The Future Agency: Outlook of Digital Agencies in 2016 - Jason Swenk

The Future Outlook of Digital Agencies for 2016

By Jason Swenk on November 18, 2015

We have compiled a FREE AGENCY RESOURCE on the FUTURE OUTLOOK of DIGITAL AGENCIES in 2016 and would want to share these great insights with you.

This is data that we compiled from over 10,000 agencies, and we are going to share with you so you can navigate this new landscape and plan your new year with clarity and direction.

Here’s what you are going to discover:

  1. Why Brands Pick Agencies and What Brands Expect from Them
  2. How to Increase Opportunities for Agency Growth
  3. How to Increase Agency Margins and Better Scoping
  4. How to Increase Client Retention for Agencies
  5. If Agencies Should Develop a New Product and Why
  6. What Technologies Agencies Are Using Heading into 2016
  7. What is an Agency’s Lifetime Value of a Client and Why It’s Important

What is the Digital Agency Outlook?

Our team at JasonSwenk.com serves and supports over 10,000 agencies in 23 countries. While we are very connected to our clients globally, you might be feeling very alone in your endeavors. I know from personal experience that running an agency can be very isolating. This report is your peep hole into what other agencies are thinking, feeling and doing… What 2015 looked like for them and where they’re headed in 2016.

We asked the entire JasonSwenk.com tribe to share their experiences in 2015, from growth strategies and challenges to technologies, systems and more. We’ve analyzed the data from our study and married it with other anecdotal information we’re hearing in our coaching sessions to bring you a comprehensive collection of information that will help you enter 2016 with clarity.

For those of you who participated in our study, thank you for sharing your experience and wisdom. If you weren’t asked to participate this time, but have something to share please comment below. We read and respond to every comment and inquiry.

Why Do Brands Pick Agencies?

Our survey told us…
Over 51% of agencies surveyed think they’re clients value them for their marketing and creativity. While this is somewhat true, it’s not what brands are saying. On the client side, they’re saying they want agencies to bring emerging trends to the table, as well as interpret the analytics so they can make better decisions. (85% of brands indicated this need!) They’ve got a million agencies knocking on their door with campaign ideas. But, if you want to grab their attention give them some insight into a new trend that will move their business.

What does this mean?
Simply put, there’s a miscommunication and disconnect. Where you believe your value lies, is inaccurate. And without an adjustment in focus, 2016 will not bring your full growth potential. Clients already know you can provide the creative and marketing plans they desire. What they really rely on you for is your intuition, your understanding of emerging trends and your interpretation of the analytics.

In our survey only 28% of agencies thought clients valued them for emerging trends, and only 4% thought clients valued analytics. You think your clients want one thing but they actually want something all together different. Brands want new business building ideas they can test, measure, and adjust.

In 2016 we need to…
Meet the expectations of brands that are seeking your expertise. In short, give ‘em what they want.

  • Provide great project work? Check.
  • Develop brilliant, fresh creative? Check.
  • Devise smart marketing plans? Check.
  • Bring emerging business development trends to the spotlight? Ummm…..
  • Interpret the analytics of what is and is not working? Ummm…..

How can we accomplish this?

  1. Be proactive. Most agencies are reactive. They’re helping undo what’s been done. Think of your clients’ clients and anticipate their next move. Don’t hop on the bandwagon – build it!
  2. Stay on top of current events within the industry. There’s always a better way to do things… Read or listen to podcasts about changes and movements in the field. Do what it takes to stay in the loop on what’s up and coming.
  3. Make the time. I know it’s hard to find the time to self-educate when you are running and working in your own business. However, this area is where you will make your money. This will be your staying power. When your clients see value in your knowledge of emerging trends they will pay you for it. When  you are providing knowledge instead of just a service you are irreplaceable.
  4. Stand behind your claims. Provide your clients with analytics to substantiate your claims or as proof that you need to tweak things. Commit to results. Many agencies I talk to are hesitant to promise their clients specific results. Don’t be that guy.

How to Increase Opportunities for Agency Growth

Our survey told us…
Many agencies biggest challenge in 2015 was generating and nurturing leads. Other top answers included: Hiring the right team members and being too busy to dedicate yourself to agency growth.

What does this mean?
If: Good Leads + Good Team = Growth
Then: 0 Leads + 0 Good Team = 0 Growth

When asked, “What type of businesses are you partnering with to generate leads and revenue?” most answered with “none”. This means a significant number of agencies aren’t even fishing for leads, let alone capturing them. While some are partnering with other agencies (12%) there are still many just relying on referrals (12%).

Today’s agencies aren’t getting enough of the right leads because they aren’t looking in the right places. Instead they’re hoping other people will send work their way. Word of mouth is not scalable.

This might be why 54% of respondents said they are getting less than 10 leads per month from their website.

Hiring the right team and finding time for business development are not mutually exclusive. Taking the plunge to hire is scary, but I’ll bet the thought of closing shop because you didn’t scale your business is even scarier. Often times, the fear of change is harder than the change itself.

In 2016 we need to…
Determine where your ideal clients are congregating. Be honest about who you are and aren’t willing to work with and find them. Be the kind of agency owner we want to be without distractions.

How can we accomplish this?

  1. Stop relying on referrals. They are not scalable, reliable or consistent. Referrals can be a great boost in business but will not, cannot be your bread and butter. Instead find strategic partners within the same vertical that can share in opportunities with you. Win-win.
  2. Start the conversation without going in for the kill. Give them a reason to want to be marketed to. The best way to accomplish this is with a lead magnet. Offer something of value that your leads can get for free with the stipulation of providing their email address. This starts a conversation. Every agency has content out there and a contact page on their website. Neither of these tactics give a lead the opportunity to raise their hand and say “I want to see what you have to offer without committing just yet.” That’s what a lead magnet can do. When you have a lead magnet, you capture contact information and use technology to create an automated nurturing campaign that builds trust and authority over time.
  3. Fire yourself. Stop working in the business so you can work on the business. Write the ideal job description for what you should be doing as Owner. Everything else you are doing (sales, project management) needs to be delegated to your existing team, a new hire or outsourced to someone who can do the things you shouldn’t be doing.
  4. Make the decision to hire. Don’t hire someone who works just like you. That might be the most comfortable, but it’s not the best way to grow your business. You need someone who compliments your skill set. Someone who can even do the job better than you. Think of it this way – do you want an agency full of minions or an agency full of giants?
  5. Be smart about productivity. Remember, the low impact items (email, social media) might be easier but they are still low impact. Your focus should be the high impact items (activities that generate clients or revenue). What you’re doing when you’re not doing what you’re supposed to be doing is the problem.

How to Increase Agency Margins & Scoping

Our survey told us…
The majority of agencies reported an overall profit margin in 2015 ranging between 11-30%. However, most rated their own scoping skills at a 7 out of 10. If we were giving letter grades, that’s a C-.

So what does this mean?

  • The good news: margins look to be healthy, for the most part. Industry standard is 11%.
  • The bad news: your margins probably aren’t being calculated as accurately as you think.
  • The even worse news: you are probably an innocent victim of the evil scope creep monster and you might even be losing money on your engagements.

In 2016 we need to…
Sharpen our pencils. There’s an opportunity to be more profitable in 2016. In order for that to happen we need to figure out what’s going on with the scoping process. Why aren’t we A+ students? We need to create a strategy for defeating the agency nemesis known as SCOPE CREEP. We need make sure we aren’t short changing ourselves by charging less than we’re worth.

How can we accomplish this?

  1. It’s not you, it’s them… Chances are that you are probably scoping the work accurately for what you *think* the project involves. However, there’s often a disconnect between what the client articulates as their needs and what their actual needs are or what their needs evolve into as the project takes shape. Make your proposals clear and concise. You may have seen the proposal template my digital agency used. It includes the format and sequence of information for proposals that won us some big clients. But it’s also structured in a way that protects both the agency and the client. It’s clearly spells out the expectations and deliverables, right down to the exact number of pages, versions, etc. Whether you use my template or create your own, it’s important to be clear and concise with your proposal communication.
  2. Don’t cut fees in order to fit what you think they’ll want to pay. You’re worth what you’re worth. If you cut fees now with the intention of marking something else up later, you’re mistaken. It won’t happen. You’re setting a precedent. If you come down on price, come down on service. Also, know the client’s 3 I’s (Issue, Importance and Impact). Educate the client on how the work you’re doing is addressing an important issue that significantly impacts their business. Be prepared to provide research and analyze the results.
  3. 3 words: Track. Your. Time. I know it’s a total pain in the ass to account for every minute of every day. But, I know you know it’s important for your business so I won’t launch into how valuable time tracking is to the growth of your profit margins. When I ran my agency we weren’t very diligent about tracking our time. When we did, our learning showed us that we were losing money on 60% of our projects. On this survey, ZERO agencies stated time tracking software as a technology you can’t live without. Is that because you aren’t using it? If you aren’t, a few good ones to consider are: Harvest, Freckle, Dashable, Tick, and Toggle.
  4. Debrief. Have a post-project meeting with your team to talk about what worked and what didn’t. Which areas of the project weren’t on target and why? This isn’t just important for you, the agency owner, either. Your team will benefit from making mental notes for the next time similar issues arise. You’ll scope more accurately once you know things like: which items need padded or which clients make more changes than you’ve planned for.

How to Increase Client Retention for Agencies

Our survey told us….
Most client relationships are less than 2 years (45%). The balance are between 6 months and 2 years (44%). This is disheartening because the tenure of agency-client relationships continues to shrink.

In 1984, the average client relationship was 7.2 years. By 1997 that number shrank to 5.3 years. In recent years, relationships are pushing 2 years or less.

What does this mean?
The vast majority of agencies believe their clients’ reasons for leaving were something other than pricing, management or agency experience… 40% of agencies checked the “other” box in response to why clients leave.

This is is largely due to the burden on agencies to provide measurable results and a high ROI. We may think brands come to us for our marketing and creativity but in actuality they are looking for something quantitative. Each of your clients has a boss. That boss wants to know how they spent their marketing dollars. Every boss has a boss. And even that boss looks at gross profit compared to marketing expenditures. Marketing is the piece of your client’s business that is held most accountable for the success or failure of the business.

Another “other” reason why clients are severing agency relationships is because they are bringing their digital projects in house. They look at the value the agency provides and determine an in-house team is a more resourceful use of their budget. And, 22% of you believed clients leave due to pricing. Could they do it cheaper by having their own digital team?

In 2016 we need to…
Be proactive. Start by looking at your client’s business and determine how you can prove to the boss’s boss’s boss that the marketing dollars were spent on business building measures. You need to prove your value not just by churning out the work that’s requested but by being a valued and respected resource.

How can we accomplish this?

  1. Go a layer deeper. It’s not enough to just understand your client’s business. You must know who your client’s clients are. You need a clear and concise understanding of the decision-making behaviors and purchasing habits of your client’s clients. Just knowing where they come from isn’t enough anymore. Create an avatar for them, get inside their head and use that for strategizing.
  2. Test and analyze. 63% of agencies surveyed are testing new strategies, either in a lab or on their own, before rolling them out to clients. However less than 7% of agencies reported analytics software as a technology they can’t live without. Don’t just test and run with it. Experiment, evaluate, tweak, re-evaluate and repeat. Try using some analytics software to evaluate your results. Be able to backup your success with actual data
  3. Be priceless. Establish your agency as an asset to the client team. Go beyond cranking out work to being the idea generator. Take initiative to bring opportunities to the table. Use your experience and your analytics (see #2 above) to help them avoid pitfalls. Doing this will position you as a highly valued and irreplaceable member of their team rather than just an agent working on their behalf. Can they do better in-house? Maybe. Will they take their chances on trying? No way.

Should Agencies Develop a Product?

Our survey told us…
About 45% of the agencies surveyed are considering developing a software product (SaaS), and creating a new company for it. Which is cool… if you’re doing it the right way and for the right reasons.

What does this mean?
Developing a software product can be a double-edged sword. Nearly half of the agencies surveyed have or plan to develop a product to sell and market. Typically this can be a great growth opportunity, with the right intentions and proper implementation.

3 Reasons agencies SHOULD NOT develop and sell a product:

  • Your agency business is not growing as quickly as you’d like, so you want to develop a product that can generate revenue.
  • You think you can capture a different type of client with a different product.
  • Everyone else is doing it.

3 Reasons agencies SHOULD develop and sell a product:

  • Your software is a complement to your existing core agency services and is a natural add-on for your clients.
  • You want to provide increased value to your clients and become an indispensable resource with your proprietary software and killer service.
  • You are trying to look for the technology to help your agency run better weren’t able to find anything that met your specific needs.

In 2016 we need to…
Consider developing a product as a growth tool, because it’s something your clients need and can’t get anywhere else.

How can we accomplish this?

  1. Start with a unique idea. This needs to be software that will solve your clients’ problems, address their challenges, or provide some business-growth intel they cannot get anywhere else.
  2. Recognize the SaaS as it’s own entity.That might mean creating a separate company for it, but also includes a separate team selling and supporting it. Dedicated people helps your clients distinguish between agency services and the software product. Can they both stand alone? They should.
  3. Go all in. You can use SaaS as a growth strategy if you want to grow in an area that complements your core services. Don’t half-ass it. SaaS will not fix your existing problems. Whatever is broken in your agency cannot be fixed by adding a product into the mix. So, don’t be like a troubled married couple that has a baby to “fix things”. Nothing good can come of it.

What Technologies Are Agencies Using?

Our survey told us…
There are a couple specific technologies that many agencies cannot live without: Google Apps and Adobe Creative Cloud. (Of course, the Internet ranked pretty high up there too, but that one’s a given!) A lot of agencies are really loving project management software and email marketing/marketing automation software.

What does this mean?
It’s no surprise that every digital agency owner is into apps that make their world run smoother… Google Apps was the #1 specific technology many named as an integral part of their business in 2015. And 33% commented that they’re using the cloud as a resource in creating efficiencies. This is consistent with what the industry has been seeing over the past few years with a major shift toward cloud-based, virtual agencies. Frankly, it’s more convenient, more productive and more cost effective.

What’s really making our jobs easier is marketing automation. No matter what specific tools you’re using, you recognize that your leads need consistent communication. To take this a step further, you need to use your marketing automation to reach out, educate and convert. The key step here is the middle one – educate. Many marketers think their email marketing should close the deal right away. However, online buyers today are accustomed to obtaining information, researching and making purchase decisions online and in their own time.

In 2016 we need to…
Continue to work collaboratively; the greatest ideas emerge when there’s tons of sharing. Enable order and ward off chaos by initiating or enhancing the use of project management software.

How can we accomplish this?

  1. Operate in the cloud. Whether you are operating a virtual agency business model, brick and mortar business, or a hybrid of both you’ll find your team can be most productive when everything is housed in the cloud and organized with PM software. It encourages creativity and productivity anywhere at anytime and it streamlines workflow keeping all relevant information together in one place. Some of the respondent faves are: Basecamp, Slack, Wrike, and Trello. Check ‘em out. See which one works for you and your team. (There are more listed here.)
  2. Educate and train your team. Develop a process or usage standards for all your software and provide training to your team. Nearly 75% of you are providing some sort of training, but continuous and consistent training is key.
  3. Create a nurture campaign. Develop relationships with your prospects by slowly and consistently educating them. Use marketing automation to answer the unasked questions and facilitate in the decision making process. To run effective campaigns, marketers must respond personally to each prospect in their varying stages of the buying process.

Determining the Lifetime Value of an Agency Client

Our survey told us…
Only about half the surveyed agencies know their clients’ lifetime value…

What does this mean?
…which means the other half don’t! That’s OK – it’s one of the most overlooked and least understood in metrics of agency ownership. (Hint: it’s not the same as ROI but just as valuable.)

In 2016 we need to…
Understand the relationship between client lifetime value (CLV) and the success of your business. Determine the CLV and how much you’re willing to spend to capture and retain clients. If you already know your CLV, make sure you’re using it accurately. Many agencies skip over CLV and only calculate Return on Investment (ROI) without looking at the bigger picture. ROI is a simple formula calculated by taking revenue minus expenses. However, it doesn’t focus on the goal of developing a long, happy client relationship. ROI provides a very short-sighted figure without a look at the long term. And, considering 78% of agencies surveyed are not pursuing a merger or acquisition in 2016, you need to focus on more than just the short term because you’re in it for the long haul.

How can we accomplish this?

  1. Learn the CLV equation and apply to your current clients. It’s simple:
    (average engagement) X (number of repeat opportunities) = CLV
  2. Analyze cost per lead vs. CLV. Look at what you’re spending to capture and convert a lead. How does this help you forecast? What changes can you make in attracting new business? What can you do to change your proposal process? How can you close the gap between what you’re spending to capture/convert and their CLV?
  3. Weave CLV into your client’s campaign analytics. In other words, determine your client’s client lifetime value. (I know, it’s enough to make your head spin.) Clients are always looking for metrics to measure the effective use of their marketing budget. Next time they want to calculate ROI, steer them toward also calculating CLV. Show them it’s not just about the return on investment for one transaction; it’s about the lifetime value and all future transactions.

Where Should Agencies Make an Investment?

Our survey told us…
The vast majority of agencies (86%) plan to invest in improving their agency in the upcoming year. Awesome! But… wait for it…

What does this mean?
It depends on what types of investment agencies are considering. There’s the kind of investments that will help you grow and scale. Then, there’s the investments that will give you warm-fuzzies but won’t do squat for your bottom line.

In 2016 we need to…
Evaluate where you should and should not reinvest in your business. This might be easier said than done. Invest smartly in things that get you closer to your goals. Skip the things that don’t.

How can we accomplish this?

  1. Look for an objective point-of-view. Get a peer mentor, coach/advisor, or join a mastermind group. Invest in learning from people who’ve “been there and done that”. You can gain some great insight while avoiding mistakes and gaining knowledge from others’ experiences. Shameless plug: I’m happy to help you in this area. Just click here 🙂
  2. Take a look at your team. What tools and training does your team need to get you closer to your goals? How can your team be better? What motivates and inspires them? Invest in those things.
  3. Invest in things that can make your business run more efficiently; systems, technology and infrastructure all deserve your dollars. Ideally, these investments would help your business run without you, so you can be doing something else to develop your business.

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