The state of the agency marketplace
Each year, our UK Agencies Benchmarking Report gathers the facts and opinions of the UK's leading B2B agencies. In this feature, David Rowlands, editor, dissects the data, demonstrating how agencies are winning new business, how their headcount and gross income have grown (or decreased), and what they predict for the months to come. The full report is available for download now.
Despite uncertainty around Brexit and the general mayhem caused by Covid-19, B2B marketers shone in 2020. If anything, the need to adapt rapidly has brought the best out of the marketing department, with imagination and bravery rewarded in spades.
With a deal now having been struck, and vaccines well and truly being rolled out in the UK, the hope is that stability is on the horizon. With the ship starting to steady, agencies are bullish on their expectations for 2021. In fact, 61% of agencies we surveyed are expecting growth over the next 12 months, with a further 28% expecting strong growth. 12% are expecting to remain flat, while just 1% are either anticipating a reduction. Combined, this means 89% of agencies are expecting growth or strong growth over the next 12 months. This is just shy of last year’s results, in which 91% were expecting growth or strong growth. Admittedly, agency’s expectations were likely to have stopped short due to a certain coronavirus last year, but it’s good to see that optimism and expectation amongst agencies have not been rocked.
An obvious place to start, maybe, but there’s no denying that headcount is a good way to gauge the success, business and profitability of an agency. Ultimately, more business = more people. So, with that in mind, what do the figures reveal?
Our survey asked for each agency’s global headcount as of 1 September 2019 and 1 September 2020. Unfortunately, a saddening, but unexpected, 38% of agencies reported a decrease in their global headcount YoY. 5% remained flat, whilst 57% increased.
This is, of course, not surprising. In a year when revenues have contracted, workforces have been forced to follow suit. As stability returns, and Covid-19 fades into the background, these numbers will of course start to recover. However, there is no getting away from it, 2020 saw many casualties, and huge swathes of those were not of the medical kind.
It’s not all bad news, of course. Whilst 38% of agencies reported a decrease in their headcount, the majority of agencies reported an increase, with certain agencies expanding significantly. In fact, several agencies reported an increase in UK headcount of 50% or more.
These were as follows:
- Transmission: 89.3%
- Rooster Punk Group: 57.1%
- Gripped: 50%
- Gravity Global: 162.4%
- Napier Partnership: 88.9%
In addition to this, despite 38% of agencies reporting a decrease in headcount, the average headcount has actually risen compared to last year. In this year’s report, the average UK headcount of an agency is 63. Last year, this was 52. It’s worth noting that last year’s figure excluded our usual contributor Oliver, which had a headcount of 1153. This was far and above every other agency, and would have skewed the numbers to a headcount of 65. Regardless, Oliver has not taken part this year, and the average headcount has still risen. Impressive, given the year we’ve just concluded.
But what about the big one – the real indicator of success? Gross income. Before we go any further, it is absolutely crucial to note that the majority of agencies included in our survey closed their most recent financial year in December 2019 or March 2020.
In other words, the majority of the financial data we have comes from a time when Covid-19 was nothing but a scare story reduced to the bottom of the homepage.
In their most recent financial year, the agencies that participated in our survey reported gross income (GI) of anywhere from £160,000 to £60 million. On average, most agencies reported a GI of around £5.92 million.
This is an increase from the previous report figures, in which agencies reported an average GI of £5.15 million (again, excluding Oliver).
We expect, however, that there will be a hit in agencies’ GI presented in the 2022 UK Agencies Benchmarking Report. Undoubtedly, damage to agencies’ bank accounts is being inflicted as we speak, but – perhaps mercifully – it’s too early to assess the scale of the damage.
Another thing to keep in mind is that, although the average GI has increased compared to last year’s report, not every agency has seen growth. In fact, around 29% of agencies included in this year’s report actually reported a decrease.
In summary, 72% of agencies reporting an increase in GI suggests a pretty good year all round (the remaining agencies reported flat results). However, let’s not bury our heads in the sand and pretend Covid-19 hasn’t happened. The financial impact will be felt, but the only thing we can do now is wait and see.
The biggest challenges facing agencies
Each year, we ask agencies the following: ‘How significant are the following challenges to your agency currently?’. A list of 11 potential challenges are provided, with survey participants asked to rank each one from ‘very significant’ all the way through to ‘insignificant’.
In the previous two years, the top two challenges agencies faced were the ability to attract and retain quality staff, and pressure on clients’ budgets. Last year, Brexit-related concerns rose to third place as the deadline to leave the European Union grew ever closer. Perhaps understandably, with Covid-19 and the associated financial devastation, Brexit-related concerns have now fallen to 10th place. Pressure on clients’ budgets has remained the number one most significant concern amongst the agencies we surveyed. Given the economic consequences of the pandemic, this is hardly surprising, as clients may still not be willing to loosen their belts just yet.
Interestingly, the ability to attract/retain quality staff has plummeted from first place, as the number one most significant challenge, to joint sixth place, tied with the role of procurement and purchasing departments
Last year, we included ‘data privacy/GDPR’ for the first time in our survey as an option. For two years running, not a single agency has said that this is a ‘very significant’ challenge. In fact, only around 16% of agencies even think that it’s a ‘significant’ challenge they will face. Nonetheless, 54% said it would be ‘neither significant nor insignificant’, suggesting that, while not at the forefront of their minds, it remains an important thing to consider.
Services and skills
So, what about the services that UK agencies currently provide, or are looking to provide in the future? This year, the most common services currently offered by UK agencies were:
- Digital development, provided by 81% of agencies. A further 6% are considering adding this within the next 12 months, while another 5% are considering adding it in more than a year’s time.
- Data analytics, provided by 64% of agencies. This looks set for a something of a boom this year, as 22% of agencies we surveyed are looking to add this as a service within the next 12 months. It also received the fewest number of agencies saying that they aren’t interested in it, with just 6% saying they’re not interested in offering this service.
- Account-based marketing, provided by 67% of agencies. ABM is continuing to assert its dominance in the world of B2B marketing, as a further 11% of agencies claim they are considering adding it as a service within the next 12 months, and an additional 7% considering adding it in more than a year’s time. Some basic mathematics would indicate that we could be looking at a world where around 85% of agencies are providing ABM services within a couple of years. It’s worth noting, however, that 15% of UK agencies are not at all interested in offering it as a service. Let’s check in on that in a few years…
Every service listed is currently provided by approximately 50% of agencies, but it is interesting to note that media buying, martech consultancy and martech operations have received the greatest number of agencies saying that they aren’t interested in offering this service at all.
So, how are most UK B2B agencies finding new business?
As was the case in last year’s report, most agencies we surveyed reported that direct referral was their main way of finding new business, with 72% saying this method is ‘very common’, and an additional 26% claiming it is ‘common’.
Following closely behind is referral from an external individual (not the client), with 49% stating that this is ‘very common’, and a further 44% claiming it is ‘common’.
Third place is ‘pitch’, with 27% claiming it is ‘very common’ to win new business this way, and a further 52% claiming it is ‘common’. Request for proposal also remains a strong approach to winning new business, with 19% claiming it is ‘very common’, and 44% saying it is ‘common’.
In addition to this, advertising, media exposure and special referral agencies also remain in the mix.
In short, not much has changed since last year in terms of how our UK B2B agencies are looking to win new business.
2020 was a strange year for everyone – let alone marketing agencies – but the trends across the agency marketplace are relatively unchanged. Despite Covid-19, UK agencies are only marginally less optimistic than they were the previous year, they remain a ‘glass half full’ market, and are expecting growth over the next 12 months.
In addition to this, although some agencies have seen a significant hit to their headcount, on average, there has been an increase in headcount.
In their most recent financial year (for most agencies, this being the year ended December 2019 or March 2020), agencies’ revenues grew once again. However, as discussed earlier, a hit in revenue is expected to be demonstrated in next year’s report, as Covid-19 once again rears its ugly head.
Ultimately, when asked to describe the current state of the market for B2B marketing services, 39% said ‘good’, with a further 32% describing it as ‘strong’ or ‘very good’. Although, we cannot deny that 13% see it as ‘static’, and 16% as ‘challenging’, given the turmoil of the last 12 months, 71% describing the industry as good or better is reason to celebrate.
This year's UK Agencies Benchmarking Report provides our latest league tables, showing who the biggest and best agencies in the UK are. It also includes in-depth analysis (like this article) and opinion pieces from B2B leaders. Download now!