How British advertising and marketing agencies are dealing with rising energy costs
Faced with bigger bills this autumn, agency leaders tell The Drum how they plan to cope with further pressure on their margins.
Agency businesses will likely be paying more to heat and light their offices / Unsplash
Following August’s increase in the energy price cap, UK gas and electricity charges may rise 80% in the autumn. The Federation of Small Businesses (FSB) estimates that firms have already borne a 424% increase in the price of gas and a 349% rise in electricity bills since February 2021.
Agencies with physical premises could pay significantly to keep offices warm and the lights on, while staffers already facing down a cost of living crisis could see their incomes put under further stress by energy costs at home.
At Scottish agency MadeBrave, which has three offices across the country, chief operating officer Stephen Weir says: “Rising fuel and energy costs is one of the biggest challenges in business right now, as costs continue to soar and energy suppliers reduce the offers available to consumers and businesses.
“We have definitely seen an increase in bills at our headquarters in Glasgow.”
Smaller agency businesses are likely to be hit hardest. According to the FSB, 62% of small business owners in the UK say that energy is a “significant” cost to their business. And even if agencies haven’t seen a major rise in bills yet, the coming months are likely to bring cost increases. MadeBrave’s Edinburgh and London lease agreements include energy, Weir explains, so it should avoid an immediate hit.
“However,” he says, “we are expecting costs to go up by a considerable amount in the medium term when leases are up for renewal, and this is something we are having to plan for given businesses across the UK are not protected by a price cap.”
At London agency Recipe, managing director Ali Morgan says: “We haven’t seen any change yet, but we’re predicting it’ll probably double.“ The company has around 60 staff based three days a week out of its offices.
Al Fox, director of B2B agency Fox Agency, tells The Drum his business is in a similar situation: “We have seen a rise, but we’re yet to be hit with a really big one because usage obviously hasn’t been that high.”
What can agencies do?
In October, the fixed-rate agreements used by thousands of businesses in the UK will come up for renewal. Renegotiating or finding a cheaper supplier will be high on the agenda for many. At MadeBrave, Weir says: “It’s hard to commit to a fixed tariff when there is so much uncertainty, but we are reviewing the situation monthly and reducing costs and consumption accordingly to mitigate against the increased cost where possible.”
Clients may indirectly experience the impact of higher energy costs. Last month, The Drum reported that agencies across the UK and US were raising or considering raising their fees to cope with higher rates of inflation. Energy bills will put further pressure on operating margins.
“I can foresee that agencies will act accordingly,” says Fox. “All agencies are going to have to look at that early, there’s no two ways around it. If you’re paying more ... you can’t just absorb that, you have to pass it on.”
He says the agency plans on granting staff a pay increase in November to help them cope with the cost of living. “We’re going to try and look after everybody as much as we can. That will have a knock-on effect on profits, of course – it will have to come from somewhere.”
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Higher energy costs for agency staff could mean working from home becomes less attractive, especially through the dreich and gloomy British winter. Morgan agrees that electricity and gas prices could lead to “change on that front,“ though commuting costs make it a difficult decision.
According to Fox: “Once these winter bills kick in for people I’m pretty sure they will move to being in the office more than heating their own home all day.“
Weir says that hybrid working has “offset” some of the increase in operating costs because its offices aren’t operating at the same capacity as they were before the pandemic. “Our offices are open for all to use, but gone are the days of having all the team every day of the working week, so while the costs have increased the consumption has decreased.”
But those costs will be absorbed by staff, Weir notes. “While hybrid working is great for reducing emissions from large offices, it does increase energy bills at home for our staff – something that we are mindful of as we approach the winter months.”
He adds that the agency is “budgeting accordingly” to support employees affected by higher costs through the winter.
Working from the office would mean spending less on gas and electricity during the day, but higher rates of occupancy could mean agencies themselves use more energy.
Fox says that his agency is soon moving to new premises better suited to hybrid working – and the prospect of lower energy bills was a significant factor in choosing its new location, a co-working space. “One of the attractions there is that everything’s included in the rental, so we don’t have to worry about specific bills,” he says. “It takes a bit of pressure off.”