Agency CEOs See Double-Digit Profits in Digital and Interactive As Shops Embrace Technology

Release Date: 05/17/2010

DENVER—Digital and interactive services are ubiquitous among independent advertising agencies with over two-thirds of the 49% of the agency chief executive officers recognizing a profit from digital and interactive saying margins are in the double digits.

According to the recently completed survey of chief executive officers of the independent advertising agencies comprising Worldwide Partners Inc. owner-operated network, 70% say digital and interactive services are part of the client offering. Just under half of the CEOs in that group say that digital is profitable (33% say that they do not track digital’s bottom line contribution separately and 15% say it isn’t profitable). Among the CEOs who track digital and do generate a profit from it, 35% report margins in excess of 20%, 8% report margins of 16%-20% and 27% of the respondents report margins of 10-15%.

“There aren’t too many offerings from agencies that generate double-digit, much less high-double-digit, margins these days,” says WPI president and CEO Al Moffatt. “Given the lack of barriers to entry and the infinite capacity of web and mobile, digital and interactive services will help level the playing field for independent agencies like the ones in our network. And as localization becomes more important in digital, this is where creativity, brains and agility matter more. It’s no wonder so many of our partner agencies are invested in it and that 70% of the group turning a profit from digital reap healthy margins.”

Moffatt says another interesting finding of the “C-suite” research gathered by WPI is how digital assets are deployed within the agencies. Among those who cultivate digital and interactive services as a client offering, 79% say digital is embedded in the core agency departments. In creative, 54% of the respondents said the staff works on general creative projects that include digital (34% responding that they had a devoted digital creative staff). In account service, 68% of the respondents say that their account executives worked on digital and non-digital assignments. In media, 65% of the CEOs responding say their planners and buyers worked on traditional and digital assignments.

“Independent agencies historically have way fewer, if any, silos compared to the traditional global agency networks which are built on silos,” says Moffatt. “It’s natural for disciplines to be integrated given the scale of the agencies in terms of head count and that encourages collaboration among the various disciplines. It possibly explains why most partners don’t track digital separately. It’s part of the agency’s core and not a graft.”

Not surprisingly, according to the survey, 59% of the respondents say that their digital staff has grown over the last 12 months and 88% say “yes” when asked if their digital staff would increase in the next 12 months. Project managers, website designers, content developers, interactive media planners and buyers, statistical web analysts and social marketing experts were the most prevalent job descriptions in demand at the agencies planning to staff up in digital.

The WPI survey was conducted in April and 43 agency CEOs responding on a global basis. Slightly over half are based in North America, 56% of the respondents were in the Europe, Middle East and Africa region, 27% of the respondents operate agencies in the Asia Pacific region and the remainder in Latin America.