By Tim Williams
It’s quite unsettling to look around the advertising agency industry and see that it’s populated with 50-somethings at the top, 20-somethings on the front lines, and virtually nobody in-between. So many agency leaders lament their firm's lack of “bench strength” and are worried about not having a clear second in command.
Most companies make money while they sleep because they sell products or services with recurring revenue streams. But most professional service firms -- like advertising agencies -- only make money when they’re logging hours to a time sheet.
Quick, what's the top reason marketers search for a new advertising agency? If you guessed “creative differences,” “cost” or “poor service,” you’d be citing some of the reasons that do in fact show up on top 10 lists. But the key driver today in agency searches is the desire marketers have to work with “best-in-class specialists.”
When was the last time you used a travel agent? It’s more likely you use Travelocity, Expedia, or Hotwire to book your travel.
Advertising agencies are facing competition from every dimension and direction. Upstream, they now complete with marketing consultancies and brand strategy firms who seek to provide planning and strategy services to marketers. Downstream are production companies, independent freelancers, and even media companies who now aim to not just sell media but produce content.
Is growth always a good thing? The answer is not as obvious as it seems. While growth usually looks good on an income statement, growth also creates complexity. As your firm continues to expand and add services, your business model becomes more complex, and services become more expensive to deliver consistently.
One of the deep-seated beliefs of the late great Peter Drucker was that “The business enterprise has two -- and only two -- basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”
“The days when agencies expect multiple $100 million-plus agency-of-record accounts to go up for grabs each year are now barely visible in the rear-view mirror.” So begins a recent article in Advertising Age that attempts to dissect what’s happening to the business model of the advertising agency business.
In the marketing world, because the creative services business is still mired in the hourly billing model, it’s an unfortunate fact that bad ideas cost the same as good ideas. Advertising agencies count up their time and charge their clients the same for a game-changing campaign as for a poorly-crafted series of messages destined to be ignored.
Faster. Cheaper. Vendor. Three words that characterize one of the leading issues agencies have with their clients right now. Many agencies feel they have been pushed down the client value chain into the same category as printers, having lost their status as professional advisors.
