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After a brief economic dip in 2020, the digital agency industry was one of the fastest to recover. And bloom.
How much so? According to the SoDA Report on the Global Agency Landscape 2022, 51% of over 150 respondents labeled 2021 as one of their agency’s best years ever.
Still, the tables can turn quickly—even in the digital realm.
To get insight into the current outlook for the agency industry, we asked experts across the globe how they see the near future.
In a virtual roundtable discussion, we joined industry leaders to share their recent experiences and forecasts:
Do you think the agency business will be negatively affected by the global recession, and how?
Martijn Pilich, Hike One: The oncoming recession presents challenges, but also opportunities. We expect that:
It will be more difficult to acquire and retain clients, as their spending power will decrease
It will be easier to recruit and retain talent, due to a weaker labor market
Michelle Pittell, Brand Labs: I do, especially seeing the trend with major tech companies laying off. I think clients are cautious, especially coming straight from the intensity of the pandemic and it’s creating a noticeable gap in service.
Roberto González, Aerolab: Definitely, recessions tend to make people more conservative and tighten their budgets, meaning most exploratory and creative projects tend to either get cut back or postponed.
Daniel Ackermann, Degordian: I think this crisis will be different from others. The good thing is everybody is expecting it, the bad thing is it will be different and hard to understand. How it will impact the agency business is hard to say at the moment, but in my opinion, we could see the following few trends:
Bigger focus on short-term projects
Slightly less demand for services (traditional agencies might be more affected by this compared to digital agencies)
Softening of the labor market
Decrease or stagnation of advertising budgets
Andy Parnell, LaneTerralever: While the agency business will be somewhat negatively affected, it’s looking like it won’t be as long-lasting as previous recessions we’ve experienced before. Though I’m not an economist, from my perspective, it will be a shallow economic slowdown but with moderate impact.
Thomas Joos, Hypernova: The agency business, just as any other business industry, will experience negative effects due to the global recession that is probably coming towards us. If we want to anticipate what’s coming, it makes sense to have a look at the past and what we can learn from other global recessions. In their 2010 HBR article “Roaring Out of Recession”, Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen published their learnings and observations after studying three recent global recessions.
What’s interesting here is that many CEOs go all-in on defense: reducing operating costs, lower headcount and preserving cash. They also postpone investments in R&D, new business or other new assets. This prevention-focussed strategy has a direct impact on the agency business. In the end, most agencies are hired to help achieve business development or operational performance goals. Chances are high that some customers will slow down on these investments and cancel or postpone projects. And those that continue are probably going to fine-tune cash flow and renegotiate payment policies and schedules.
Marc Wesseling, UltraSuperNew: Yes, a bit, but Japan is always behaving differently than the rest of the world so in a way, I am not super anxious about the coming recession.
Do you already see signs of the recession with clients?
Michelle Pittell, Brand Labs: Definitely. Work required to keep websites running and businesses operational is a necessity, but the “nice to have” items are on hold for most clients that aren’t benefiting from the recession in some form.
Thomas Joos, Hypernova: On a monthly basis, I usually directly work with 20 creative and digital agencies and interact with 400+ agency founders through my private community. In the first two quarters of 2022 I didn’t see any clear signs yet, but that is changing in Q3. Some of the agency founders I work with have reported a few suddenly canceled projects or collaborations, even though the results were positive and no specific issues had emerged. It’s the typical CEO survival mode at the client’s side that leads to these kinds of decisions. Another sign that’s popping up is the sudden renegotiation of monthly recurring payments. Some companies are already starting to downsize the agency’s budget or even considering moving to a cheaper competitor, often located in countries with lower salary standards.
Marc Wesseling, UltraSuperNew: Yes, we have one client that gave us a 30% budget cut (the client is a US-based computer company), but on the other side, we have our luxury car producer client who cannot deliver new cars fast enough, with a waiting time of 12-18 months. The biggest sign of the recession I see in the media: it feels like they’re dying to see a recession.
Martijn Pilich, Hike One: We hear that some clients have more difficulty funding new projects, but we do not see this reflected in our order book at the moment.
Daniel Ackermann, Degordian: I think we still aren’t in recession, but there is a lot of uncertainty and caution on the market which is already affecting agencies. For example, our YoY growth in Q2 decreased and I think this is the reason.
Roberto González, Aerolab: We work with a lot of startups and VCs are getting a lot more conservative, in stark contrast to the 2020 bull market. We’re seeing much smaller investments, going into more recession-proof businesses like fintech, health and retail.
Andy Parnell, LaneTerralever: Yes, our agency has already had multiple projects canceled or postponed due to clients pulling back and becoming a bit more wary on spending at this point in time.
Are you seeing a slowdown in new business acquisition due to fear of recession?
Daniel Ackermann, Degordian: Yes, we are. As I said, I think there is a lot of uncertainty and caution in the market in that decisions are made slower, more hesitantly, and when they are finally made, they tend to be more short-term and cost-oriented. And that affects new business.
Roberto González, Aerolab: Yes, but while demand is down on companies working on things like social networks, media or crypto, quite a bit of that demand moved towards startups that help companies reduce costs and work more efficiently, so we managed to keep business steady with that refocus.
Michelle Pittell, Brand Labs: While I can’t say with certainty that the cause is fear of recession, I think it’s safe to assume it’s playing a major part. Clients are looking to stay with the trusted and tested partners they’ve already come to know and waiting it out for non-essential items.
Marc Wesseling, UltraSuperNew: Not really. We’re an independent and agile agency and for us a crisis is usually good, because it pushes clients to go for more cost-effective ways to advertise their product or services.
Thomas Joos, Hypernova: At this moment I’m not seeing a specific recession related slowdown in sales performance. For most agencies I work with, the third quarter often slows down due to the summer holidays. We’ll have to wait for September to see whether or not the business acquisition will speed up as it normally does.
Andy Parnell, LaneTerralever: While our summer has been very slow, we’re seeing several things: our lead volume has increased, and our win rate has decreased due to clients being conservative about spending. I recently sat on a roundtable with several agency leaders from around the globe, and it’s across the board that we’re all experiencing the same challenges.
Martijn Pilich, Hike One: At present, we are not yet seeing a significant decline in the number of new clients or average order size, but we are preparing for this. Because we have long-term agreements with many of our clients, macroeconomic changes affect our business relatively slowly.
Do you think that the COVID-19 scenario or a worse one regarding furloughing could happen again during this recession?
Michelle Pittell, Brand Labs: While I’m generally an optimist, I’m also a realist and I think we’re in for something this fall/winter.
Marc Wesseling, UltraSuperNew: No—it will be completely different, from what I hear from analysts.
Martijn Pilich, Hike One: I do not expect that the extent of the recession will be such that we will have to part with permanent employees. Our flexpool gives us enough room to respond to changing market conditions.
Roberto González, Aerolab: We don’t see another pandemic as something likely, but we are expecting this recession will take a year or two to recover. We’re even seeing the real estate market getting shaky, bringing flashbacks to the 2008 crisis.
Daniel Ackermann, Degordian: This is totally different— the COVID crisis was extreme but short. Monetary policies of low-interest rates, quantitative easing, and other stimulants brought the economy back. But, as a result of that, this situation of super strong inflation, supply chain, commodity, and talent crisis happened, which is, in addition, fueled by war. Economies have to cool off with new monetary policies which will probably decrease the inflation rate, as well as GDP, and ultimately increase the unemployment rate. I am not optimistic about the economy and I think we will be reading more and more bad news on this topic.
Andy Parnell, LaneTerralever: As mentioned before, I do not think this slowdown will be as long-lasting as previous economic slowdowns (COVID induced slowdown included), so I do not foresee major cuts happening.
Thomas Joos, Hypernova: Yes, it could definitely happen. If recession triggers such as inflation and high interest rates keep increasing, companies will re-evaluate their external investments and some agencies will see a drop in revenue. If this drop is difficult to manage or overcome, then those agencies will be forced to downsize their costs and headcount.
Last, but not least, have you already taken some measures to prepare for the recession and if yes, which ones? If not—why not?
Daniel Ackermann, Degordian: For now, we are monitoring the situation closely and already have offensive and defensive tactics ready to put into place if the time comes. I think it is important to be ready for the next period, but also to take advantage of that period. As Churchill would say: “Never let a good crisis go to waste.”
Michelle Pittell, Brand Labs: We’ve been focusing on managing our expectations and our cash reserves. Businesses have goals each fiscal year and it’s essential to adjust expectations to the industry climate to help manage stress and team morale. When we’re slow we focus on giving extra love and attention to our existing clients and honing our craft and strategy.
Andy Parnell, LaneTerralever: From a marketing standpoint, we have already implemented changes in business categories to lead our current efforts. This means that we’ve identified certain industries we expect to do well (or even flat) during these times (Higher Ed, Utilities, Healthcare, etc.) and will focus more of our short-term attention from a lead-generation standpoint on those.
Martijn Pilich, Hike One: Because we got through the corona crisis relatively well, we can use the recession to further strengthen our position. We do this in three ways:
We have increased our sales and marketing efforts
We have tightened up financial management
We have increased our investment in talent development
Roberto González, Aerolab: A nice side effect of coming from an unstable country is that we’re always prepared for a downturn. This means always having 6+ months of expenses on hand and closely following our payment chain, as that’s the first thing that breaks in a recession.
Thomas Joos, Hypernova: During the first two years of the Covid-19 pandemic we noticed the same prevention strategy happening. Many agencies saw a bunch of projects canceled or postponed and had to redesign their business plan. I’ve advised all the agency founders in my community the same 5 things:
Identify all operational costs you can cut and take action
Avoid layoffs whenever you can, as it creates chaos, stress and uncertainty within the team
Apply for temporary unemployment support if possible
Take some time to evaluate your services, proposition and overall relevance
Talk to your customers and find out how you can help them or at least strengthen the personal relationship. Identify what they need and how your team can provide help
These tips have helped many agencies anticipate the pandemic and proactively seek opportunities. As described in the HBR article, a mix of defensive and offensive tactics offers you the highest probability to survive and/or thrive. I saw a huge amount of creativity and solidarity and what’s more important: not a single one of the agencies I work with has gone bankrupt. They all survived the pandemic and got back up to speed.
I’m confident that these tactics and tips have helped them become the best possible version of themselves, and that it provides a way of dealing with the recession proactively. When things get tough I’d like to remind myself of the one thing that we as humans do better than any other species on this planet: we anticipate, survive and evolve.
Marc Wesseling, UltraSuperNew: Flexible contracts and keeping an eye on cash flow. Also keep the team informed about the next steps but we do that anyway.
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