Benchmarking? Yes. Benchmarking. Ok, it’s not that exciting, and in fact, out of some mouths it’s terrifying. Mainly because it’s used as part of a procurement process by a client or pitch consultant trying to reduce all the agencies they’re talking with, to a simple common denominator – price.
Park that though. I’d like to talk about benchmarking that’s good for the industry. Benchmarking that’s about understanding and improving revenue, profit, team morale and staff retention. Benchmarking that the creative industry is in control of and that can be used “by the industry, for the good of the industry.”
What if you could rate your performance as an agency?
Just imagine how valuable it could be to understand your creative business in the context of your peers. Are you having a good year? Is business slow? Is talent harder than usual to find? How do you know if you don’t understand the dynamics of what is happening to the rest of the market?
For the last 8 years, the Wow Company (an accounting practice for the creative industry) have been helping to do just that with their BenchPress report. Collecting and analysing independent agency data in the UK to help everyone work out whether they’re business is really on the up – or if those sleepless nights are entirely unnecessary.
Last year’s survey collected data from more than 500 agency owners with billings ranging from 0.25-5m + per year, working across digital, creative, full service, design, film, PR and more.
Agencies are growing
With many agencies reporting growth in 2017, the trend continued, and accelerated in 2018. 39% of agencies grew revenue by more that 25%. Many owners were confident that the trend would continue. However, as we know, 2019 has been a turbulent year with so much political and economic uncertainty. 2020’s survey is now open. So why not share how you faired to get a better picture of what it meant for the industry throughout the year.
Despite the confidence, and likely the nature of the industry beast, the biggest challenge that agency owners faced in 2018 was…. new business. 44% putting this above recruitment, cashflow and profitability. The data told the story. For many agencies, new business fell on the shoulders of the Directors. Only 20% had invested in a full-time business development resource, while 67% had never hired a pure ‘sales’ person. The story was similar when it came to marketing resource. Again, responsibility falling on Directors and more than half not having hired any marketing resource. I’d have to confess to this myself! But, it’s also the reason you’ll nearly always hear an agency saying, “we’ll be updating the website soon!”.
Investing in new business pays off
However, the one’s who are investing are showing positive results. In fact the top 25% of agencies are seeing returns of 10X on their sales and marketing investment. Are the rest of us missing a trick?!
Of course, there isn’t a silver bullet when it comes to new business. Some agencies will lower their fees to such a point that clients pull a sneaky fist bump as they sign the contract. But in the long-term that doesn’t help the agency, let alone the industry. Indeed, the BenchPress survey found a strong correlation between the lower an hourly rate, the higher the conversion rate. The danger, is that this only serves to erode profit margins, setting your agency up for a client relationship where you’ll forever be expected to have to do more with less.
Once clients have been won, increasingly, they’re being kept. More than half of agencies claimed their average client relationship was 3-5 years and that overall, the average relationship was increasing in duration.
Time – our most precious resource?
While often the focus of proposals, profitability and performance, the 2019 report viewed time from an owners perspective. Hours spent in the office, away from work, and when working – where you’d prefer to spend your time.
The good news, work-life balance is making a come back. The average agency owner works 45 hours per week, with 35 of those hours in the office and 1 weekend per month.
When it comes to time at work, surprise-surprise, clients take top spot, closely followed by sales and marketing and managing people. It’s also the thing that 38% of you would like to reduce though. Where would you rather be spending your time? 75% say strategy, with very few suggesting they’d like to do more on finance and operations.
Cash is king
It’s pretty simple. It’s great to know you’re busy and that the pipeline looks healthy, but until the money’s actually in the bank it means nothing.
The survey found that in a typical month, 37% of billings came through retainers, 38% for ad-hoc projects and 25% from new clients. This is a healthy split. Having a healthy amount of retainer work can really help when the pipeline starts to get a bit thin.
It’s great to grow your clients, but it can also become precarious when you rely too much on one relationship. 25% of you said that more than 30% of revenue came from from one client. For the 6% that said more than 50% of revenue came from one relationship, there should definitely be some alarm bells ringing.
Getting the money on the other hand?… (you’ll probably start emphatically nodding at this point), more than half are on payment terms of 28 days or more and almost more than half are sending those invoices out once the work has been completed. Practices like this can be a cashflow killer on the spiral to business implosion.
Runway has become the fashionable term for describing health of a startup. It’s a concept that’s been around for agencies and entrepreneurs since the beginning of time. I always remember being 6-8 weeks from going out of business at any moment in time. The nature of project driven work, client delays and competitive pitching, all adding to the anxiety of whether you’ll have enough money to pay the rent and the team next month.
Well, according to the survey, 31% of you had less that one month of overhead as cash in the bank. At the other end, more than 30% had 4 months or more, further illustrating the ups and downs of agency life.
BenchPress 2020 – get involved
These are just some of the highlights from the 2019 report. Hopefully it demonstrates how valuable the information could be if you were to participate. The good news in 2020? We’ll have a special version of the report just for Streamtime customers, along with follow-up sessions on how to interpret the data.
The survey is live now. Jump in to start benchmarking your performance and getting insight into the health of your business for the new decade.