Willott Kingston Smith's survey into the state of the marketing
services sector, published this week, is a useful barometer of the
agency world's health. And despite the fact that the period it covers
was the boom of 2000, it is a welcome antidote to the anecdotal evidence
of job cuts and recession gripping consultancies.
The most heartening sign is of consultancies taking profitability more
seriously than before. Average operating profit margins are now nudging
14 per cent, close to what the WKS consultants say is the optimum for
balancing staff satisfaction with shareholder value.
Most agencies still fall short of the ideal level of staff cost to gross
income - 50 per cent, if overheads and profit targets are to be covered.
WKS estimates that to provide a return to investors and pay your team
enough for them not to leave, agency heads need to spend half their
income on staff. The current average agency rate is nearer 54 per cent
and will need to drop if companies are to be saved.
As managers make staff redundant in an effort to align costs with
declining income levels, those left behind also have a role to play in
maintaining their employer's profitability. It may not feel this way
yet, but pay restraint now will save excessive jobs being lost as the
economic downturn continues through to at least the end of the second
quarter of 2002. It will also help save all but the worst run companies
from going out of business.
