Slightly more than half of agency leaders are reporting both revenue (56%) and profit (55%) growth for 2018, and even more (79%) are confident in more profitable growth in 2019, according to the latest annual Global Digital Outlook from the Society of Digital Agencies (SoDA), which teamed up with Forrester Research to produce the report.
There are a couple of contributing factors that lend weight to agencies’ confidence. Some 43% of client leaders surveyed as part of the report said they would increase their spending with external agency partners in 2019. That’s up from just one-quarter last year who anticipated hiking their spending on external partners.
Additionally, the threat posed by consultancies appears to have eased. This year only a slight majority (53%) of client leaders reported being open to hiring a consultancy for digital agency assignments, down from 77% who felt that way last year. And almost one-quarter (22%) are closed off to the idea, up from none at all last year.
With that said, consultancies still have an impact. When asked which types of agencies they use, client leaders were almost as likely to point to management and IT consultancies (36%) as to full service digital agencies (37%). Likewise, client leaders are just as apt to turn to consultancies (39%) as agency partners (41%) for help with digital experience innovation.
Beyond the competition from consultancies, agencies are also facing the threat of insourcing, which has rapidly gained popularity. A recent study from the ANA, for example, found that some 78% of client-side marketers who are members of the ANA report having an in-house agency this year, almost doubling the rate (42%) from a decade ago.
The SoDA report likewise reveals that for 63% of client-side business leaders, the insourcing of digital capabilities has had an impact on the way that they engage with agency partners. More than half (56%) of agency respondents agree that insourcing has had an impact on their business.
The study also highlights other challenges for agencies:
- 56% say that speed of delivery is a growing factor when competing for new work;
- 57% feel that pricing pressure is growing year-over-year;
- 64% report that rising costs for talent are having an impact on their bottom line; and
- 66% indicate that competition for the services they offer continues to intensify.
Where Will Growth Come From?
Despite these apparent headwinds, agencies are maintaining a confident outlook, perhaps buoyed by increasing marketing budgets on the client-side. Given that many see competition ahead for the services they provide, it’s instructive to take a look at where agencies see revenue growth ahead.
The top 2 areas for anticipated 2019 growth are customer insights and analytics (45%) and digital products and services (45%). The focus on insights and analytics makes sense in light of marketers’ desire for agencies to take a consultative approach and help the advertiser understand and gain insights from data. Marketers’ struggles to implement analytics in their decision-making also opens the door for agencies to partner with them on that front.
Following analytics and digital products, agencies also project revenue growth ahead for standalone strategy (37%), digital marketing experiences (37%) and campaign development/execution (37%).
Notably, digital media buying and planning appears to be out of favor. This is the service that the largest share (39%) of agency respondents do not offer, and is also the one for which the fewest (21%) envision future revenue growth.
Other Survey Highlights
- Roughly 6 in 10 agency leaders are in the process of actively rethinking their current business model.
- Six in 10 say that finding and keeping talent has hindered their ability to grow, with technology/development talent being particularly difficult to find.
- As such, developing new services and capabilities (26%) and attracting and retaining top talent (23%) are the top strategies driving agency growth.
- Two-thirds (66%) of client leaders report that they are demanding greater detail and transparency into how their agency partners track and report on budget spending.
- Two-thirds (67%) of client leaders also say that creative and design leaders are playing a larger role in the overall strategic direction of their businesses.
- Clients most want better design/creative (33%) and different pricing models (30%) from their partners, but are far more likely to terminate an agency partner on the basis of pricing/value (33%) than being unhappy with creative (10%).
About the Data: The report is based on a survey of 238 agency executives and 166 client-side leaders from around the world. The report describes the profile of the respondents as follows:
“The majority of agency respondents are from mid-sized, digital agencies ($25MM USD or less in annual revenue) in North America. The sample, however, includes a healthy representation of perspectives with more than 45% of agency respondents coming from outside of North America and nearly 20% of respondents coming from larger agencies with annual revenue greater than $50MM USD.
The majority of client-side respondents are marketing executives (VP or above) at companies based in North America. The majority operate with annual marketing budgets greater than $50MM USD and represent a good mix of perspectives across the B2C, B2B and B2B2C segments. The client-side sample includes healthy global representation with 30% of respondents operating globally or in markets outside of North America.”