Are New Agency Models Needed?

Call tracking software company CallRail has published a survey of more than 600 marketing agencies regarding their expectations, challenges, and services.

This latest survey offers some insights into the goals, outlook and profitability of the marketing services agencies. The results show some important weaknesses and reveals opportunities to improve, and for new marketing startups who offer the right value proposition.

The report doesn’t report on client satisfaction yet agency earnings are falling, so we can imagine they have cut back their expenditures due to performance questions. It doesn’t touch on too many specifics and we have to read between the lines. It’s profitable out there, with budgets in the tens to hundred millions of dollars.  Yet agencies report not having the right personnel and sufficient time or budget to find, test, and implement new technology tools.

The question we all have is, are digital marketing agencies worth the big price tag? Is investing in and launching a marketing startup a great idea? Will current agencies be able to adjust to the new technology driven market?

Most companies bring marketing inhouse with the belief that the agency has no real advantage. Yet this survey reveals specialized talent and comprehensive services are important to agency clients.

On our own we can agree that agencies have the power to do very well if they:

• build and communicate a powerful, genuine service value proposition
• use analytics to prove ROI and performance in campaigns
• shore up client’s weak confidence about marketing and sales
• integrate a broad array of services
• develop true expertise in some channels (SEO, content, analytics)

2022 Was Very Profitable

It seems 2022 was a very profitable year for agencies since 89% of them reported meeting or exceeding their revenue goals. And 98% are confident of 2023, and surprisingly they expect revenue growth of 43% this year. That’s down from 2021 when they had 54% growth.

It appears agencies are pulling back on all services including full service digital taking a 13% dive, and social media marketing almost disappearing. Paid social and marketing automation are now in vogue. Was social media marketing a sham, or do they simply lack the skills and time to do it well? Or have the social media sites simply shut down organic reach?

The service mix for agencies now is:

• full service digital 35%
• branding services 34%
• sales training 34%
• creative services 32%
• email marketing 32%
• web design and development 32%

Brand consulting, sales, creative and campaign execution are key benefits offered, but strangely SEO and content creation is not even mentioned. That’s very strange given that Google’s organic search channel creates most web traffic and leads which often require phone calls for lead conversion. Obviously, a few topics/generators are left out to support their service offering.  Since SEO is not well funded (it’s free?), it may not be a profit center for agencies.  Yet, would you hire an agency without advanced SEO capabilities?

Agencies say they’ve held back on growing offerings due to staffing challenges, economic worries, inability to validate ROI on new channels, and a lack of budget. The revenues you see below just don’t support that claim.

79% of agencies say they’re struggling with new client acquisition, although they have retained an average of 42% of their clients. That’s down from 2021 when they had a 53% retention rate. That means client churn is a problem. Agencies report they feel retention will be a big problem going forward.

Marketing Technology Tools

Marketing technology tools are thought of as essential by the agencies but they’re struggling getting time to test and learn them, afford the cost, and even finding which new digital software tools/services to use. For rich agencies, the cost of the tools isn’t that out of reach. I’ve mentioned many ai marketing tools in other blog posts and on good budgeting.

Those digital tools range from predictive analytics, to AI content generation, to AI personalization and funnel optimization solutions.

Strangely, the agencies report being very confident they have the digital tools to support client decision making in 2023.  78% of their marketing staff report being satisfied with their agency’s tools. Half of agencies report that new tools are closely tied to new business development and is one of their 3 top priorities.

Agencies report being able to track and report performance metrics, but no mention is made regarding success and ROI.

Where is Agency Marketing Headed?

Agencies consider AI, localized SEO and automation as merely fads. Instead, they said metaverse marketing, voice search, visual search, metaverse marketing, personalization, gamification, short form video, and over-the-top-streaming (content that is delivered directly to viewers via a streaming video service over the Internet) the goto trends of 2023.

Agencies feel clients are looking for more specialization, yet clients want a more comprehensive services and more comprehensive metrics.

A Very Lucrative Sector Which Should Open New Technology Doors

In terms of annual revenue, 3/4ths of the agencies surveyed earned between $1 million to $350 million. This is plenty of money to trial and train the AI marketing systems to optimize marketing campaign performance (personalization, predictive analytics, AI-assisted content generation, etc.).

Digital marketing agencies are making fantastic incomes yet face challenges of technology adoption, finding skilled staff, and providing the level of expertise clients may prefer. They say they’ve got everything needed to support decision making, but don’t seem to be making those critical decisions themselves.

Without trying out and testing new digital marketing technologies, devising and proving new value propositions, acquiring skilled talent, adjusting business models, and suffering from insufficient budgets, the future may not be as bright as they’re reporting.

With the rise of AI marketing automation, freelancers and consultants will gain ground on agencies. Talented freelancers often launch their own companies which takes talent away. Armed with automation and analytics solutions, smaller agencies and freelancers can outcompete.

To draw and retain key producers, agencies will have to invest in their own companies by discovering and leveraging new technology and recruiting better marketing talent. They’ll need to take the time and effort to research trends better and identify the tools that will make a difference to clients.

 

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