Cost overruns increasingly cited as main reason clients split from agencies, finds SoDA
Digital agencies underestimating the cost of projects has become an increasingly challenging issue for clients and is now the second most common reason for splitting – up from fourth in 2014 – according to the latest SoDa report.
The number one reason for clients walking away was ‘outgrowing their agency’s ability to deliver against their needs’ (19 per cent) while agencies pointed to new client management as the number one reason (33 per cent). However, both sides cited cost overruns as the second most common reason at 17 per cent among clients and 11 per cent among agencies.
Despite this, agencies and production company respondents scored themselves at 6.32 out of 10 on ability to accurately measure costs (where 10 is the best) compared to 6.09 in 2014. The survey was based on a global sample of 680 companies, evenly split between advertisers and agencies.
The findings of the research, conducted by Econsultancy, also identified in-housing of digital efforts as a major challenge for the coming year. Nearly a third (27 per cent) of clients now claims to work with no agencies, more than double the figure from 2014.
Meanwhile, clients that continue to work with agencies are also cutting back on their rosters; 12 per cent of brands had four or more digital agencies this year, down from 21 per cent in 2014.
However, 76 per cent said digital agencies are now more likely to become a ‘lead’ partner agency, an increase of 10 per cent on 2014.
For these agencies, product innovation has become a key area of opportunity as 50 per cent of all agency respondents stated they were consulting with clients on new product and service offerings. User-centric design, emerging tech and trends as well as product incubation were all cited as key priorities for both clients and agencies.
“Clients in 2015 feel tremendous pressure to understand and leverage emerging technology trends in order to innovate their operations as well as the products and services they offer to their customers. In fact, expertise in emerging trends is now the number one skill clients most value in their agency partners, up from a distant third in 2014,” said Chris Buettner, SoDA executive director and managing editor of The SoDA Report.
“Agencies and production companies – particularly those that invested early in innovation labs and product incubators – are reaping the benefit of clients’ acute need for emerging tech expertise. They’re also increasingly bringing their own IP directly to market.”
Organisational structures on the client side continue to be seen as a barrier to innovation by more than four out of 10 agency respondents. Just under 44 per cent of agency respondents made this point but only 16.7 per cent of clients agreed.