What did 2018 teach us in the marketing agency space? What challenges are we facing and what trajectory is the industry headed in 2019?
As the year closes out, we surveyed our entire tribe of agencies across 24 countries globally. We’ve analyzed the data from our study, did some additional research and combined it all with anecdotal information we’re hearing in our mastermind and coaching sessions to bring you a complete collection of information so you can own 2019 with some great insight as well as clarity for the year ahead.
To those agencies who participated in our study, thank you for your taking the time to share your valuable experience and wisdom. If you weren’t asked to participate this time, but have something to share please comment below. We read and respond to every comment and inquiry, and we love hearing from agencies of all sizes in all parts of the world.
How Did Marketing Agencies Fare in 2018?
Overall it was a strong year for marketing agencies. We’ve seen some amazing trends emerge in digital marketing, and as marketers, it’s our responsibility to test these trends before recommending and rolling them out to clients. Things like chatbots and Facebook Messenger marketing have really accelerated the market this past year… and my gut is telling me that is what has translated into many of you seeing solid profit margins this year. (More on those “emerging trends” later.)
I tell my clients to aim for the 30% range for their margin, and of the reporting agencies, over 25% are at the 30% mark or better. That’s amazing! And it’s supported by the fact that 90% of agencies reported incremental growth in 2018.
Even the 19.4% of you in the 21%-30% profit margin range is still headed in a good direction… keep pushing because there’s no shame that!
But, if you are not at a solid profit margin, you’re not alone. Nearly 32% of agencies were at less than 10% profit margin with some even reporting a loss. To those agencies I ask, are you focused on the right numbers? If you did not have a solid year in 2018, it could be due to a couple of different variables: What numbers are you focusing on? If you’re concentrating on gross revenue you need to shift your focus. Are you looking at your agency’s long-term goals? If you’re thinking just of the short term that means you have a short-sighted approach to your business growth strategy.
What can you do to improve your margins in 2019?
The best place to start is to raise your prices. I know, I know. That’s really hard to do with existing clients because many of them won’t be willing to absorb the increase. That’s OK! Start slow and increase pricing for new clients first. Then, strategically implement the increase to your existing ones. For example, if you’ve got a less-than-ideal client, increase their prices. If they love your work, they’ll relent to the increase and if they can’t afford the increase they’re not right for you anyway.
Another strategy for improving profits is to charge by value, not by hour. The problem with hourly pricing is that as you get smarter, faster and more efficient you actually make less money! If your team develop and deliver a project in 10 billable hours now, they’ll get better at it over time. Let’s say within 6 months they have the systems and processes in place to shave it down to 8 billable hours. If you’re charging $100/hour you were billing that project for $1,000 and now you’re billing the same project for $800. You’re sacrificing profits because your team got better at their job.
Look at it this way, the only way to make more is to increase the number of clients you’re working with or increase prices. Would you rather work harder for the same rate, or just work smarter?
What is the Outlook on the Agency Landscape for 2019?
The future looks bright for 2019 and everyone is very optimistic, with over 95% of agencies reporting a positive outlook for growth and expansion in the coming year. Here’s why:
1. Specialty shop is what’s in…
Out with the old mindset and in with the new! Brands used to want one-stop shopping and so agencies scrambled to be able to do everything, even if they sucked at it. But, that’s no longer the case! Today and moving ahead, brands want agencies who are experts in a specific vertical, and even a horizontal, niche. They understand and respect the importance of their agency being a specialist in a specific area of marketing. They understand that an SEO agency is different than a social media agency or a web development agency and they’re OK with sourcing different skills from different agencies. So you can focus on scaling your business and stop trying to be a jack-of-all-trades.
The US economy is strong and businesses are spending money on digital marketing.
2. Digital ad spend is on the rise…
and it continues to be a larger chunk of total ad spend (in the US). In 2016, digital ad spend was $71.6 billion, in 2017 it was $83 billion and $93.75 billion in 2018. I know what you’re thinking… these numbers are in the billions, so how does that relate to me and my agency? But, think about it this way — overall, spending increased more than 30% in two years. So it’s reasonable to believe this fact is relevant to your little piece of the marketing world. And to further substantiate this assumption, we stumbled upon a recent study by Nielsen CMO Report stating that 82% of their respondents (CMO’s) are planning to increase their digital budgets by about 50% in the next year. Bottom line, your prospects understand digital marketing and they’re willing to spend money on it. The pump is primed, and your agency can reap the benefits.
What Challenges Do We Face Heading in 2019?
2018 was pretty great, but it’s not all unicorns and rainbows 🙂 Agencies have listed a variety of growth challenges in the coming year but overwhelmingly, the main concerns fall into two categories — client acquisition/lead generation and agency growth relating to CEO time/productivity.
Challenge #1: New Client Acquisition
Not surprisingly, the #1 most common challenge is lead generation and client acquisition. Why is this? Well, for starters only 38.7% of you have a dedicated sales person/team. And on a scale of 1–10, only 23.6% are satisfied with that person/team. That means about one-third of responding agencies have a person or people dedicated to their process for finding, nurturing and converting prospects. And of those who do, less than one-quarter of them are pleased with the process. Yikes!
If you don’t have a dedicated salesperson or team, how do you know it’s time to hire one?
A good benchmark is that if your revenue is at or above $500,000 you need someone other than the agency owner to be handling sales. A lot of agency owners are resistant to hire for agency sales because they’re afraid they won’t be able to support the hire until he/she starts performing and bringing in those new clients. But here’s the thing. When the owner is responsible for generating and nurturing prospects and converting them into clients, then also responsible for delivery one or the other always suffers. However, you won’t have these ebbs and flows in your business when there’s someone dedicated to sales. So you can support a sales + commission salesperson.
Now, if you’re under the $500,000 revenue mark and you’re feeling overwhelmed, then it is still time to hire but not for sales yet. Hire someone else in the agency who can shift some of your workload. If you’re looking at making your first hire, I usually suggest a project manager.
Another tactic for improving your client acquisition is to stop selling your core service right off the bat. There’s a whopping 75.9% of you that are essentially proposing marriage on the first date. Stop leading off with your core service! Look, I get it. You’re excited to get that initial meeting and you want to go in for the big project and showcase your core service offering. Plus, let’s be honest, it’s a big ticket item and the cash flow would be nice. But, you will see your close rates increase while the length of your sales cycle decreases.
You need to start off by building your service offering ladder, which begins with a foot in the door offer. This is a slice off your core service that can establish your relationship with the client. It’s a can a lower price tag and therefore it’s a much easier decision for them to make. Things like blueprints or audits can make a great foot in the door offer. The goal is to show the client what you can do and then leave it up to then to decide if they want to proceed to climb up your offering ladder toward bigger projects and eventually a retainer. A foot in the door will lead to bigger things when done right.
Challenge #2: Productivity
As a close second, another challenge for agencies surrounds the growth strategy. Many agency owners find it difficult to work on the business when they’re so busy working in the business, while another common struggle is with growing too fast. (Yep, that’s a thing!) If you’re stuck working in the business or feeling like a prisoner to your agency, that’s a real problem. First, make sure you’re only doing what you need to be doing. Start by making a list of all the things you’re doing and then rate them on a scale of 1, 2, or 3 with one’s being most important and three’s being the least important.
- Tasks that are a “1” are items that must be done by you and only you. That means things like setting and communicating the vision, understanding the financials, assisting with sales. (There’s only 5 roles of an Agency CEO and they’re all listed here!)
- Tasks that are a “2” are items that must be done, but not necessary by you. You need to automate or delegate these tasks. Consider automating things like your schedule (I like Calendly), your contact page (we use ManyChat); and delegate the stuff that can’t be done by technology. When delegating, Mike Michalowicz tells us to “delegate the result.” Meaning, explain the end goal, give your employee the tools to achieve it but allow them the freedom to accomplish the goal on their own. That way they aren’t running to you with a million questions. Support their way of doing things and build them up. (That’s part of being an Agency CEO, too.)
- Tasks that are a “3” are least important and even be able to be eliminated altogether. Take stock in 3’s and see if they really need to be done, and if it’s a clear yes, then it’s definitely something you can delegate or automate or set new parameters for it. For example, does checking email eat up tons of your time? Of course, that task is a 3 but it’s something that has to be done by you and only you. So, in that case, maybe you only check email twice a day at 10AM and 4PM. That way, you know you’ve got a couple solid hours in the beginning, middle and end of your work day where you aren’t victim to distractions like email.
What Do Clients Want from Agencies in 2019?
Clients want to understand what you do and how you charge for it. They want relationships instead of transactions. And most of all, your clients what you to be the experts in the things they’re not.
1. Clients want to understand what they’re getting from you.
According to our survey, 70.7% of responding agencies said their clients either may know or do not know of the value they deliver. Most clients are willing to pay what your worth,
but it’s your job to make sure they understand your worth… and over 70% of you are saying they don’t. That’s a problem.
Communicating your agency’s value can be difficult, however, ultimately that’s going to be the best way to get paid what you’re worth and ensure longevity with your clients. Value pricing vs. hourly pricing has been a discussion for a long time in our industry. I’ll always swear by value pricing, but I’ll save that reasoning for a different day, different blog post. If you want your clients to understand the value you’re delivering, there’s a few different things you can do:
- Don’t use industry jargon. Your clients are educated but when you use technical-speak you will lose their attention. Explain what you’re doing in plain terms, but don’t “dumb it down” in a patronizing or insulting way.
- Clearly define what success looks like. Have your clients explain what success looks like in their eyes, and what metrics they’ll use to measure it. Have a pulse on their industry and make sure their expectations for success are reasonable for what’s happening in their industry.
- Measure and communicate regularly. Your clients need to hear from you regularly so the feel comfortable and secure in their decision to work with you. Communicate regularly and not just about projects, deadlines, and invoices. Talk to them about analytics. It’s the agency’s job to monitor analytics and suggest tweaks as you deem necessary. Don’t just generically report analytics by shooting off a convoluted report in an email.
The Nielsen CMO Report says that 79% of marketers are planning to invest more in analytics in the coming year. This number speaks volumes to us! This tells us that analytics has become increasingly important. Be the rockstar and monitor analytics for your clients. Watch the numbers, learn from them and don’t just report them to your clients but make suggestions on how to improve them. Be their trusted advisor so you are not viewed as a commodity.
2. Clients want more than just marketing/creativity.
According to our survey, agencies are telling us they think the thing their clients value most about the relationship is their creativity (41.4%), followed by their expertise in emerging trends (30.9%). But the interesting thing is, brands are saying they want your expertise in emerging trends.
There is a fundamental disconnect here between what clients want and what we think they want. Where agencies believe their value lies and what’s clients actually value two different things. Clients already know you can provide the creative and marketing plans they desire. What they really rely on you for is your intuition, your understanding of emerging trends and your interpretation of the analytics. In our Future Outlook of Digital Agencies for 2016 survey, only 28% of agencies thought clients valued them for emerging trends. It’s disheartening that this number has only grown a couple percent in 3 years. You think your clients want one thing but they actually want something altogether different.
In this interview with Del Ross, former VP of Sales and Marketing at Intercontinental Hotel Group (IHG) he talks about his discretionary budget for trying new trends and technology to stay ahead of their competition and build their brand. Your clients want new business building ideas where they can test, measure, adjust and succeed. Be their advisor and not just an order-taker for their next creative project. That’s how you’ll pivot your agency from being treated like a commodity to being viewed as a partner in their growth plans.
3. Clients want a relationship with their agency.
In an age full of technology and automation, helpfulness and authenticity will combat the loss of connections and relationships.
There’s no stopping marketing automation and technology. These advances help marketers scale more effectively, make better decisions, and save money. However, these advances sometimes come at the expense of the relationships those same marketers have typically built with members of their audience.
Authenticity is where you’ll separate yourself from your competition. Be genuine and helpful. When you’re prospecting, don’t go in for the kill. A genuine desire to help will go a long way to building relationships with prospects. We all know about the “know, like, and trust factor” and it’s a real thing. Earn their trust and they’ll be loyal customers. Win them over with amazing work and they’ll be raving fans. It takes time, patience and dedication… just like every valuable relationship.
What Does Top Agency Talent Want in 2019?
Recently, I was at an event and someone heard I worked with agencies, their response was “Agencies? Ugh. That work will kill you.”
That’s the outside world’s perspective of us! How many times have you heard something like this or thought it to yourself? But I don’t really find it to be very true as much… anymore. Do you?
According to our respondents, agencies are leaning more and more towards remote or flexible offices. And that alone is bringing us and our teams a better work-life balance as well as putting the right people in the right seats for better quality work. I’m not saying we should all move to 100% remote because you have to do what works for you and your team. But, I’m seeing a major shift here and I think there’s a compelling case that the industry is heading in that direction.
A shocking 62.3% are either entirely remote or provide the flexibility to do so. That’s nearly two-thirds of respondents! And for 2019, I’m predicting a major jump in these numbers. If you aren’t there, you might want to consider it for a few reasons:
- When you are not geographically specific you can widen your net when you’re searching for talent. If you require employees to report to an office every day, you’re limiting your talent pool to those who live within driving distance of your office. However, when hiring for a flex or remote opportunity you can search and hire from anywhere.
- People who share office space and work in the same physical location often begin thinking the same way. They tend to lean into one another and look at situations in the same way. Perceptions begin to blend and eventually, this can limit creativity. Remote employees interact with the team for a limited time and therefore is more likely to have a unique perspective and thought process.
- Remote or flex work arrangements allow your agency the ability to work across different time zones. This means you can take on clients in different time zones and still provide them with adequate support.
- Employees who are somewhat or entirely remote often enjoy a better work-life balance than those who work full time from a physical office location. There is evidence that home-based employees are more productive without the distractions of shared office space.
Look, I’ve worked with tens of thousands of agencies around the world. It’s never easy, it just gets slightly less hard :)
The good news is that collectively we’re headed in a good direction. The old phrase “boutique agency” is no longer cliche. Specializing and niching is where it’s at now. For all you small and mid-sized guys out there, that’s a good thing! Globally, clients of all sizes are spending money now and planning to spend more in 2019. The right people are out there and want to work with you — if you provide them the flexibility for a work-life balance they will be creative all-stars. So, what are you waiting for? Get an amazing team in place and get your bottom line in order and make the coming year a great one for you and your agency.
Originally published at jasonswenk.com on December 18, 2018.