Agencies are now paying the price for relying on freelancers during the pandemic

At creative agency Hell Yeah, executive creative director Dulcie Cowling noticed freelancer costs grow since the onset of the pandemic, in tandem with salary rises in the agency sector. “Post-pandemic, people’s costs have gone up,” she says.

It’s a similar story for London agency Recipe. While managing director Ali Morgan has seen costs associated with its roster of regular freelance staff remain relatively flat, it’s the spiking prices of newer freelancers that are hitting the agency. “It is definitely more expensive. But it’s the same with going to the market to hire people,” he caveats.

Lloyd Major, co-founder and global production director at The Park, concurs: “We’ve definitely seen a rise in rates. It’s been an interesting process for us to ensure that we’re getting the right balance in terms of what we’re paying those freelancers and what the client budgets are going to allow.”

A factor in this rising tide of freelance costs is the fact that more and more of adland’s most experienced staff are opting to leave permanent agency life.

Veteran agency workers have been able to leverage their experience more effectively in the freelance market than as permanent employees. Nicky Bullard, group chief creative officer at MullenLowe UK, says there are now more experienced “gold-dust talents” with years of expertise available as freelancers. And that comes at a cost.

“It’s great to have freelance people on for six months or something, if you want focus and experience,” she says. “You might have a tough brief or you have an opportunity that’s come up, and these are the people who are going to nail it quickly because of their experience and their talent.”

Despite rising costs, the demand is still there from agencies. As Bullard says, the flexibility freelancers offer has helped plenty of ad shops meet the needs of their clients as they struggle to fill open, permanent positions. And since many agency workers crossed the aisle during the pandemic’s big labor squeeze, freelancers are now easier to find than full-timers.

“The people that would have been knocking it out of the park [in a staff role], your engine, they have gone freelance,” says Jon Williams, founder of Liberty Guild.

That’s been the case right across the UK and US economies, a fact that short-lived British chancellor of the exchequer Kwasi Kwarteng recognized in his recent mini-budget. It scrapped plans to make businesses liable for tax mix-ups regarding contract workers – a reform that could make freelancers less attractive to employers, warned the IPSE (the Association of Independent Professionals and the Self-Employed) – though later changes to that budget by his sucessor, Jeremy Hunt, put the reforms back on the table.

The model isn’t working

The problem many agencies are facing is that they have become reliant on what should be a short-term solution. WPP, one of the world’s largest advertising groups, pointed at a combination of salary inflation and a higher-than-typical freelance roster as the culprits behind a 16.7% jump in staff costs in its first-half results this summer.

“If the model was working, you wouldn’t need freelancers much,“ Williams points out.

As the economic situation becomes less favorable for agencies and for clients, businesses currently spending on freelancers will likely look for ways to reduce that bill. Investment in new staff is the lever that will make the biggest difference, says Bullard: “If you’re over-freelancing, then you need to be hiring some people.”

But simply replacing long-term freelance relationships with new permanent staff isn’t an option available to every organization. In Recipe’s case, Morgan says the agency has been reluctant to make too many full-time hires owing to market uncertainty. “The nature of the last 12-24 months has been so uncertain ... that makes permanent hiring much more difficult, and from a management perspective you have the benefit of flexibility with freelance, even if it’s more expensive when they’re in.”

Flexibility is itself a valuable asset for agencies that work on projects with fluctuating demand. Hell Yeah’s production business, Cowling explains, “needs to flex quite a lot.

“If we have a few productions going through at once, that can be a lot of people. But we need to have the ability to contract that when we don’t have that production work going.”

One way out could be for agencies to operate selectively when pitching for new business. More agencies are encouraging clients to make decisions earlier in the pitching process by offering to invest their profits in good works or by charging them for the time invested – in large part due to the strain competing for new business puts on current staff.

Tanya Whitehouse, chief executive of Elvis, points out that “design and studio departments are always at capacity.” Going up for new business often means temporarily replacing staff working on existing clients with freelancers, she notes, further adding to the cost of a pitch.

Either way, Bullard cautions that cutting back on freelance hours to control costs could hit an agency’s long-term capacity to meet client demand. “We need to treat our freelancers with care and respect,” she says, and agencies that are good clients to their freelancers “will be at the top of the list” next time a short-notice job comes up.

Williams agrees. The decision to put prices up is a tough one to make as a freelancer, he notes. “Freelancers aren’t going anyone. Agencies are under bigger pressure now – they’ve got bigger heating bills and all the rest. It’s painful for everybody because the last thing you want to be is the most expensive option.”