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Digital agencies are struggling with staff efficiency, and unless clients realise the long-term benefits of digital it will be difficult to improve, finds Jennifer Whitehead
Managing margins has always been tricky for digital agencies - and it isn't necessarily any easier just because times are good. But unless digital agencies can crack the efficiency issue now, they risk harming their long-term ability to compete with traditional shops that are eyeing up the sector again.
Figures compiled by NMA for its Top 100 Interactive Agencies 2006 guide showed that only three web design & build agencies and three digital marketing agencies had managed to maintain consistent levels of efficiency - that is, they were ranked among the top ten most efficient agencies, based on the amount of turnover that each employee delivers, two years in a row. These agencies were Lightmaker, Global Beach and Gurus on the build side, and Profero, CMW Interactive and Web Liquid on the marketing side.
NMA's research reflects figures published last November by specialist accountancy firm Willott Kingston Smith in its annual 'Financial Performance of Marketing Services' report. It showed that agencies providing digital services recorded an average profit margin of 9.6%, the lowest for any discipline except design.
This compares with margins of between 12% and 13% at agencies working in disciplines such as direct marketing, traditional advertising and media planning. Having said that, the figure is moving in the right direction, up by 0.6% on the previous year. But it's still well behind other areas of the marketing industry.
Willott Kingston Smith's productivity figures for digital agencies showed an average of pound 79,400, ahead of design agencies but below other marketing disciplines. Overall productivity for NMA's top 100 agencies in 2006 averaged pound 73,139.
High expectations
Why is this? The answers put forward by the agencies themselves are varied, although common themes recur: the problem of client expectations, their understanding of the medium and the budgets they're putting towards it.
Clients and potential clients still expect quite a lot from their agencies, without putting the necessary budget behind it. This is a complaint often repeated by design & build and marketing agencies, which can be victims of their own determination to continually innovate.
Dan Northover, executive creative director...