Five Uncomfortable Trends

  1. Advertising agency workloads are growing, but agency fees and resources are declining. This means that more work has to be done by fewer, more junior agency people. Fees and resources are visible factors in the advertiser-agency relationship, since they are negotiated between the parties. Workloads, though, are invisible, since they are not documented, tracked or negotiated. The advent of digital and social advertising has increased workload volume significantly, but this is not taken into account when fees and resources are negotiated and agreed.
  2. Workload from out-of-scope work continues to increase. There is less up-front formal planning of annual Scopes of Work by advertisers and more ad hoc changes to SOWs throughout the year. Undoubtedly, the growth of digital and social advertising has contributed to an advertiser belief that advertising programs need not be planned in advance -- they can be "up to the minute" and "spontaneous." While spontaneity is a good thing, lack of planning can have devastating consequences. Unpaid out-of-scope work is not a good thing, and there is a lot of it in the industry. Unpaid out-of-scope work is unaffordable for most agencies; the work is carried out by resources that are already very stretched.
  3. Agency profit margins are under increased pressure. Holding companies are looking for 15-20% margins, but client contracts generate something closer to 10-14%. The gap is widening between holding company requirements and client contract realities. Agencies are caught in the middle. Increasingly they rely on Q4 downsizings to reduce their costs and make up the profit difference. This is not a healthy response in light of growing workloads.
  4. Agencies are increasingly locked into contracts that focus on the purchase of agency hours rather than on deliverables. The dubious "science" of agency benchmarking has intensified the advertiser focus on hours and salaries; deliverables (workloads) are orphans in this process. Efforts need to be made by both parties to embrace Scope of Work practices that see SOWs documented, tracked, negotiated and staffed properly. Quality of agency work is being held hostage by improperly structured contracts and client benchmarking practices that cut fees and resources despite the growth of Scopes of Work.
  5. Agencies allocate their resources in proportion to fees rather than in proportion to client workloads. This means that agencies either overstaff or understaff each of their clients' SOWs. Chronic understaffing of workloads is the greater of these practices. This is only known, though, when workload data have been developed and used to diagnose agency resource allocation practices. For most agencies, the amount of workload in the SOWs -- and whether or not there is understaffing or overstaffing of the SOWs -- are simply not known to management. Only the very stretched people who do the work understand the situation, and they often vote with their feet.