Creative & media agencies struggle with slow growth in 2023

Creative and media agencies are experiencing slow billing growth this year, finding themselves locked in a relentless race to not thrive but merely survive. Recent data from Deltek indicates that 58% of agencies are struggling to acquire new business, with a notable 38% witnessing a decline in opportunities.

Sai Chiu, Principal Consultant of Tangram, which operates across multiple regions, including the UK, Europe, and Asia Pacific, elaborated on the challenges faced by these agencies. "Creative and media agencies across the UK and EMEA have not only grappled with sluggish growth in billings but have also faced increasing pressures from clients to deliver more for less. We're constantly hearing agencies are looking to consolidate systems, streamline processes and find efficiencies,” he noted.

Clients are leveraging their bargaining power to demand additional services and resources without corresponding fee increases. This trend has necessitated agencies to reassess their value propositions and adapt their business models to remain competitive in an increasingly demanding market. According to Chiu, the traditional approach of relying solely on pitches and presentations is no longer sufficient. "The game has changed, and the old pitch playbook just won't cut it anymore. It's time to embrace innovation, creativity, and unconventional strategies if agencies want to survive," he asserted.

There is ongoing debate regarding whether agencies should bill clients for pitches and cost recovery. Chiu remarked, "The question of whether to bill clients for pitches is a contentious issue in our industry. While some agencies choose to absorb the costs as part of their business development expenses, others opt to invoice clients for the time and resources invested in the pitching process." He argued that well-established agencies should charge for pitching as their industry credibility justifies this practice. Conversely, newer agencies could opt not to charge to build relationships and showcase their capabilities, thereby gaining the reputation needed to command pitch fees in the future.

Clear communication is crucial when billing for pitches. "Transparency is key. Clear communication regarding the billing should be established upfront, outlining the scope of work, associated costs, and the potential outcomes," Chiu emphasised. Agencies should also demonstrate their value proposition during the pitch process, justifying the investment for the client.

Chiu also highlighted the importance of niche specialisation for agencies to stand out in a crowded market. "Agencies must carve out a niche and specialise if they're to stand out from the crowd. Agencies that focus predominantly on sectors or industries, like automotive or finance, become more efficient and effective by deeply understanding their clients' unique needs and audience behaviours," he said. Using Uniplan as an example, which works with automotive brands such as Audi and BMW, Chiu illustrated how specialisation gives agencies a competitive edge and makes them more appealing to new business prospects.

Adoption of AI and modern project management tools can also significantly reduce costs associated with pitching for new business. AI-powered tools like HubSpot CRM and Zoho CRM automate essential tasks such as data analysis and client research, allowing agency staff to focus more on strategic and creative pitches rather than administrative tasks. Platforms like Blutui address inefficiencies associated with traditional outsourcing by enabling front-end developers to manage entire projects, thereby reducing long-term management costs.

Finally, Chiu pointed out the need for agencies to reconsider their commercial models, moving away from traditional time-and-materials approaches. "Output-based models focus on delivering specific outcomes or milestones, tying compensation directly to the achievement of predefined goals. This can provide clearer expectations and stronger incentives for performance," he said. Another model is value-based pricing, where pricing is based on the perceived value of the solution. Incentive models, such as fee proposals tied to specified outcomes, can also present a win-win scenario for both the agency and its clients.

Chiu concluded by stating, "One thing is for sure, the industry needs to see changes and agencies need to take back control of the process, or risk being caught in a cycle of escalating costs and diminishing returns in new business pitching."