2009 Ad Agency Business Growth Strategy Survey

A survey of business growth strategy tools and approaches currently being utilized within advertising agencies

 The purpose of the survey was to gain insight into: • What tools and approaches are currently being used to support agency business growth strategies. • Do current agency business growth strategies address our five specific growth pillars? (Customer retention, organic growth, new business development, resource optimization and capability cross sell …from both a traditional and new media perspective)  National online Survey of small to midsize advertising agencies. The sample came from a database of 3334 small to midsize agencies (between10 -100 full time employees), and included all the major advertising disciplines.  The questionnaire was emailed to agency CEO’s, CFO’s, senior new business and account leaders. The survey was also made available online from May 15 through July 29, 2009.

 The large majority (84%) of respondents came primarily from those agencies claiming to be either an integrated or alternatively an advertising agency. The balance came from a mix of interactive, event, PR and Promotions agencies. ◦ Observation: The large number of responses from integrated agencies was surprising, as was the fact that there were no respondents from the direct marketing world. This trend is reflective of the increasing need for agencies to be communications specialists and competent across a broad spectrum of channels and media.  Half of the agencies surveyed said that they did not have written “Key Account Plans” in place. ◦ Observation: While this is an alarming statistic, it is not really surprising, as in my experience so many agencies are deficient in this area. Reducing client churn combined with delivering incremental organic growth (year on year) are two of the most critical pillars of agency growth. Executed well, these pillars form the foundation of sustainable agency growth, and when ignored lead to erratic agency performance and disappointing results. The negative impact of not having such plans in place is clearly illustrated further on in this survey.

 Over a third of the agencies that responded indicated that they DO NOT have a written new business plan in place. ◦ Observation: There is an old adage that says that what is not measured does not get done. In order to achieve consistent growth, agencies need to have a robust pipeline of new business prospects supported by a well thought through and executed new business development plan. In the absence of a plan, new business development is left to chance and fortuitous (or for that matter un- fortuitous) events.  When asked if they had a formal process for identifying prime agency new business prospects, over 36% of respondents said they did not. ◦ Observation: A key attribute of a successful agency is their knowledge of which companies are the best prospects for the agency and therefore have the highest chance of converting to a client. The absence within an agency of this process often leads to a shotgun approach to opportunities, combined with a poor closing ratio and inordinate new business strain.

 Almost 83% of the agencies said that they send out credentials mailings/emails either consistently or sporadically. ◦ Observation: The fact that 36% of respondents had already said that they had no process for identifying prime prospects, makes this statistic a little worrying. Add to this the fact that clients keep telling us that they have no interest in receiving “capabilities or credentials” from agencies and the overall picture appears even worse. Not only is this a gross waste of time and money, it’s incredibly ineffective from an agency perspective. It can be very irritating from a clients point of view. Nobody likes junk mail or spam.  Nearly two thirds of agencies said that they do not have a documented and active social media strategy. ◦ Observation: Mirroring other industry commentary, this documents just how poorly prepared agencies are from a digital perspective. While most are actively out in the market trying to convince clients that they are indeed social media experts, they themselves have not embraced it as a critical component of their own marketing communications mix. Notwithstanding the fact that the more traditional approaches are not working. It has never been more important for agencies to introduce innovation into their agency marketing initiatives. Building a following, creating dialog and listening to customers through social media techniques, are crucial to ongoing agency success.

 Of the agencies who responded, well over half admitted to not having a documented and active SEO/M strategy. ◦ Observation: In a recent survey of C-Suite executives, 74% of the respondents rated the internet as a very important source of business information. Add to that, the fact that 100% of clients have researched online 100% of the agencies that it intends to invite to a pitch, and you have a recipe for disaster. Search engine marketing is a fundamental component of internet marketing and even today, still garners the bulk of a clients interactive marketing dollars. Many ad agencies are missing a critical part of the communications puzzle in this instance.  While 61% of agencies surveyed claim to have a formal process for assessing new RFI/RFP opportunities, well over a third do not. ◦ Observation: In the absence of a formal and agreed assessment process, most agencies find themselves chasing after anything that comes up. Whether it is a suitable opportunity or not. This leads to an inability to prioritize resources, increased new business strain, poor conversion rates, unprofitable as well as untenable clients and sub standard agency growth and profitability. While it may be hard for an agency to say NO to an opportunity, there are definitely times where NO is the right decision. Without a process the agency has no chance of making an informed decision.

 Particularly staggering was the fact that two thirds of the agencies who responded admitted that they do not set a “pitch budget” at the outset and monitor it through out the process! ◦ Observation: In reality, not every pitch looks or should be treated the same. When assessing a new business opportunity, critical elements to consider are: What is the business worth to you? What do you estimate are your chances of success and most importantly, how much are you prepared to invest to win it? It makes no sense to spend $400K in pitch costs for an opportunity that may only we worth $250K annually. This practice contributes to unnecessarily high new business strain and can have a significant impact on agency profitability.  Two thirds of the respondents admitted that they currently have clients on their roster that run at a loss or barely break even. ◦ Observation: The agency world continues to experience downward pressures on operating margins as clients demand increased “value” from their agency. Yet a common objective amongst agency leadership is to deliver above average operating margins year on year. A key responsibility of agency leadership is to manage the interrelationship between delivering optimum client value at the same time as generating a respectable agency profit. This is a symptom of the cumulative effect of some of the other issues already highlighted in this survey. It is also often exacerbated by resource management issues like over-servicing, or value emphasis in the wrong areas.

 I am certain that you have heard the phrase “Company A is a nightmare client” many times before. This survey found that nearly a third of respondents currently have “Nightmare” clients on their roster. ◦ Observation: While it is often difficult to assess right up front whether a new client is likely to be a good fit, it is by no means impossible. Some clients come to the agency with a reputation that preceeds them. Some become nightmare clients due to the incompatibility between agency and client, and some are forced into being nightmare clients through the agency’s actions or lack thereof. What is predictable is that the nightmare client is often unprofitable, will destroy morale within the agency and will soon be holding another agency review. Nightmare clients in essence are clients who are highly likely to churn at some stage in the near future.  56% of respondents claimed that over the last three years, the loss of an existing client caused them to miss their forecasted agency growth goals. Another 12% claimed that while they had not missed their goals, their performance had been significantly impacted. ◦ Observation: Existing client retention should be the cornerstone of every agency’s growth strategy. Every point lost through churn has to be replaced by new business wins, of which many prove to be less profitable, especially in the early years. So not only do you have to replace the lost revenue, you often have to replace it with more in order to offset lower profitability. There was a high correlation between the respondents who had been impacted by client churn and also admitted to not having a key account plan

From the survey results, it is apparent that very few of the agencies who responded have a cohesive “Agency Growth Strategy Plan”. Most appear to be taking a more tactical approach, implementing various initiatives on ad-hock basis with limited innovation. When I considered the findings against my “Five Pillar Strategy Approach”, I was able to develop the following conclusions:  Client retention and organic growth. (Pillars 1&2) ◦ There was a very high correlation between those respondents who answered yes to the following questions:  Did not have key account plans (51%)  Have clients who run at a loss or at best breakeven (63.4%)  Missed their forecasted agency growth goals ARO a client loss over the last 3 years (56%) This finding supports my contention that what you don’t plan for does not get done. Those agencies who take the time to focus their efforts on proactively managing their existing client relationships, appear to more consistently achieve success.

 New business development. (Pillar 3) ◦ I was astounded by the fact that over a third of the agencies in the sample do not have a written new business plan. As I analyzed the research data, once again we found a high correlation between the agencies who answered in the negative to the following questions:  Do you have a written new business plan?  Do you have a process for identifying prime new business targets?  Do you have a social media strategy?  Do you have an SEO/M strategy?  Do you have a formal process for assessing RFP/RFI opportunities? For an industry that makes its living helping client companies develop and execute their brand advertising and marketing plans, its amazing to see just how unsophisticated and innovative it is when it comes to its own initiatives. The game has changed and the stakes are higher, however agencies appear to be very slow to adapt.  Agency Resource Optimization (Pillar 4) ◦ While incremental revenue is critical to fuel ad agency growth, agency resource management and optimization is just as important. The more efficiently every dollar is allocated, the better it is for both client and agency alike. Effective resource optimization is predicated upon having a baseline of data and associated metrics. The research study highlighted just how ineffective most agencies currently are in this area. It is impossible to plan and budget resources without a new business plan. How can you hope to bring on the right clients and make a reasonable profit on them if you do not know who to target, how to select the most suitable clients and most importantly, how much you are prepared to invest in order to win their business? 

 Agency Resource Optimization Cont. (Pillar 4) Bottom line is that a 1-2% increase in operating profit is far more valuable that a 15% increase in new business revenue. The survey findings clearly show that most of the respondents do not have the basic fundamentals in place from which to gather the necessary data, establish baseline metrics and continuously optimize their effectiveness.  New Capability Development & Cross Sell. (Pillar 5) ◦ Once again, it is impossible for an agency to decide on what new capabilities to develop or what capabilities to cross sell to which clients if you do not have a plan. In the absence of Key Account Plans, how do you develop your cross-sell and up-sell strategies? Without a proper new business plan and a defined prospect target profile etc., how do you know which are the best new capabilities to develop next? Without defined cross selling opportunities how can you effectively grow your existing clients organically? How do you continue to diversify your revenue base without being able to identify new capabilities that are most in demand and highly profitable? In order for ad agencies to achieve consistent, above average growth and profitability , they need to have a comprehensive plan that incorporates all of the 5 pillars included in my growth strategy approach. In addition, the plan must be executed and monitored to ensure that success is achieved across all five pillars. Failure in just one of them could possibly ruin what would have been a great year.

1. Please tell us what type of agency you work for? 44.4% Integrated Advertising Agency 40.0% Advertising Agency 8.8% Other ( Media, PR, Event etc.) 6.6% Interactive Agency 0.0% Direct Marketing Agency

2. Do you have written key account plans in place for your top 5 existing clients? (including action plans and assigned responsibilities) 50.0% Yes we do 50.0% No we don't

3. Do you have a written new business plan in place? 66.0% Yes we do 34.0% No we don't

4. Do you have a formal process to identify your prime new business targets? 64.0% Yes we do 36.0% No we don't

5. Do you currently send credentials/capabilities mailings/emails out to prospects? 47.6% Yes, we do it sporadically 33.3% Yes, we consistently do it 19.0% No, we don't

6. Do you have a centralized and comprehensive agency case study archive database? 66.0% Yes, we do 34.0% No, we don’t

7. Do you have a documented and active agency new business social media strategy? 60.9% No, we don’t 39.1% Yes, we do

8. Do you have a documented and active agency SEO/M strategy? 54.7% No, we don’t 45.2% Yes, we do

9. Do you have a formal process for assessing if new RFP/RFI opportunities are right for your agency? 61.9% Yes, we do 38.1% No, we don’t

10. Do you set a pitch budget at the outset and monitor it throughout the pitch process? 61.9% No, we don’t 38.1% Yes, we do

11. Do you currently have client accounts that run at a loss or barely break even? 61.9% Yes, we do 38.1% No, we don’t

12. Do you currently have a "nightmare" client or two that agency staff hate to work on? 69.0% No, we don’t 31.0% Yes, we do

13. Over the past three years has the loss of an existing client account stopped you from attaining your forecasted agency growth goals? 57.1% Yes 30.9% No 11.9% While we hit our goals, the loss significantly impacted our overall performance for the year

14. Do you have a proprietary agency planning process? 58.8% Yes, we do 44.1% No, we don’t

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2009 Ad Agency Business Growth Strategy Survey

by Clive Maclean on Aug 12, 2009

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2009 Ad Agency Business Growth Strategy Survey — Presentation Transcript