The faltering economic recovery among Britain’s agencies is
threatening to grind to a halt as profit margins fail to increase and
rival marketing services lay siege to business.
The verdict is delivered by the accountancy firm, Willott Kingston
Smith, and will come as a blow to those who believe the industry is
staging a post-recession comeback.
Although agency profits have shown modest increases, this is due to
tight controls on operating costs rather than billings increases, which
remain minimal, according to the firm’s report.
Bob Willott, a partner at Willott Kingston Smith, said: ’The results
show that the recovery is still very patchy, with some agencies doing
well while others are frustrated about not making the profits that their
To make matters worse, agencies are losing ever greater slices of their
clients’ marketing budgets to direct marketing specialists and media
’The changes presumably reflect clients’ perceptions of their needs and
the consequential allocation of resources between different marketing
sectors,’ the report says.
The predicament in which agencies find themselves is starkly illustrated
by the meagre average increase in operating margin on gross income,
which rose from 4.7 per cent to 4.9 per cent between May 1995 and
The report welcomes the increase, but points out that it hardly stands
comparison with the mid-80s, when agencies delivered double-figure
margins. Today, only 40 per cent of the top 50 agencies record margins
in double figures, it says.
A positive by-product of the harsh economic climate has been the higher
productivity of agency staffers, gross income per head having risen by
2.5 per cent in the four months to last September.
In real terms, profits earned per head by agencies are only 63 per cent
of those 11 years ago, the report concludes.
’The increase in below-the-line activity suggests clients want to target
markets more accurately and cost effectively,’ it adds. ’In some cases
the clients are also treating direct marketing agencies as their first
point of call for a wider range of services, sometimes including
In addition, media independents continue to win work from agencies.’
The downside is that agency profits per head - which stood at 100 on the
firm’s index in 1985 - should now be 156.3 if they had kept pace with
inflation rather than 98.