Revenue Leaks Plague UK Creative Services Industry
UK creative service agencies are losing money because they cannot manage their teams efficiently according to a survey of 75 senior directors at creative service agencies across the UK.
The survey shows that agencies lack critical financial processes like cost accounting and expense management as well as lack of visibility on internal teams and revenue forecasts. The results show agencies putting creativity before basic business common sense.
The ‘Agency ProfitWatch’ survey, conducted by agency management specialist Maconomy, reveals that, despite agency consolidation and widespread job cuts (in 2002, 40% of job losses were in the creative sector), the creative industry is still failing to look internally to improve profitability.
Top line findings include:
• Lack of action on profitability – Despite agencies recognising the importance of profitability to their success, only half of agencies have initiatives in place to improve profitability
• Escaped revenue – Only 56% of agencies have a timesheet system in place - the worst offenders that fail to fill in their timesheets are senior management• Costs uncontrolled – 35% of agencies do not have a cost accounting system in place, while a massive 64% of agencies have not put in place an automated system to manage expenses
• New business black holes – Only 43% of agencies treat new business development as a cost centre and 13% of agencies have no limit on what they can spend on new business pitches.
“Agency Britain is leaking revenues,” said Steve Hoddinott, UK Country Manager, Maconomy.
“Creative services is a major employer in the UK yet if you compare this industry with manufacturing, or retail for example, it is very immature in how it manages it processes.” Perhaps unsurprisingly, half of agencies admit to over-servicing clients by up to 20%. But more worrying is the discovery that almost one in three agencies do not know how much they over-service clients by. Agencies that continue to turn a blind eye to over-servicing are effectively giving away their consultancy for free. “As the Agency ProfitWatch survey reveals, agencies are good at addressing profitability from the creative side: working on new great new business ideas, thoroughly evaluating the pitch process and generating creative ideas. But where agencies tend to lose momentum is in their approach to managing themselves internally,” said Anne Gregory, professor at Leeds Metropolitan University. “Agencies forget that the way they report and manage accounts can be as significant a differentiator as their creative brilliance.” Interestingly, only 25% of agencies surveyed are able to offer their clients live job/project status via the Internet. Worryingly, more than a quarter of agencies interviewed believe that offering this type of activity report creates more issues than it solves with over a quarter of agencies. “In my experience, a creative agency that is willing to demonstrate cost transparency within their reporting methods will stand a very good chance of winning business at Nortel,” said Ben Atherton, corporate marketing manager, EMEA, Nortel. “Creativity in how they handle the account is paramount but it has to be aligned to a robust and open accounting system that ensures I know where we are and what we are spending at any given time.” The message is starting to get through, however. More than half of agencies surveyed say regular reporting and good accountability not only improve client relations, but also can help boost the bottom line.
"In the creative services industry, it's reputation not revenue that drives the business. However, as the marketplace becomes increasingly competitive, agencies must focus on profitability if they want to survive" said Michel Karam, Managing Director, Re:Sources UK, of the Shared Services Centre of the Publicis Group in the UK. "
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