Agencies Are Confident About Profitable Growth This Year. Where Will it Come From?

Some 86% of agencies are confident that this year will be better than last in terms of profitable growth, according to a Society of Digital Agencies (SoDA) survey [pdf] of 126 executives primarily from mid-sized ($25M or less in annual revenues) digital agencies in North America. Emerging technology seems to be an area where agencies can drive revenue gains, per the report.

Indeed, some 61% of respondents anticipate revenue growth from emerging technology such as virtual reality, chatbots, artificial intelligence and the Internet of Things. This area seems to be particularly valued by client-side marketers, who in a separate survey ranked it the most valuable capability in their agency partners.

Closely behind emerging tech, meanwhile, 6 in 10 agencies expect revenue growth in the areas of customer insights/analytics (60%), content development (59%) and digital experiences – both web and mobile (57%).

The study notes that in the accompanying survey of 90 client marketers at large firms, areas such as digital experiences, customer insights/analytics and content development are the most commonly cited for budget increases. That alignment with agencies’ growth projections bodes well for agency business.

More Project-Based Work on the Horizon

Engagement models are changing, according to more than 8 in 10 agency respondents. The most frequent shift in the past year has been towards more project-based work (43%), as opposed to more retainer-based work (25%).

Agency executives also report that they’re working with clients’ other partners in a more collaborative way (41%) and consulting with clients on new products and services (40%).

These are similar trends as were reported in 2016, when agencies noted that they had been consulting more with clients on new products and services and engaging in more project-based work.

Indeed, over the next 2-3 years, agencies believe that developing new services and capabilities will be a core strategic driver of growth, with almost half saying this will have a big impact. That’s only outweighed by the impact of attracting and retaining top talent, cited by 55% of respondents as a strategic priority that will have a top impact on their ability to successfully grow and evolve.

In-Sourcing An Area of Concern

While agency executives are generally confident in their growth prospects, they are facing some headwinds. About 6 in 10, for example, say that the in-sourcing of digital marketing work is having an impact on their business. That concern is supported by the client marketer survey, in which a significant proportion (13-29%) planned to bring a variety of digital capabilities in-house, ranging from social marketing execution (20%) to media planning and buying (29%). Mitigating that worry is the finding that few who planned to bring key capabilities in-house last year followed through on those plans.

Agencies are also combating new competition in the form of consultants. This year, 77% of client-side marketers reported being open to working with a consultancy for digital agency work, almost double the share from last year (41%). Despite those figures coming from a small sample size (90), that shift could signal a trend. In fact, whereas agencies ranked as the top partners last year for client marketers looking to innovate product and services offerings and engage with consumers in new ways, consultancies – such as Accenture, Deloitte and McKinsey – top the list this year.

About the Data: The results are based on a survey of 126 agency executives, primarily C-level executives (44%). Most respondents came from digital agencies (43%) or integrated agencies (25%), and the majority reported revenue of at least $5 million. Some 56% said that the majority of their business comes from North America.

The 90 client-side marketers surveyed were most commonly C-level executives (48%), with a fairly even split between B2C (39%), B2B (33%) and B2B2C (28%) organizations. Almost 7 in 10 came from organizations with an annual marketing budget greater than $20 million. As with agencies, 56% said that most of their business revenue comes from North America.