Tight margins, and what it means for the industry

Years ago, my art director and I were called into our CD’s office for a chat. We’d recently been thinking about moving to another agency and the CD wanted to know what he could do to stop that from happening. Whilst money wasn’t the driver of our decision, it was going to be a factor. I clearly remember him saying this: ‘Every year employees want more money, and clients want to pay the agency less’.

Nothing has changed, I guess. But the situation is getting to a point that simply isn’t sustainable. The other day I bumped into a headhunter (no, I wasn’t looking for a job). I asked her how business was. She said that she’s relatively busy, but nobody wants to hire senior people anymore. All the briefs are asking for mid-weights. The reason, of course, is that senior people come with senior price tags. And as agencies get squeezed tighter on their margins, they’re looking for ways to cut expenses and protect those margins. But, it’s not a long-term solution and it will ultimately impact on the standard of work.

I’m not saying that junior and mid-weight teams can’t do the job. I’m simply saying that they generally don’t hit the target as consistently, and they take longer to get there. Also, less senior people mean less mentors for junior employees.

Another trend that’s emerging is that human resource is becoming more transient. Freelancers are being used more frequently. Agencies are only pulling in people when required on jobs rather than have them on a retained salary.  But, many are also trying to pay them a pro rata rate of what they would pay a permanent person in that role. If freelancers agree to do this, there is little motivation for the agency to hire anyone full-time. Why would they risk having to ‘carry’ employees through quieter times or pay them for holidays, if they can just pick up the phone and have that resource on call at the same price?

So, in short, tighter margins is leading to people working longer hours because agencies aren’t resourcing appropriately. And experienced people are being managed out of the business because they cost too much.

All this means that creative people will increasingly look for careers outside of advertising and traditional agency structures. This recent study by Deutsch puts the writing on the wall.

And of course, once the talent moves on, the client dollars will probably follow.

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