Entrepreneurism, growth metrics and quality people are the key to commercially successful agencies in today’s cutthroat market.
That was the verdict from a panel session on agency business models at AdNews L!VE Perth.
SI Global director Australia Julia Vargiu said holding companies and private equity (PE) firms are accelerating their acquisition strategies, targeting high-performing independent agencies to strengthen capabilities.
"What they look for is year-on-year growth of minimum 10% but more likely 20%," Vargiu said.
"They're also looking at profitability, you want to be in the high teens to kind of low 20s - ideally 18% to 25%. If you're lower than that, depending on what your specialisation might be, you might be able to get away with something lower but for the most part they won't be able to have a look at you.
"If you have profit that's too high they don't believe you can sustain it, so while it's great business, it can be quite hard to sell."
Other metrics include a staff-to-cost ratio under 60%, revenue per head of about $200-250,000 or higher and an EBITDA of around $3 million AUD.
Specifically in a smaller market like Perth, agencies have the opportunity to experiment and try new commercial opportunities to gauge for success.
For local agency Marketforce, this has meant launching 10 businesses in seven years - that's over one per year. Three have been successful, with the entrepreneurial approach proving successful in the long run.
"The one is probably the most stand out player is our content marketing and animation business, which launched six years ago with zero clients, one person and zero technology," Marketforce chief executive officer Adam Marshall said.
"The first three months of that business the money was not coming in, the costs are going out.
"But because of the perseverance of the people and the understanding there was a niche in our own operating system that business has gone through different step changes of growth, and is today a seven figure revenue business that is contributing to the bottom line and as to our suite of services."
Audience360 commercial director Nikki Staveley stressed the importance of cost, technology and having the right people as the secret sauce of agency success.
"It's about having the right platforms, but those platforms cost money and they're expensive, but we need to work out what those right platforms are for our business," Staveley said.
"Then underneath that, you've got to have the right people, and you need people to power those platforms. I think there's a misconception that when you have the right platforms and automation that maybe you don't need as many people.
"I don't agree. I think you must have the right people to power those platforms, because otherwise those platforms don't work and you're wasting your investment."
AdNews would like to thank supporting partners Nine, Audience 360 and Nexxen alongside associate partners JuiceBox, MiQ and LiSTNR for making the event possible. As well as Friends of AdNews WAMA, PADC, and IMAA.
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