Food for thought: 66% of agencies are over-servicing
From research recently conducted by The Agency Works, it has come to light that 66% of agencies in the UK are over-servicing. The Agency Works, a company which helps agency owners, MDs, and senior teams with the financial and operational aspects of running a business, have conducted their quarterly ‘Agency Food’ survey - feeding agencies information about how other agencies run in the UK. The aim of the game is to highlight issues within agency life, so that agency heads can come together, share insights and open new discourse into the running of creative agencies in the UK.
The research, which involved 67 agency leaders from organisations across the UK, of varying size and discipline, focused on the challenges of new business. It dealt with the industry challenges- the results being staggering, highlighting a dangerous cycle of recruiting people to eventually over-service clients.
This over-servicing, has become the bedrock of financial challenges for agencies today. Frequently clients are demanding work that costs time, effort and resource, yet agencies are not getting the financial recognition for their work. 66% of the agencies that took part in the research saw their biggest financial challenge as over servicing; 48% saw their biggest challenge as increasing profitability.
Jay Neale, MD of The Agency Works comments that over servicing and reduced profitability ‘go hand in hand’ resulting in this vicious cycle of driving new business to increase the profitability, which in turn is over-serviced and subsequently, becomes unprofitable.
Jay says “Agencies win new business because they think it will increase profit. However if you don’t stop the business issues that are causing over-servicing, then all future ‘new’ business will become unprofitable.
“Furthermore, it is likely you will need to service the new business with extra resource, which is another key challenge agencies were facing.
The real challenge is to manage the over-servicing and to increase the profitability before driving more new business.
This has to be achieved by putting together a concise plan for the business, to accurately forecast the costs of the business, plan for the profit they wish to achieve and understand true staff percentage utilisation. This will ensure that the agency is fully aware of the income capacity that they can achieve.
The majority of the target income should be serviced by existing client spend. If there is a shortfall in existing client spend, versus the income capacity that can be achieved then this figure would be the new business target.”
Jay suggests that for agencies to be more successful in finding new business leads, they need to carefully manage the resources to convert it and see tangible ROI on this investment of staff time. If agencies have a strategy, there will be a dramatic increase in conversion leads. The chances of getting ‘the budget, the ideas and the chemistry right’ will be much better with a plan in place.
When focusing on new business fixes, agencies must do three things - they must monitor spend, stick to calculated rates and value the agency’s worth. In addition to this they need to employ better resource management skills. 48% are not keeping an eye on new business spending, 66% find over servicing is a challenge for their agency and 43% have reduced their rates by up to 20%. All these numbers add up to the conclusion that creative agencies in the UK are doing more for less, and the only way to combat this is to value the worth of the job.
You can find the Agency Food report here.
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The Agency Works
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