2023 Agency Productivity Report Analysis
Read time: 10 minutes
The challenges surrounding hiring and retaining agency employees have become more prevalent in recent years, with one of the most common issues being increasing salaries. According to the 2022 Agency Productivity Report, 57% of respondents state that increasing salary demands are making it difficult to retain staff. This is in part due to an extremely competitive hiring environment, which allows team members to drive the terms of their employment more than ever before. Additionally, 63% of respondents stated that lack of quality applicants is making it difficult to fill open positions, so many are meeting the demands of current employees to avoid losing staff.
For agency professionals, the current environment offers a world of opportunity. For employers, it offers new territory that must be charted carefully. Before agreeing to or issuing salary increases, agency leaders should review their financials to ensure that current total salaries and benefits do not exceed 50-60% of AGI, the recommended ratio. Additionally, agencies should have or create job descriptions and salary ranges for each role in the agency. These items are helpful in setting boundaries so all employees with the same title are within an appropriate range of each other. Finally, leaders should never feel compelled to issue raises while under pressure. They should take a step back, evaluate the landscape, consult with others and move forward only when they are ready.
In an interesting twist, however, only 15% of employees state that salary is the #1 factor incenting them to stay at their current agency. While salary increases may provide immediate reward for employees, they are clearly seeking more meaningful experiences from their employment. When asked, 31% stated that company culture was the #1 reason they stay at their current agency, proving that building and supporting a positive culture is imperative to agency growth. Many agencies believe they foster a positive culture but do not execute the ongoing work needed to ensure their culture is meeting the needs of staff. Culture cannot be implemented and forgotten, it requires regular communication between leaders and team members to ensure that employees’ needs are being heard and met.
Another 23% stated that a good work-life balance is key to staying with their current agency. During COVID, employers and employees alike were given time to reflect on their priorities and from that came a greater understanding of how to balance life and work and still be successful at both. Now that many have experienced a better work-life balance, they do not want to lose the opportunity to prioritize their personal lives without risking their job. As a result, many agencies have moved away from meticulously counting PTO hours to focusing more on performance, such as employee utilization and account growth. That’s not to say policies and procedures aren’t necessary; they are, but many agencies are looking beyond the numbers and recognizing the needs of their employees and the long-term benefit of allowing flexibility within reason.
In order to keep the dialogue open and productive with their teams, agency leaders should institute regular meetings and tools to assist with communication and feedback. Monthly or quarterly staff meetings are a great way to stay in touch, as are 1-1 discussions about job performance, career goals or ideas for the agency. According to the survey, 60% of respondents hold regular 1-1 meetings with their staff, and 36% implement employee surveys. Whatever method you choose, don’t forget to include everyone in the process for an accurate reading across all areas of the agency.
Overall, 2022 was a good year for many agencies in terms of financial performance despite soaring inflation and grumbles of an economic downturn. Of respondents, 47% stated they increased revenue in 2022, with 35% maintaining about the same revenue. The key to agency growth and stability is focusing on new business 24/7; without a proactive new business program, agency pipelines can dry up quickly, which will ultimately affect the bottom line. Fortunately, according to the survey, 88% of respondents stated that revenue growth in 2022 came from gaining new customers. This speaks to advertisers’ willingness to spend despite an uneasy economy. While new business is never easy, these results show that persistence pays off.
Another 68% of respondents stated that upselling existing accounts also helped to build revenue. For agencies, ignoring opportunities from your existing client base can not only hurt the bottom line but can erode client relationships. We recommend that agencies take a proactive stance with all clients and meet with them regularly to discuss ideas and opportunities to increase their marketing reach and performance. Make sure you lead your clients and show them the value of investing in agency partnerships.
While many agencies experienced growth in revenue in 2022, staffing stayed relatively flat. Of respondents, 32% stated they did not add or lose any employees, and 16% stated they decreased staff. Another 24% grew by less than 10%. As with most industries, agencies grow or shrink in accordance with their needs and revenue. However, the fact that 32% did not add or remove staff at all alludes to some level of caution in 2022. News of the economy had many agency owners on alert, so decisions about staffing may reignite when financial forecasts become more settled.
As the end of each year approaches, many agencies evaluate their compensation models. They are curious whether they should raise rates or modify how they are paid. It is recommended that agencies review their rates each year to ensure they are charging enough to cover overhead, agency expenses and leave room for profit. If rates are left to languish, as overhead and expenses increase, the bottom line will suffer.
The average rate increase is typically 3-5% per year. However, recent inflation has many agencies considering higher rate increases to keep pace with the economic picture. According to the survey, 30% of respondents increased their rates between 5-10% in 2022, and 28% intend to increase their rates by the same range in 2023. Another 30% increased their rates by less than 5% in 2022, and 24% will increase at the same rate in 2023. Finally, 12% increased their rates by 10-20% in 2022, and 10% will do the same in 2023. While higher rate increases may help to offset rising HR costs and expenses, they are often difficult to sustain each year, as clients will begin to notice a marked difference in their proposals and invoices. It is more advantageous to increase rates each year at a nominal level.
In addition to reviewing rates, agencies should regularly evaluate their compensation methods. According to the survey, agencies used a variety of compensation methods in 2022, including time and materials (72%), retainer (58%), fixed fee (57%) and value-based (43%). Most agencies utilize multiple compensation structures depending on the type of work being done and client preference. Value-based pricing has gained momentum in recent years, with respondents reporting a 17% increase in this method from 2021.
Value-based pricing, by definition, is a strategy that involves basing your price on how customers perceive the value of your product or service. This method allows agencies to potentially maximize their compensation for work that costs less than the ultimate value to the client. Value-based will no doubt continue to gain traction as agencies look to maximize their billings; however, it needs to be used with caution. Value-based pricing cannot be structured by simply pulling a number from thin air. Agencies need to walk through the estimating process first to determine the actual cost of a project to the agency. Only then can they make a judgment about the value to the client allowing the opportunity to mark the work up if needed.
The last few years have presented agency owners with numerous challenges. None has caused more angst than the topic of hybrid or remote work. In March 2020, workers were forced into their homes and agency leaders were left wondering how they would manage such an abrupt shift. Fortunately, many teams rose to the task and found a way to revise processes and use their systems to support a remote work environment.
However, as time has passed, many agency owners have become anxious to make a decision about how their team will work in the future. Data from the survey shows some interesting trends, with 28% of agencies choosing to work fully remotely. This is up from 16% in 2021. Another 51% plan to work in a hybrid fashion, down from 72% in 2021. Finally, 21% will return to fully in-office, which is up from 12% in 2021. While the pattern is still not clear, the decrease in hybrid environments and the rise in remote and in-office work signals that some have made permanent decisions about how they plan to move forward. In all honesty, there is no right or wrong answer and agency owners need to do what works best for their team’s success. Whatever the choice, make sure you communicate expectations clearly to staff and incorporate appropriate changes to your policies and procedures manual. Trouble typically begins when employees are not informed of workplace parameters, and it’s better for everyone if leaders stay ahead of issues before they arise.
COO | Lead Consultant and Trainer
Laurie has been with Second Wind since 1996 and currently acts as our Chief Operating Officer, Lead Consultant and Trainer. She oversees the daily operations of our business while simultaneously being deeply involved with our clients. Agencies come to her for advice and guidance on a wide range of topics, including financial matters, agency growth, operations, account service and more. Her years of experience bring valuable insight and perspective to agencies looking to build a successful sustainable business. In addition to consulting, Laurie facilitates a number of training events, all designed to help agencies develop their account teams, operations people, financial managers and creatives for maximum impact.
When not at work, Laurie can be found enjoying outdoor activities with her two sons, serving as a board member of IM ABLE Foundation and renovating old properties around town with her husband.
About Second Wind
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Anthony P. Mikes founded Second Wind in 1988 after owning and operating an agency for more than twenty years. During his time as an agency principal, he recognized the need for shared information and business advice among smaller agency owners like himself. It was this realization that led to the launch of Second Wind.
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