3 Key Takeaways from the Annual Industry Report

We know that agency owners love a good benchmark—trustworthy data that allows them to compare how their agency is performing to others. When we put together our 2022 industry report, our goal was to create exactly that. That’s why we surveyed over 300 agencies about their productivity, profitability, tech stack, and agency profile, to gather actionable insights you could apply to your business. 

The end result culminated in an in-depth exploration of what makes an agency run and how the creative landscape is changing. Below are three key snippets from the industry report that you can use to get a feel for where the industry will be heading in 2022. We hope you enjoy our findings.  

Agencies are Raising their Prices 

The cost of running an agency is always going up. Materials cost more now than they did five years ago, seemingly every software requires a yearly subscription, and your employees need raises to afford their ever-increasing rent, groceries, and general living expenses.  

When costs rise, so must your prices—which is exactly what 77% of agencies did last year. Most made notable increases in their rates. 35.7% of agencies raised their prices by at least 5% and another 33% doing so by between 1 to 5%, enough to hopefully offset inflation rates.   

It’s important to realize that other agencies are more than willing to increase their prices, either to offset the increasing costs of running a business or to ensure they aren’t swamped with unprofitable work. It’s common for agencies to be hesitant to begin charging more. They fear that raising their prices will lead to them losing projects or that it’ll hurt their relationships with existing clients. However, the reality is that most businesses expect their costs to rise year over year and are likely willing to pay the modest increase to continue to work with your agency, so long as your rates remain competitive and you provide high-quality work in return. 

Value-Based Pricing Gaining in Popularity 

Over a quarter of agencies report that they use value-based pricing at least some of the time. Traditionally agencies have either billed a flat rate—calculated based on how long these projects typically take to complete—or for time and materials, which requires team members to meticulously track their time. Both approaches stem from the belief that agencies sell the time of their creative teams to clients.  

A value-based approach to pricing projects flips that assumption on its head. Instead of telling clients that a new website typically requires 50 hours to complete, which equates to $10,000 worth of work, agencies are empowered to ask the client, “how much is a website worth to you?” For example, perhaps a new website will double daily traffic, which in turn doubles the number of monthly sales for the client. Over the course of a year, that is worth far more than $10,000.  

All-in-one Software Helps Prevent Over-servicing 

If there was one common thread that tied all the agencies we surveyed together it’s that overservicing is inevitable. Every agency does it to some extent. Some do it to appease their clients, others are completely unaware that they’re doing it or the negative effect it can have on their overall profitability and productivity. Just how bad is the over-servicing problem? Well, 65% of agencies say they regularly over-service their clients. They also say that about 45% of their clients are overserviced. That means that every other client is regularly getting more than they paid for from over half of the agencies.  

What we found interesting is that those agencies that don’t use an all-in-one software are 2.5x more likely to over-service their clients compared to those who do use an all-in-one agency management software like Function Point.  

Final Thoughts 

The above are just three of many interesting insights and benchmarks that we found by surveying over 300 agencies across North America. At a glance, agencies shouldn’t be afraid to start raising their prices or adopting a value-based approach to estimating their projects. Clients may be surprisingly receptive to both. And if over-servicing is a problem for your agency, seriously consider bringing an all-in-one agency management software into your business. For more insights into the creative industry, check out our full report.