Should clients be concerned when an agency's billings skyrocket but staff numbers plateau? One agency insider has accused agencies of “squeezing staff and profits” in the wake of new RECMA figures, but media agency head honchos have scoffed at the claim. It's all about efficiencies and business models. And maybe billings to headcount is no longer an appropriate metric.
RECMA's latest figures for Australia compare media agency billings and staff numbers at the 15 highest billing media agencies in the country, between 2011 and 2012. Overall staff numbers at the major agencies have risen from 2,183 staff members in 2011 to 2,419 in 2012. Billings have increased 12%.
At face value that is good news. But one senior industry figure, speaking off the record, highlighted tht some agencies have picked up big chunks of business without corresponding headcount increases. That's bad news for clients, he said.
“If billings have gone up by a certain percentage and staff count has not gone up by a similar ratio, then it means the staff already at the company will be working that much harder to handle the new client,” he said. "If you're the client, how is that going to make you feel? Probably that you are being squeezed."
“It makes me really mad. An agency promises certain staff will be on the business, and it probably makes this promise to win the business, but then how much time is really being put into the client? This is an example of agencies squeezing profits out of the clients they already have. And what does it mean for the people doing the work? It means they become stretched.”
RECMA 2012 data suggests that Mitchell & Partners, UM, MEC, Maxus and Initiative have achieved higher billings to staff ratios. But they collectively argued that a comparison between staff and billings is an inadequate measure.
MediaCom was the highest billing agency on the list and reported 20% billings growth between 2011 and 2012. Its staff numbers remained exactly the same.
"I know what they're trying to say," MediaCom chief executive Mark Pejic told AdNews. "'You've grown $200 million so it must be a sweatshop.' It's just ridiculous. The numbers between 2011 and 2012 may not reflect it, but from 2010 to now we have increased our staff numbers by 70-plus people. This has been reflective of the $200 million-plus in new business we have put on.
“We run an efficient business, and we need to, because that's what clients are demanding. Of course there are ratios we work to, but just because there is an increase in billings there doesn't have to be a matching increase in staff. It really depends on the scope of the work the client is asking for, and whether they are asking for diversified services which require more staff. Of course, you don't want to burden your existing staff.”
Mediabrands-owned agency UM experienced a 10% increase in billings in the relevant period, but staff numbers dropped from 195 to 172, a 12% decrease. The company's chief executive Mat Baxter explained the difference as a result of “the fact that RECMA favours certain business models”.
“When we land a client, all of the billings are attached to UM, but a large amount of the diversified services will be handled in other Mediabrands' agencies like Reprise and Ensemble. So the staff impact is felt elsewhere in the Mediabrands business, and RECMA won't record this. Growth in Reprise staff has doubled, but this is not counted in UM's tally.
“This is a function of our business model. Other agencies handle all of their diversified services under the same agency brand, so when more staff are brought in to handle diversified services on new clients, you see a growth in the agency's employee numbers. That's not the case at UM. Both business models are valid, but RECMA favours one model over the other.”
GroupM agency MEC delivered 10% billings growth with only 5% more staff. MEC chief Peter Vogel argued this was close to the correct ratio. "If billings go up 10%, you expect staff count to go up about half that."
Vogel said that as agencies become bigger, they become more efficient. He noted that new technologies like trading desks mean enable agencies to increase staff efficiency. “Staff aren't working any longer hours, but they are able to handle more billings because of more efficient business systems. We're not turning into sweatshops. We're automating things.”
Mitchell & Partners was the third highest billing agency on the RECMA list. Its sudden drop from the top spot could be due to a change in methodology from RECMA, or structural shifts, but this remains unclear. The agency recorded an 11% decline in billings, but staff numbers significantly outpaced this decline, dropping 24%. Mitchells had not responded to request for comment at the time of writing.
Initiative recorded a 1% increase in billings but a 14% decrease in staff numbers between 2011 and 2012. The agency did not wish to comment.
Maxus grew its media billings by 38%, while its staff numbers grew just 14%. In fact, of all the 15 agencies on the RECMA list, Maxus displayed the highest ratio of billings to staff, meaning the billings per staff member was higher at Maxus than any of the other agencies. A useful comparison can be drawn between PHD and Maxus. Both had roughly equal billings in 2012 ($369 million for Maxus and $338 million for PHD), but PHD employed 135 staff while Maxus employed 56.
Maxus boss Jon Chadwick told AdNews that the agency had invested in 2013 with headcount now at 66. “We have been staffing up to keep up with our sharp growth in billings. We are a nimble organisation and have been growing our billings quickly.
“The nature of Maxus is that we have a lot of single brand advertisers as clients, so we only have to focus on a single brand of a company. Also, a lot of our clients are challenger brands, which have dynamic and focused structures, and our internal structures reflect that.”
There were many agencies on the RECMA list whose staff growth outpaced that of their billings growth, including OMD, ZenithOptimedia, Carat, Ikon Communications, Starcom MediaVest, Mindshare and PHD.
PHD had one of the strongest billings to staff ratios on the RECMA list, with 135 staff members handling $338 million in billings. The agency reported 10% billings growth and 29% staff growth between 2011 and 2012.
PHD national chief executive Mark Coad said there is a “very clear assumption” that if the scope of an agency's work increases “then the head count should increase proportionately with it”.
However, he did caution against reading too far into a comparison between RECMA billings and agency staff numbers. “Once upon a time, billings and headcount were far more closely linked, because all agencies did was planning and buying. But now agencies are building their capabilities in areas like content, mobile, analytics and econometrics, and these drive revenue and not billings. You might find that revenue and head count are more closely linked these days than billings and head count.
“If head count is accelerating faster than billings, you might conclude the agency is building its additional capabilities, while if billings grow faster than headcount, you could assume they are really peddling,” he sugested.
Coad also questioned reporting methodology. He suggested that different agencies might define headcount in different ways, due to the structure of their business. “Some agency groups do not house their support services within each agency brand, but within the holding company, so perhaps these staff numbers would not be counted in the RECMA figure. Other agencies, like OMD and PHD, hold all the staff under each agency brand, so all the support staff would be counted by RECMA."
ZenithOptimedia agreed. The Publicis unit's billings remained flat between 2011 and 2012, while staff numbers grew 6%.
“Billings are a blunt instrument for measuring the size and success of an agency, and they are a lag indicator rather than a lead indicator," said chief executive Ian Perrin. "Lots of staff growth isn't even linked to billings."
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