Dotcom rush may not result in agency boom

The surge in dotcom business may not provide quite the boom for agencies that the industry has hoped for, according to a new report from the accountants Willott Kingston Smith.

The surge in dotcom business may not provide quite the boom for

agencies that the industry has hoped for, according to a new report from

the accountants Willott Kingston Smith.



The growth in new-media business has sent staff costs spiralling and, in

many cases, the increased wages bills have eroded the increase in income

from the new clients.



Media agencies and direct marketing companies are the only marketing

services sectors not to have their increased income from the dotcom boom

reduced by increased employment costs.



According to WKS, the limited supply of staff qualified to undertake

e-commerce work has had a knock-on effect on profitability as marketing

services companies compete to buy in talent.



Amanda Merrion, a partner at WKS, said: ’No-one wants to miss out on the

dramatic increase in new business that e-commerce represents. However,

the downside for employers is that employees qualified to work in this

area are now in the driving seat.’



Merrion added that there is now a real fear among companies that if they

fall behind the digital wave, their business will suffer. ’However,

there is no guarantee that the model of sacrificing profits for growth

and new-service development will always be the right one to follow,’ she

warned.



’If dotcom-related marketing spend falls, marketing service companies

could be left with an overpaid workforce. Tough restructuring will be

unavoidable.’



While media and direct marketing specialists have kept a rein on staff

costs, advertising agencies have seen employment costs per head rise by

8.3 per cent, making ad agency staff the best paid of all the marketing

services companies. Yet they also record the lowest margins, with

average operating margins of 7.2 per cent compared with 23.4 per cent

for media agencies and 14.8 per cent for direct marketing agencies.