Last year introduced much change and uncertainty into our lives. Among the many aspects that changed were what creative agencies considered a successful year. Many agency owners were happy if they were able to break even. Others were willing to suffer a slight loss if it meant keeping their team together and not reducing anyone’s hours.
Right now, creatives around the world are wondering how they can create efficient processes and figure out how to be profitable in this new environment.
At the end of last year, we surveyed over 100 agencies to gather data on how the creative landscape fared throughout COVID-19. In this blog, we’ll share a sample of the information we gathered and suggest some strategies you can implement to make your creative agency more resilient in the face of uncertainty. To further understand the current state of the creative industry, download our new report.
Understand Your Budget Spend
One surprising result of the survey was the importance of understanding your agency’s budget spend. Nearly two-thirds of agencies surveyed said they didn’t know their average budget spend per project. This had a huge impact on their revenue and profit margins.
Less than a fifth of agencies maintained or increased their profit margin if their managers and directors were unaware of their project budget spend. In total, over half of all agencies were able to maintain or increase their profit margin in the same time period. The result is simple: agencies that are aware of their project budget spend are 3.5x more likely to maintain or increase their profit margin.
When it comes to revenue, only 33.3% of agencies managed to maintain or increase their overall revenue in situations where their managers and directors were not aware of their project budget spend. One area that agencies can immediately improve to increase their profitability is better understanding their budget spend.
Diversify Your Client Portfolio
While there certainly is value in being deeply ingrained in one industry, there are risks to becoming too dependent on that industry thriving for your agency to stay profitable. Until last year, it seemed unlikely that working primarily with hotels and resorts would ever be a recipe for financial disaster, yet that was exactly what happened.
Unsurprisingly, agencies focused on the hospitality industry were hit the hardest last year. Over 80% of them took a heavy hit to their overall revenue. Meanwhile, agencies that serviced a number of industries were able to lean on their clients working in thriving sectors of the economy.
Expand Your Service Offerings
Some services were in high demand last year, while other previously popular services suddenly fell out of fashion. Branding agencies, for instance, took a large hit to their billability. They saw their billability drop by nearly 20%. Meanwhile, full-service agencies only saw a 4% drop.
Unsurprisingly, digital services became highly requested by clients. With physical events and services put on hold, businesses began investing in their online presence. Almost every agency that didn’t offer digital services and strategy consulting saw a drop in revenue and had its profit margin shrink. Websites and social media were essential offerings for agencies last year. Three-quarters of agencies that couldn’t provide their clients with websites and social media services saw their revenue shrink.
Protecting your agency from unforeseen events is no easy feat. As we discovered this year, even the best-prepared agencies saw a decrease in their revenue. However, by further exploring the subject, there were clear steps that agency owners could take to help their business withstand uncertain times.
Understanding your financial situation and having a diverse pool of service offerings and clients in various industries are just some of the ways agencies kept work coming through the door this year. For more insights on how COVID-19 changed the creative industry, download our full report.