February 21, 2020, Wyomissing, PA – As we start a new decade, Second Wind looks back to see how the smaller ad agency business has changed since 2010, using data from their 2019 Annual Agency Survey Report.
How do today’s smaller and mid-sized ad agencies compare to 2010 survey respondents?
AoR vs Project Fees, Plus Risky Operations
In 2010, 74% of agencies reported 53% of their clients were under agency of record agreements; in 2019, 82% of agencies report they have AoRs with 27% of their clients. Only 9% of agencies are paid on incentive-based terms in 2019, an increase since 2010 when just 3% of agencies used incentive-based compensation. The percentage of agencies paid on a project basis remains stable at 97%, but 10% more agencies (89%) than in 2010 say they also are compensated under retainer-fee-based arrangements by at least some clients.
An alarming 16% of agencies reported they gain 50-74% of total AGI from their largest account in 2019, with a terrifying 6% saying 75% of AGI comes from one client.
“It is extremely dangerous to have so much of your business dependent on a single ‘gorilla’ account,” said Second Wind COO Laurie Mikes. “If they ever leave, your agency will be devastated, and possibly never recover. Agencies in this situation should start pursuing new business immediately to reduce their dependency on that single big client. Strive for a mix of mid-size and smaller ‘bread and butter’ accounts to help balance cash flow and revenue creation.” See Second Wind’s guidelines for an ideal account mix and other useful management ratios in Numbers At A Glance.
Among good news is that in 2019, the average responding agency reported having worked with its longest-held account for 18 years; in 2010, the longest-held account ran to 15 years. Account relationship longevity is one benefit smaller, independent ad agencies can claim that most big holding company agencies cannot.
Changing Billing Practices and Tighter Collections
Billing is still predominantly done monthly (82%) or upon job completion (53%). But 59% of ad agencies now arrange pre-set milestone billing terms, allowing better control of cash flow. In 2010, just 9% of agencies reported using phased billing.
Average collection time on receivables looks much better than in 2010, when 81% of agencies were paid between 30-45 days after billing, and 15% waited up to 60 days. Reflecting greater stability in our and our clients’ businesses, 41% of agencies report being paid within 15-30 days of billing in 2019; 37% are paid within 45 days. Just 11% are accepting up to 60-day terms, and a scant 3% allow 90-day terms.
“Average collection times have fluctuated over the past decade,” said Mikes. “Following the 2008-2009 recession, clients pressured agency partners to wait longer for invoices to be paid, on top of reducing fees and accepting more project relationships. We have been coaching agencies to take a harder line on collections, and to shift focus from cost-based to value-based billing. In 2010, agencies reported capitalized billings as $13, 542,788; in 2019, capitalized billings hit $22,214,235. Stronger financial management and evolving billing strategies is helping agencies reclaim control of their financial health.”
Second Wind’s Annual Agency Survey Report is published exclusively for Second Wind members. This year’s survey is based on responses from 100 Second Wind member agencies. Copies can be supplied on request; contact laurie@secondwindonline.com.
Founded in 1988, Second Wind is a thought leader and innovator to the advertising and marketing community, dedicated to helping members and users “BE better.” Second Wind serves advertising, graphic design, public relations, interactive and marketing firms across the US, Canada and internationally.
In addition to annual surveys, members of Second Wind benefit from seminars and workshop opportunities, as well as daily access to research, professional guidance and online forums. Second Wind also offers a variety of training publications, available to members and non-members; please visit www.secondwindonline.com/books for more information. To learn more about Second Wind membership, call 610-374-9093 or visit www.secondwindonline.com/membership.
Contact: Laurie Mikes: 610-374-9093 or laurie@secondwindonline.com.
