The agency model is broken, facing a massive exodus of talent
Over the past 18 months, the lifespan of advertising executives has begun to expire at an alarming rate: more than 40 major agencies – creative, media or digital – have replaced their top dogs. CEOs and creative directors were fired en masse, announcing they wanted to “spend more time with their families” or “pursue other interests”. A “talent drain” has transformed agencies beyond the work-from-home trend, the abundance of freelancing and insourcing.
There is a trade crisis looming on the horizon and the economy is teetering towards a recession. As agency employees empty their lockers and go out in increasing numbers, they take more than their personal belongings. They also take with them a lifetime of valuable institutional knowledge and skills that are difficult, if not impossible, to replace. This upheaval, a massive exodus of talent, is infuriating clients and posing significant challenges for brands when they need agencies the most.
Turnover has become the biggest problem for agencies during the pandemic. In fact, no industry has been more affected by this problem than Madison Avenue, not even the hospitality industry. The turnover in large agencies and holding companies can reach a trifle of 35% or 40% depending on the data that our firm collects. And, crucially, in an ominous sign of things to come, marketing firm, We Are Rosie, found in a recent survey that, 63% of agency talent say they intend to change jobs.
The flooding is particularly bad among middle managers, namely those in advertising between 10 and 20 years old. This is critical and harmful for brands. Middle managers are the backbone of agencies. Account managers, writers and art directors who are dedicated to a particular client account and take full responsibility for the end-to-end client requirements. They are passionate about the brand. They are problem solvers and productivity drivers, having the skills that are useful in keeping the customer happy.
This means that at the current rotation rate, an agency literally becomes a new agency in 3 years! It’s a staggering number. I became fully aware of this, when we started seeing a lot of the same people in the pitches we manage – just in different agencies…
When an agency is in a constant state of turmoil, replacement is an expensive proposition, and it affects the bottom line more than expense cuts or fee reductions. On average, hiring a replacement costs 40% more than retaining the one who left, in terms of salary, signing bonus and payment to the recruiter. It’s a huge expense for agencies and an explanation for why they’re downsizing.
And, in addition, there is another important cost to consider. In many cases, frequent turnover at an agency leads to the client severing their relationship with the agency after the contract period, and then establishing a relationship with a new agency. This is exactly what is happening at the moment and it is an explanation for the wave of creative and media pitches.
Talent retention is becoming a key criteria for selecting an agency right now, and how well a pitch is handled. We are starting to see clients consider turnover as a key KPI for agencies. Clients want to reward agencies that can maintain staff stability and penalize those that can’t.
The “grand exit” has weakened agencies and rendered traditional discourse irrelevant. Due to turnover, chances are that the people who impressed you in the pitch and trusted them with your brand will soon leave the agency. The ‘chemistry’ or ‘fit’, the way the agency team and the client team align, criteria that were once the primary reason for selecting an agency, must now be taken with a grain of salt. salt.
The advertising that agencies often offer in a pitch is also unreliable. Because agencies are understaffed, they are overly dependent on expensive, top-notch freelancers. These well-paid freelancers work behind the scenes, create the winning idea, then move on to the next pitch. For clients, this means you don’t get a clear picture of the type of work you would actually get from the agency.
It is estimated that 50% of the advertising industry could be independent within the next few years (the very idea of custom work is suspect anyway, given that 90% of “winning” ideas never see the light of day and , usually the work starts from scratch, with the client’s participation, right after the pitch).
Large agencies and those with a high percentage of newcomers have the hardest time coping with turnover-induced disruptions. Their customers, as a rule, are the most dissatisfied. In larger agencies, high turnover had caused a much greater deterioration in service than in smaller stores, and therefore led to greater customer dissatisfaction and broken relationships.
The post-Covid agency model must focus on stability, and an effective employee retention strategy must be data-driven. This forces agencies to measure both why employees leave the organization and why they stay. Agencies must have a strategic plan to improve retention and. And, most importantly, after the plan is implemented, they need to evaluate the results to assess the impact against the cost.
Establishing appropriate benchmarks, both external and internal, is a key first step in preparing to implement an employee retention strategy. Through external benchmarking, an agency should compare its turnover rates with those of the industry and competitors. Internal benchmarking will help an organization track its turnover rate over time.