewer clients than they did a year ago, and only 13% are seeing client relationships end more quickly. This was actually a healthier picture than at the start of 2020, when nearly a quarter of agencies (23%) reported losing clients How many clients do you have compared with 12 months ago? 5% Don’t know 36% Same as before 44% More clients 15% Fewer clients How long are your client relationships compared with 12 months ago? 4% Don’t know 40% Longer client relationships 43% Same as before 13% Shorter client relationships Reflect, Recharge, Move On: Creative Agencies in 2021 year-on-year and a similar number (28%) said their client relationships had become shorter. “Many agencies are enjoying longer client relationships year-on-year” So why are more clients sticking with their agencies? One answer may be that existing client contracts may have remained in force for much of the year; but in any case, clients may be reluctant to make an agency change in the midst of so much other upheaval. Global research by ID Comms finds that in the initial pandemic disruption, 69% of agency leaders have seen normal pitching processing put on hold. Meanwhile a UK survey by Alchemis finds the majority of clients are less likely to consider alternative marketing agencies during the pandemic, and have grown closer to the incumbents – who have often re-imagined campaigns with considerable resourcefulness. Meanwhile, the broadly positive results regarding client growth and retention may obscure just how badly client losses have affected certain industry sectors, such as travel and events brands, during the pandemic. One respondent sums up the uneven impact: “In general, most people I’ve spoken to have not been all that impacted. My clients were mainly in the events sector, so I’ve had to start again from scratch.” 3 Agency productivity and profits Agencies appear to be working hard and stretching themselves to retain their client base. The majority (61%) are now offering more services than they did a year ago. How many services do you offer compared with 12 months ago? Meanwhile, most agency professionals (61%) told us they are producing more work than they did a year ago. 1% Don’t know 30% Same as before 61% More services offered 8% Fewer services offered How much work have you produced compared with 12 months ago? 2% Don’t know 19% Same as before 18% Less work produced 61% More work produced How do your profit margins compare with 12 months ago? 13% Don’t know This diversification may reflect agencies’ adaptability and willingness to do more for clients in the Covid-19 era. However, it also continues an ongoing trend: last year’s survey found that even more agencies (68%) had broadened their service offering year-on-year. 25% Higher profit margins 27% Same as before 36% Lower profit margins Reflect, Recharge, Move On: Creative Agencies in 2021 Again, this is a similar picture to last year, when 62% said they were producing more work year-on-year. All this effort on the part of agencies to add services and increase output isn’t necessarily translating into higher profit margins, however. Only a quarter of respondents (25%) are seeing margins increase, compared to 63% for whom profit margins have either remained static or shrunk. The results here are also consistent with the previous year’s: in 2021, 36% of agency respondents are seeing lower profit margins year-on-year, while 37% did in 2020. So the current crisis is unlikely to be the sole cause of declining profitability – rather, it has cemented an ongoing trend. While many agencies are clearly willing to increase output and stretch their service offering to please their clients, their current business models (and a highly competitive market) are unfortunately not allowing them to reap any rewards in terms of increased profit margins. 4 The current challenges and how agencies and clients are responding The pandemic obviously brings many operational challenges for agencies – the greatest of which is resource management (a problem for 64%). This is followed by collaboration (47%) and client relationships (43%). “Resource management, collaboration and client relationships are challenges for agencies” From a working process or operational perspective, what were the challenges that you have faced during the pandemic? Select all that apply. 70% 64% 60% 47% 50% 43% 35% 40% 33% 30% 20% 11% 10% er Oth ent ma nag em Pro ial p anc Fin ject roc ess es s hip ons lati bor atio n Col la Clie nt r e Res our c em ana gem ent 0% Reflect, Recharge, Move On: Creative Agencies in 2021 5 In terms of how clients are responding to 2021, the picture is mixed. As many as 40% of agencies say their clients have a renewed sense of confidence; but a third disagree with this view. And while around half (51%) say their clients are planning to maintain spend levels in 2021, a similar number (49%) think client spend will decrease. Just one in five (23%) predict increased client spend. The dominant mood is one of caution, with three-quarters saying their clients have a ‘wait and see’ attitude. It is perhaps telling that at least a quarter of respondents offer no opinions on questions regarding their clients’ confidence and spending plans for this year. Clearly, many are still unsure of where they stand with clients as we head into 2021. This somewhat confusing picture no doubt reflects the reality: that different sectors and organisations are faring very differently right now. Research by WARC Data predicts a 6.7% rise in global ad spend in 2021, but says it will take at least two years for the advertising market to fully recover, with only three sectors expected to top worldwide 2019 revenues in 2021: telecoms and utilities, media and publishing, and business and industrial. The automotive and travel sectors are seeing the most drastic spending falls – although both are predicted to bounce back with double-digit growth this year. At an organisational level, for every client that is looking to scale back marketing budgets, others may be looking to use creative communications to reach restricted consumers, explore new markets or capitalise on present opportunities. One of our survey respondents has this playing out in their shifting client base – seeing ‘bigger businesses wanting to cut back on marketing’ they are now ‘working with smaller businesses that are excelling in the pandemic.’ Indeed, despite record declines in ad spend in 2020, a recent report from the Advertising Association finds that one in five UK advertising and marketing companies has had at least one revenue stream increase in the era of Covid-19. The pandemic presents opportunities as well as challenges – for some, at least. How are clients reacting to the potential end of the pandemic? 1. With a renewed sense of confidence 27% No opinion 40% Agree 33% Disagree 2. With a cautious wait-and-see attitude 13% No opinion 12% Disagree 75% Agree 3. With plans to up spend in 2021 27% No opinion 23% Agree 50% Disagree 4. With plans to maintain spend in 2021 27% No opinion 51% Agree 22% Disagree 5. With plans to decrease spend in 2021 33% No opinion 49% Agree 18% Disagree Reflect, Recharge, Move On: Creative Agencies in 2021 6 Agency teams, talent and pay packets So what does 2021 hold for agency workforces? Again, the picture is mixed. Over a third (39%) expect their team to expand in 2021, although a similar number (36%) foresee no change. Close to a fifth (16%) anticipate their team shrinking (though few expect job losses of more than 30%). While this sounds broadly positive, it may reflect the fact that some agencies have already had to reduce teams in 2020. Market research firm Forrester reports that advertising agencies will have shed over 100,000 jobs globally by the end of this year. But at least some of these may be hoping to rehire lost staff. Do you expect your team size to shrink or expand in 2021? 4% Shrink by more than 30% 9% Expand by more than 30% 39% Expand by less than 30% 12% Shrink by less than 30% 36% No change Do you plan to increase your freelance versus employee ratio? 23% I don’t know 33% Yes 44% No Reflect, Recharge, Move On: Creative Agencies in 2021 Some are predicting a freelancing boom fuelled by the pandemic, which would see agencies turning to freelancers to fill skills gaps after downsizing in-house teams. However, our survey finds that agencies’ intentions regarding freelance resource vary considerably. While a third do plan to increase their ratio of freelance to permanent staff, a larger number (44%) expect the balance to remain the same. In the current uncertainty, it’s perhaps not surprising that nearly a quarter (23%) of respondents just don’t know if their agencies will use more freelance resources. Or that some are cautious about doing so; one respondent acknowledges that their agency is turning to freelancers more, but is mindful of balancing that with their in-house team’s strengths: “[Our focus is] managing the advent of the rise of the freelancer, being supportive, but ensuring they do not dilute the benefits a full-service agency can bring to clients at scale.” “In the current uncertainty, it’s perhaps not surprising nearly a quarter of survey respondents don’t know if their agencies will use more freelance resource” 7 Do you think your agency will increase or decrease pay-per-head in 2021? 3% I think we will decrease payper-head by more than 20% 3% I think we will increase payper-head by more than 20% 10% I think we will decrease pay-per-head by less than 20% 26% I think we will increase pay-per-head by less than 20% 58% No change Agency professionals are not necessarily counting on a raise in 2021. While over a quarter (29%) expect pay per head to increase, the majority (58%) anticipate no change, and more than one in 10 (13%) expect pay decreases. Encouragingly, however, those who are involved in their company’s compensation plans are slightly more optimistic about future pay than most: 41% of them expect pay per head to increase, compared to 46% who predict it will remain the same. Comparison between whether or not respondents are involved in devising their company’s compensation plan. Increase pay No change 70% Decrease pay 64% 60% 46% 50% 41% 40% 30% 22% 20% 13% 14% 10% not invo lved invo lved Reflect, Recharge, Move On: Creative Agencies in 2021 I am I am not invo lved invo lved I am I am I am I am invo lved not invo lved 0% 8 What agencies are focusing on – and where they need to improve The bottom line is a top priority for agencies in 2021. The most important focus, for more than three-quarters (77%), is new business; followed by profitability (58%), efficiency (52%) and cash flow (51%). are focused on talent strategy. Issues such as positioning and pricing, financial modelling and risk management were less of a focus for agencies – despite the fact that attention in these areas could drive the efficiencies that so many are keen to make. Getting the right team in place is also a strong concern: 46% are concerned about diversity and equality, and the same number What are the most important areas of focus for your business in 2021? Select all that apply. 77% 80% 70% 58% 60% 52% 51% 47% 50% 46% 40% 40% 33% 30% 30% 19% 20% 17% 10% 3% er Oth ling ode l ial m Fin anc ana gem ent Ris km gp atte rns ing Wo rkin pric and ng Pos it ion i al p roc es ses ing Reflect, Recharge, Move On: Creative Agencies in 2021 Inte rn res our c ity equ al Tale nt s t rat egy and nd ow h fl Div ers ity a Cas ncy Effi cie y bilit Pro fita New bus ine ss 0% 9 “Attracting and retaining the right talent” is rated the numberone improvement area for agencies in 2021, identified by 54% of respondents. It was, however, neck and neck with a “more profitable new business strategy” (53%). Interestingly, the top three areas for improvement are the same as last year’s, but with a reshuffling of priorities. “Improving productivity and efficiency” was at the top of agencies’ wishlists at the start of 2020 but only comes third in this year’s survey, while last year’s number-three priority, “attracting and retaining the right talent”, overtakes new business strategy to take the top spot. In which area(s) do you think your agency needs to improve? Select all that apply. 60% 54% 53% 50% 41% 37% 40% 37% 26% 30% 20% 10% 3% Reflect, Recharge, Move On: Creative Agencies in 2021 er Oth rt inte rna l su ppo ons luti olo g y, fo r clie nt s o Tec hn Tec hn olo g y, fo r cre atin g rofi t abi lity cy cie n Inc rea sing p effi ty & ss s Imp rov ing pro duc tivi usin e e ne wb abl rofi t re p Mo Att rac tin g an d re tain ing the righ t ta len t tra teg y 0% So why has retaining talent become the number-one improvement area, at a time when we might expect the agency talent pool to be flooded with newly unemployed professionals? The pandemic makes employee wellbeing a priority, and brings home to agencies the value of their top talent (not least because high performers in complex roles are 800% more productive than average performers). It also highlights skills shortfalls within “The pandemic brings home to agencies the value of their top talent” agencies at a time when, according to a recent McKinsey Global Survey, nearly nine out of 10 executives and managers say their organisations are already facing skills gaps, or expect these to develop in the next five years. Meanwhile, many project-led agencies have already slimmed down their workforce as far as possible to match their pipeline and revenue, and now urgently need to avoid staff burnout (a very real concern, given that US research suggests 73% of the advertising and marketing industry have experienced workplace burnout recently). Although 37% of those surveyed want to improve client solutions technology and 23% feel internal support systems could be better, tech was less of a priority area than talent. Some already feel they have the right technology and digital systems in place – but as we shall see in the section below, those agencies are the minority, and many are still wrestling with barriers that are hampering their digital development. 10 Digital transformation – and the journey to achieving it What do you want to gain from Digital Transformation? Select all that apply. 59% 60% 50% 50% 43% 43% 42% 40% 40% 30% 20% 10% 3% er Oth Enc Dri Inc rea se s ag ility & in nov atio v n e our s da age ta-b s co ase llab d in ora sigh tion ts acr oss dep art Upd me ate nts s sk illse Con ts & soli kno dat wle es p dge roc ess and Tra ope nsf rat orm ion s cu s sto me r ex per ien ce 0% Where is your agency on its Digital Transformation journey? 2% Other 11% No digital transformation initiatives in place The pandemic has not only accelerated the pace of digital transformation, but also made it more of a necessity than ever. Most agencies (59%) recognise that transforming their digital systems could increase their agility and motivation, and half anticipate it generating data-driven insights. But these are far from being the only potential gains. The broad range of answers here shows that agencies are well aware of the diverse applications of digital transformation – from front-end customer experience to back-end practicalities such as consolidating internal processes. However, relatively few agencies consider themselves to be fully digitally evolved as yet. Less than one in five (19%) of those surveyed say they have mature digital systems and strategies in place, although 37% do at least have solid digital transformation plans under way. With 31% of respondents still in the early stages of developing their digital strategy, and around one in 10 (11%) stagnating digitally with no initiatives in progress, tech is evidently not top of everyone’s agenda. 19% Mature, fully integrated digital management systems 31% Exploring digital transformation options 37% Digital transformation plans under way Reflect, Recharge, Move On: Creative Agencies in 2021 11 Comparison between the agencies that are more and less mature in their digital transformation journeys. More clients Fewer clients 59% 60% 47% 50% 40% 35% 34% 30% 24% 20% 20% 12% 10% 10% It probably should be, however – as the agencies that are either well on the way to digital maturity, or have already reached it, are doing better than their peers, as we discover from looking at the segmented data. For example, 59% of respondents at digitally mature agencies (and 47% of those at maturing agencies) have actually grown their client base over the past year – whereas only 35% of the agencies with undeveloped or non-existent digital strategies managed to do so. On the other hand, only 10% of the mature agencies (and 12% of the maturing agencies) have shed clients over the year, compared to an average of 20% of those with little or no digital strategy. pla ce tem s in rw Profit decline 50% 45% 43% 34% 30% sys Ma tur e Pla ns u nde opt ng lori No Profit increase 40% ay s ion lace init Exp iati tem ves i s in np pla ce ay rw sys Ma tur e Pla ns u nde opt ng lori No init Exp iati ves i np ion lace s 0% 33% 25% 21% 21% 16% 20% 10% sys pla ce Meanwhile, 34% of digitally mature (and 25% of maturing) agencies have been able to increase profit margins yearon-year, compared to just 21% of those with an undeveloped digital strategy, and 16% of those with no digital strategy at all. Conversely, the most digitally evolved agencies are the least likely to have seen profitability decline. Only 21% of digitally mature agencies, and 33% of maturing agencies, report lower profit margins yearon-year – compared to 45% of those with little or no digital strategy. Ma tur e Pla n s un der opt ng lori Reflect, Recharge, Move On: Creative Agencies in 2021 tem s in wa y s ion lace Exp init iati ves in p pla ce No sys tem s in wa y der Pla n s un opt ng lori Exp Ma tur e No init iati ves in p ion lace s 0% “Agencies either well on the way to digital maturity, or have already reached it, are doing better than their peers” 12 Despite the clear benefits associated with digital transformation, respondents are wrestling with numerous obstacles to delivering it – the biggest being competing investment priorities (34%) and a lack of specialist skills (33%) or available capital (30%). After all, if not now, when? The world has changed beyond recognition around us, and far-sighted agencies are seizing the opportunity to evolve, too. As another respondent puts it: “I think agencies that have done well in 2020 are those that took lockdown as a chance to improve.” Successful agencies have not only been prepared to go the extra mile for clients and do things differently in order to survive; they are also treating the present moment as a wake-up call to plan ahead and futureproof themselves as far as possible for 2021 and beyond. Many agencies seem to be struggling to make digital transformation a top business priority and find the funds or talent to do it properly. There is a disconnect between agencies wanting to evolve, and actually being prepared to invest the time and technology to enable change. As one agency professional observes: “While everyone wants digital transformation in paper, when it comes to implementation, stakeholders would rather maintain [the] status quo. Hopefully the changes brought about in 2020 will accelerate change!” What are your main barriers to Digital Transformation? Select all that apply. 40% 34% 33% 30% 28% 30% 27% 26% 21% 19% 20% 14% 14% 12% 10% 10% 2% Oth er ent Ris km ana gem sele ctio n ner Non e or/ par t Ven d adv a nce me nt y-in r bu Spe ed o f te chn olo gic al lde rat egy Sta keh o y st olo g Tec hn nw ork for ce nds Imp act o nt d e clie lling Fulfi ge m ana g ma em e nt pita l e ca Cha n abl Ava il sho rta ges ills Spe cial ist s k Pri orit i sat ion of i nve stm e nts 0% For more agency industry news and management insights, you can register to receive similar content here. Reflect, Recharge, Move On: Creative Agencies in 2021 13 About Campaign Campaign is the world’s leading business media brand serving the marketing, advertising and media communities. Its mission is to provide industry professionals with the creative firepower they need to attract and engage consumers. campaignlive.co.uk About Deltek Better software means better projects. Deltek delivers software and information solutions that enable superior levels of project intelligence, management and collaboration. Our industry-focused expertise makes your projects successful and helps you achieve performance that maximises productivity and revenue. deltek.com/agencies
