Janusz and I wrap up GYDA’s year with a look at what’s happened and what you can do to prepare your agency for 2023.
From granular insights to the bigger picture, read on for their lessons from last year and how to grow in the next.
2022’s talking points
Looking back at the year, Janusz pulls up key observations about agencies, their concerns, what’s working and what’s not.
Let’s get into it.
With a 98% chance of a global recession (according to research firm, Ned Davis), client confidence is not necessarily low, but the mood is tentative. There are no horror stories of agencies being cut from the books, but the mood is conservative.
More agencies are focusing on building capital to respond with agility to economic shocks.
The challenge of finding and retaining people has been compounded by their cost: salaries are rising with inflation.
Labour arbitrage is still possible: partnering and outsourcing work between agencies can create credible and strong relationships.
Automation is giving many agencies an identity crisis. More tools are doing more aspects of some agencies’ service delivery and doing it more quickly.
Agencies in the web design and build space will struggle, particularly those still charging by the hour.
The campaigns one used to manage in a day can be worked in an hour. What was a theoretical concern a couple of years ago is now a genuine threat.
For web development agencies, how they charge, their price, and even what services they deliver are valid questions that need to be asked urgently.
Linked to automation, but also a good pivot anyway, is a move to consultancy.
If machines are now doing the commoditised piece of the service delivery, agencies need to be more strategic.
More agencies are developing their consulting capability moving from delivering services to delivering thinking.
Remember: the route from providing strategic marketing consultancy to cross-selling the service that delivers the strategy is a smooth one. The alternate route, from a vendor to consultant, is more challenging. Asking a client to employ you as a consultant when they see you as a service provider is a tough sell.
A shift in brand and proposition – with the skills underpinning it – can help you reposition a previously service-based agency as a consultancy.
The competition is intense across all services, and it’s become more fierce since the pandemic.
Case in point: there are 5,000 registered agencies in Barcelona.
So, how do you compete?
A move away from a service-led proposition could be key: differentiation is now by brand. Brand-based agencies with a clear, original voice are making themselves heard above the noise.
What did agencies ask in 2022?
The key questions asked of GYDA in the past 12 months sit in three brackets. Let’s look at what was asked and by whom.
1. How do I fix this? I’m tired; should I bother?
Those agencies lagging behind this year tend to be those offering projects with margins squeezed by rising costs and small margins: web design and build (unless offering sprints), development and apps, and video production.
2. Where is the next opportunity for growth?
Agencies with a healthy profit margin looking to expand often offer process-led, repeatable services with cross-sell opportunities… Those in digital media, creative and SEO are in this category.
3. How do I keep this going?
These agencies are getting reasonable premiums on the service they deliver and want it to continue. Consulting services and PR / Digital PR seem to be more consistently in this bracket…
In summary, the winners and losers in terms of the type of agency/services from what we’ve seen are:
Losers: those in retail, project, web development
Winners: those in PR, SEO, TikTok, Creative, Consulting.
And in terms of profit / EBIT across all regions:
Many underperforming: <18%
Many performing well: >22%
Some performing very well: >30%
2022’s Takeaways for Growth
- Ditch or reconsider your web-based business model
- Evaluate your direct costs
- Narrow your positioning
- Consider a pivot to a more premium product – consultancy/strategy – and price those services accordingly
- Invest in your brand to differentiate your agency from competitors.
Taking on 2023
There have been 11 recessions since 1950, on average lasting ten months. We’ve been here before. And there is a recipe – not just for survival, but for superiority: outstanding companies have historically used recessions to not just survive but to excel.
A groundbreaking 2008 study by the Harvard Business Review threw up startling insights: 80% of the 4,700 public companies had not yet regained their pre-recession growth rates for sales and profits three years after a recession.
Only a small number —approximately 9% —flourished after a slowdown, doing better on critical financial parameters than they had before it and outperforming rivals in their industry by at least 10% in terms of sales and profit growth.
What are the key learnings?
- Companies that cut costs have the lowest probability of getting ahead of the competition as times get better (21%)
- Those that invest heavily are only marginally more likely to lead the way after a downturn (26%)
- According to the HBR research, the winners – those who flourish after a recession – are those who can optimise the act of simultaneous defence and offence. The odds that companies in this group will significantly outperform their rivals (by 10% or more) on both top and bottom-line growth after a recession are 37%.
Defensive-focused companies post-recession still feel its impact: seeing growth, on average, of only 6% in sales and 4% in profits, compared with 13% and 12% for the ‘ambidextrous’ companies – those who can deploy offensive and defensive measures with skill.
And a similar characteristic – agility to operations – saw the companies that possessed it adapt more readily to the recent pandemic.
From McKinsey: “Through our research, one characteristic stood out for companies that outperformed their peers: companies that ranked higher on managing the impact of the COVID-19 crisis were also those with agile practices more deeply embedded in their enterprise operating models.”
Operating from a place of fear, defence mode alone will not enable you to flourish post-recession. Instead, chase opportunities as well.
In the pandemic, we saw these routes and opportunities create wins for our clients.
- Help clients navigate stormy waters. Become more than their digital marketing provider: guide them through challenging times as a trusted advisor to their business
- Price for profit. What value do you add for clients? Price your services for profit, NOT to win the business.
- Target clients that are ‘too big’: the larger agencies will be looking to make savings. Think bigger: you could be the more reasonably priced supplier, so target them now.
- Focus on recovery now: be ready with your new brand, value proposition and website. Don’t wait.
- Move up the food chain: think like a consultant. Get in the boardroom and support them in creating their go-to market strategy – which you will then deliver.
- Consult your client on marketing… you’re more than a digital marketing agency. You can advise your client on marketing itself: their broader positioning. Deliver thinking as well as service.
- New value proposition: refresh or pivot to stay relevant in 2023. What makes you different? What do you stand for?
- Video and social media. According to The Economist, digital advertising will reach 57% of total ad spend. Within this, expenditure on mobile ads will increase the fastest, thanks to popular games and short videos. TikTok could be a gamechanger.
- Mergers and acquisitions. Sales are still happening and could create opportunities for you.
‘Bad companies are destroyed by crises, good companies survive them, great companies are improved by them’ – Andy Grove.
From the very beginning of 2022, the world had to adapt to another new reality, a changed landscape, reminding us that only one thing is certain: we don’t know what’s ahead.
But we can create organisational resilience to respond to change with confidence, optimism, and agility.
Let us know how you’re preparing for what 2023 might bring…