DIRECT MARKETING: LEAGUE OF CHANGE

The below-the-line industry has come through tough times to show margins nearly double those of ad agencies, Cliff Ireton writes.

The direct marketing and sales promotion industry continues to grow.

Profit margins and income are up, and tight control of overheads has boosted bottom lines. The table of the top agencies, ranked by gross income, gives an idea of the improving financial health of the sector.

The results, gleaned from accounts filed at Companies House, relate either to 2001 or 2002, so there are some notable absences. OgilvyOne, McCann-Erickson Relationship Marketing and Harrison Troughton Wunderman, for example, do not feature because of the recent Sarbanes-Oxley ruling in the US. The law, passed after Enron and other accounting scandals, prevents companies from reporting unaudited financial data.

Big mergers and account moves since the time of reporting would also rejig the rankings. Draft Worldwide and Lowe Live have merged (and are now known as Draft Worldwide). This, together with wins this year including Telewest and a project for MTV, would push the combine further up the table. Likewise, Proximity London recently absorbed the subsidiaries Clarke Hooper Proximity, Traffic Proximity and Touchdown Proximity, sizeable shops in their own right.

Conversely, Carlson Marketing Group has endured a tough time since it last reported in December 2001. The events of 11 September hit the company hard and, despite winning Hyundai and Shell, and the acquisition of the CRM consultancy Peppers & Rogers, it's unlikely it will hold on to the top spot next time.

Other changes include KLP, now KLP Euro RSCG after Havas' drive to house its brands under the Euro banner. Black Cat is now known as Black Cat rmg:connect, Publicis' IMP has rebranded to Arc Integrated Marketing and TBWA\GGT has dropped "Direct" from its name.

But what about the bigger picture? First, overall productivity of the sector is in better shape. Gross income per head was up an impressive 11 per cent to almost £70,000 - although agencies should be aiming for £100,000.

Only five agencies beat this target, three of them with very similar financial profiles - Craik Jones Watson Mitchell Voelkel, Finex Communications and Claydon Heeley Jones Mason. Tequila Payne Stracey (now Tequila London) reported a huge improvement in productivity (171 per cent), although this is mainly due to its absorption of Tequila UK's trade. In reality, productivity was up 28 per cent - impressive nonetheless.

Gross income of the top agencies was up by 6.7 per cent, 14 of them reporting income growth of more than 20 per cent. Some - such as Tullo Marshall Warren and Clark McKay & Walpole - grew organically, while others, such as Tequila, more through group reorganisation.

Boosting income has helped operating profits jump by 25.8 per cent, thanks in part to only modest (3.5 per cent) increases in employment costs.

In terms of gross income, the below-the-line sector grew faster than advertising (which grew by 1 per cent), but not as fast as media, which shot up by 20 per cent. All three sectors kept tight control of staff costs, but media reported soaring overheads, so its operating profit growth was no match for that of below the line.

As for profitability, below-the-line agencies' average margin (13.4 per cent) was nearly double that of ad agencies. Still, even though media reported a slip in margins, it remains the most profitable sector of the communications industry, with margins of 15 per cent.

The main problem below-the-line agencies face is that they are paying out too much of their income to staff. Employment costs account for a much higher proportion of gross income (61 per cent) than at ad (58 per cent) or media (52 per cent) agencies. Our suggested benchmark figure is 50 per cent.

The problem has deepened as employment costs haven't gone up by much and staff numbers have dropped significantly - by 4 per cent. This represents a 7.7 increase in salaries per head. That said, the below-the-line sector won't be thrilled to know that they are paid, on average, 23 per cent less per head than their peers in advertising.

To continue to grow, below-the-line agencies face the same challenges that long kept them in the shadow of above- the-line shops. They need to be recognised for their increasingly influential strategic and creative role in the communications process, and be better paid for it.

TOP 30 DIRECT MARKETING AND SALES PROMOTION AGENCIES BY GROSS INCOME

Rank Company name Year end Turnover Gross income

Latest Latest Chg

£000 £000 %

1 Carlson Marketing Group

(UK) 31/12/01 43,675 28,618 3.35

2 WWAV Rapp Collins 31/12/02 77,829 27,494 18.85

3 EHS Brann 1 31/12/01 34,862 20,848 22.48

4 TBWA\GGT 31/12/02 27,994 17,725 10.57

5 Proximity London

(BHWG Proximity) 31/12/01 37,035 17,083 -4.63

6 Haygarth Group 31/3/02 26,369 14,946 25.70

7 IMP 31/12/01 26,816 14,419 9.93

8 Draft Worldwide 31/12/01 26,303 13,512 25.42

9 Brann 31/12/02 41,940 13,329 -45.30

10 The Triangle Group 31/12/02 21,819 12,354 8.61

11 Joshua Agency 30/9/02 27,299 12,278 -9.75

12 KLP 31/12/01 31,025 11,513 22.71

13 The Marketing Store

Worldwide 31/12/00 20,619 10,858 -8.46

14 OCM Solutions

(previously FFWD) 31/12/01 13,679 10,499 23.62

15 Tequila Payne Stracey 2 31/12/01 26,352 10,358 81.81

16 Black Cat Agency 31/12/02 14,134 9,353 21.34

17 GHA Holdings 31/3/02 20,827 8,494 7.92

18 Craik Jones Watson

Mitchell Voelkel 31/12/02 15,212 8,368 20.39

19 Finex Communications 28/2/02 13,650 8,249 -8.31

20 Claydon Heeley Jones

Mason 31/12/02 13,382 8,149 2.93

21 Tullo Marshall Warren 31/12/01 12,662 8,115 31.91

22 Rapier 31/12/01 14,778 7,697 10.41

23 Dialogue Marketing

Partnership 31/12/02 17,062 7,691 15.86

24 Lowe Live 31/12/01 15,202 7,027 13.41

25 Perspectives Red Cell 31/12/01 11,509 6,570 6.16

26 Marketing Drive 31/12/01 8,925 5,599 46.11

27 Dynamo Marketing 28/2/02 11,400 5,549 2.34

28 1995 Ventures 31/12/01 11,966 5,271 -18.93

29 WWAV Rapp Collins North 31/12/01 8,986 5,058 3.82

30 Clark McKay & Walpole 31/12/01 n/a 4,860 35.15

Rank Company name Year end Pre-tax profit Employees

Latest Chg No

£000 %

1 Carlson Marketing Group

(UK) 31/12/01 2,640 100.61 509

2 WWAV Rapp Collins 31/12/02 5,342 8.84 260

3 EHS Brann 1 31/12/01 2,215 21.44 262

4 TBWA\GGT 31/12/02 2,404 24.05 192

5 Proximity London

(BHWG Proximity) 31/12/01 349 -86.26 209

6 Haygarth Group 31/3/02 4,754 50.49 152

7 IMP 31/12/01 1,724 46.10 165

8 Draft Worldwide 31/12/01 1,763 259.84 160

9 Brann 31/12/02 3,253 179.83 841

10 The Triangle Group 31/12/02 2,895 85.34 141

11 Joshua Agency 30/9/02 268 164.42 170

12 KLP 31/12/01 850 264.41 172

13 The Marketing Store

Worldwide 31/12/00 -534 -213.62 160

14 OCM Solutions

(previously FFWD) 31/12/01 460 -66.42 178

15 Tequila Payne Stracey 2 31/12/01 761 4,376.47 104

16 Black Cat Agency 31/12/02 2,184 4.65 103

17 GHA Holdings 31/3/02 471 -24.28 145

18 Craik Jones Watson

Mitchell Voelkel 31/12/02 2,097 120.74 63

19 Finex Communications 28/2/02 3,185 239.08 65

20 Claydon Heeley Jones

Mason 31/12/02 1,633 330.00 74

21 Tullo Marshall Warren 31/12/01 206 5.10 110

22 Rapier 31/12/01 1,273 16.90 89

23 Dialogue Marketing

Partnership 31/12/02 2,989 25.27 84

24 Lowe Live 31/12/01 1,037 129.93 90

25 Perspectives Red Cell 31/12/01 1,323 7.82 83

26 Marketing Drive 31/12/01 -152 -214.29 79

27 Dynamo Marketing 28/2/02 1,407 398.73 81

28 1995 Ventures 31/12/01 -45 -104.05 94

29 WWAV Rapp Collins North 31/12/01 1,466 8.59 58

30 Clark McKay & Walpole 31/12/01 384 440.85 53

Rank Company name Year end Gross income per head

Latest Change

pounds %

1 Carlson Marketing Group

(UK) 31/12/01 56,224 18.78

2 WWAV Rapp Collins 31/12/02 105,746 11.53

3 EHS Brann 1 31/12/01 79,573 4.25

4 TBWA\GGT 31/12/02 92,318 4.81

5 Proximity London

(BHWG Proximity) 31/12/01 81,737 -4.18

6 Haygarth Group 31/3/02 98,329 5.03

7 IMP 31/12/01 87,388 9.26

8 Draft Worldwide 31/12/01 84,450 16.02

9 Brann 31/12/02 15,849 -25.66

10 The Triangle Group 31/12/02 87,617 23.24

11 Joshua Agency 30/9/02 72,224 6.17

12 KLP 31/12/01 66,936 31.99

13 The Marketing Store

Worldwide 31/12/00 67,863 6.98

14 OCM Solutions

(previously FFWD) 31/12/01 58,983 -11.80

15 Tequila Payne Stracey 2 31/12/01 99,596 170.97

16 Black Cat Agency 31/12/02 90,806 13.09

17 GHA Holdings 31/3/02 58,579 2.71

18 Craik Jones Watson

Mitchell Voelkel 31/12/02 132,825 12.74

19 Finex Communications 28/2/02 126,908 -1.26

20 Claydon Heeley Jones

Mason 31/12/02 110,122 57.18

21 Tullo Marshall Warren 31/12/01 73,773 -6.47

22 Rapier 31/12/01 86,483 -16.88

23 Dialogue Marketing

Partnership 31/12/02 91,560 -2.07

24 Lowe Live 31/12/01 78,078 7.11

25 Perspectives Red Cell 31/12/01 79,157 -6.63

26 Marketing Drive 31/12/01 70,873 -26.02

27 Dynamo Marketing 28/2/02 68,506 -16.61

28 1995 Ventures 31/12/01 56,074 -30.14

29 WWAV Rapp Collins North 31/12/01 87,207 2.03

30 Clark McKay & Walpole 31/12/01 91,698 37.70

Source: Willott Kingston Smith annual survey Financial Performance of

Marketing Services Companies. Results are based on latest statutory

accounts filed at Companies House. Where an accounting period was not 12

months long, results have been pro-rated to represent a 12-month trading

period.

NOTES. 1. After the merger of Evans Hunt Scott Eurocom and ehs:realtime.

2. Now trading as Tequila London.

Topics

Become a member of Campaign from just £46 a quarter

Get the very latest news and insight from Campaign with unrestricted access to campaignlive.co.uk plus get exclusive discounts to Campaign events

Looking for a new job?

Get the latest creative jobs in advertising, media, marketing and digital delivered directly to your inbox each day.

Create an Alert Now

Partner content

Share

1 Job description: Digital marketing executive

Digital marketing executives oversee the online marketing strategy for their organisation. They plan and execute digital (including email) marketing campaigns and design, maintain and supply content for the organisation's website(s).