Originally posted on Forbes by Avi Dan, September 26, 2022.
The repercussions of management instability are fierce and underline the post-Covid turmoil on Madison Avenue. According to consulting firm Forrester, in the last couple of years, a mind-boggling number, 50,000 ad people, lost their jobs. And, a recent survey by marketing firm We Are Rosie, found that 63% of agency talent say they plan to leave their agency in the next year.
The hollowing-out of the industry comes about as distressing long-term trends continue: Forceful economy headwinds; more in-housing; smaller media budgets; longer payment terms; dwindling agency fees; and shorter agency tenure, as advertisers are speeding up the agency replacement cycle.
Large agencies, and those with a high percentage of newcomers, have the most trouble when dealing with these unexpected disruptions. Their clients, as a general rule, are the least satisfied. In larger agencies, high turnover had caused service to deteriorate significantly more than in smaller shops, where the principals are involved directly in the business. And, unfortunately, this can result in greater client dissatisfaction and the breakdown of relationships.
Turnover has become arguably the biggest problem for agencies. The turnover in the big agencies and the holding companies can reach now a whopping 35% or 40%. That means that at the current rate of turnover, an agency can literally become a totally redone agency every 3 years!
When an agency is in a constant state of turmoil, replacement is a costly proposition, and it affects the bottom line. On average, hiring a replacement is 40% more expensive than retaining the person who has left, in terms of salary, signing bonus, and payment to the recruiter. That means that in order to protect their bottom line, agencies that are afflicted with high turnover are forced in vicious cycle of laying off staff.
We are encouraging our clients to start treating staff turnover as a key KPI for agencies. Clients should reward agencies that can maintain staffing stability and make this a part of their business model and strategy, and, ultimately, penalize the ones that can’t. Turnover is directly correlated to optimizing returns and attracting the best talent.
The pressure on agency leaders to deliver immediate results now is immense, and often unfair. It reflects the transformation of the industry from small, privately held firms to giant publicly held companies. Meeting short-term earnings targets supplants a client-focused culture that emphasized creativity and service. The pressure for income is paramount. And, in a slow-growing environment it became a zero-sum game, with many more losers than winners.
Stability matters because the lack of it can lead agencies to a fire-fighting mentality of trying to put out one hotspot, to the next, and be on the fringes of being out of control. High turnover is a sign of a lack of reliability, lack of clarity, and hence, anxiety by staff and clients about what to expect from moment to moment.
In my experience, the best agencies are, paradoxically, both stable, and eager to take risks. These agencies have a culture centered on confidence – which becomes their backbone.