Insights
How will you be better in 2025?
12 months ago I wrote this article “How will you be better in 2024?”. I had great feedback at the time and so I thought it would be useful to update it for 2025. How much is still relevant? How much is different? The short answer is the challenges continue and you need to think smarter than ever.
I’m hearing from quite a few agencies that business is tough at the moment. Clients want even more for even less! Staff salaries have typically increased substantially. Given salaries are the largest overhead for an agency it makes making a reasonable profit seriously hard. So it’s getting harder than ever to grow a profitable and successful agency. What worked in the past probably won’t be enough in the future. The market is more competitive, there are new competitors changing the dynamics of the market and it’s harder than ever to make the agency model work profitably.
The future looks fundamentally different for many agencies. There’s a need to be better, faster and stronger. Agencies need to become solutions architects able to think more holistically. Work for clients needs to be more effective and we need to be able to ‘talk business’ and be a real business partner with clients. As a trusted adviser to your clients they will turn to you first because you’re truly impacting their business and are seen as critical to their success. This becomes a virtuous spiral upwards. Your strategic thinking and proactivity leads to business growth for you and the client. Your insights enable the client to see more clearly into the future and make better decisions. Clients are looking for better ROI, pay back and measurability from campaigns.
I’ve studied what the most successful agencies do to grow profitably and also what the least successful agencies do to remain stuck. There are clear distinct and different strategies that these two types of agencies are applying. I share these strategies in my workshops to help my agency clients decide how they will be more successful and grow profitably.
Here’s some examples as to how it’s getting harder for agencies to be successful.
Firstly given inflation and likely salary increases there’s a need to think about how you price more effectively, and higher? It’s not just your price, it’s also your pricing – how you explain and structure your price. Is it simply based on time/hours or based on your value, expertise and business impact for your clients?
Major corporate clients continue to rationalise and cut their agency roster. This rationalisation of agencies means there will be winners and losers. If your biggest client rationalised their agency roster, which group would you be in? Those that the client carries on working with, or those who are ‘rejected’? Are you really sure you’ll be retained? What can you do to ensure you’re in the ‘winning’ group?
If you aren’t delivering amazing work which delivers real business impact…. If you aren’t well differentiated from your competitors….. if you aren’t regularly having strategic business conversations with senior decision makers and the c-suite, then be very afraid. Are you seen by senior decision makers as a real business partner?
The number of new business pitches has fallen. So if you aren’t focused on growing your key existing clients and if you are pitching for the wrong clients and/or wrong projects, then think long and hard.
How well spread is your business? I believe you want no client bigger than 12% of your business, 15% maximum. It never ceases to amaze me when agencies tell me their biggest client is 30%, 40%, 50%, even 60% of their business – how naïve can you be?
How compelling is your agency’s value proposition? Too often an agency can sound like every other agency working in their discipline. Creating a value proposition that differentiates and resonates with clients is vital – yet at the same time this is really hard to achieve.
Increasingly I am being asked to help agency owners to get their business financially fit for a sale in a couple of years time. It’s like developing a financial ‘six pack’ for the agency.
Over-reliance on the agency owner or head can be a problem. Are the senior team rainmakers? How well do they develop and grow new client opportunities? If an agency is over reliant on the owner then that owner becomes the bottle-neck and restricts growth. The bottle-neck is always at the top of the bottle. Succession management is vital.
My consultancy, Spring 80:20, collaborated on a study into agencies that had turned their business around. Those agencies which had turned their business around enjoyed phenomenal achievements in their fortunes. We called them “Thrivers” (as opposed to merely “Survivors”) In every case the Thrivers made significant brave changes in their business. The changes made by these Thrivers and their lessons learnt are shared in my workshops for agencies.
So simply being as good as you were last year probably means your agency could actually go backwards. It won’t ensure you thrive in a faster, more competitive, more choosy, more commoditised world.
If you want to benchmark your agency then how well do you compare to the ‘agency financial performance hall of fame’ *
• Revenue growth (not a specified amount, but I suggest minimum 10-15%)
• Fee income > £130,000/head **
• Staff costs <55% of fee income • Operating profit margin >20%
• Net current assets >3 months of overheads***
*Moore Kingston Smith annual agency survey
** All staff taken into account, not just revenue generating ones. If you can achieve £150,000/head, even better.
*** Given the experience of Covid maybe this should increase to >6 months
I work with agencies of all disciplines to help them be smarter, be fitter and be more profitable. I help them have stronger and more senior client relationships, know which clients to invest in and which to not invest in. If you’d like your agency to be a Thriver, drop me an email chris@spring8020.co.uk
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