Code Worldwide

Don't blame your clients if profits are down

09.12.2011
Matt McNeany

Matt McNeany

Founder and Chief Executive Officer

There was a worrying article in Campaign the other day, all about a drop in agency profits being due to clients squeezing ad budgets. It was a timely reminder of the pressures agencies are under, but blaming our woes solely on client budget cuts risks masking a deeper issue, where poorly differentiated agencies are clinging to a business model that’s past its sell-by date. Of course client spend is the key driver of agency revenue (or lack thereof). But at the same time, headcount clearly isn’t the only driver of profit.

So whilst slicing pounds of flesh from your cost base might keep the wolf from the door, it won’t build you a house made of brick. That kind of stability will only come from an evolution of the agency business model. Clients have realised that creating advertising is a very different process to producing campaigns; each requires different resources, talent and cost models.

But the traditional agency business model is very much one-size-fits-all. Worse still, clients now consider production to be a commodity, so you have to decide if that’s a business you want to be in. Think back to a recent pitch. You’re near the finishing line, well in the hunt and under pressure to reduce costs. So you do the pragmatic thing – drop your pants, seal the deal, and open the moderately priced Champagne, safe in the knowledge that you’ll ‘make the money back on production’.

But what if production isn’t actually part of the brief. Ouch. What now? Two options. Either invest in technologies that enable you to outmanoeuvre decoupling / production specialists by automating the adaptation and deployment of advertising, or make your money solely from ideas – expanding the definition of creativity, solving new problems and being indispensible. Be a premium agency brand, charge what you’re worth, and keep those pants un-dropped. So yes, times are tough, but let’s not pin all the blame on clients.

Besides, necessity is indeed the mother of invention so, as the bloke from the More Th>n ads (possibly) once said, ‘get busy living, or get busy dying’. (the original version of this article appeared as a letter in Campaign Magazine)