Digital rates fall as clients 'wise up'

The days when digital agencies could blind clients with science and charge a premium for doing so appear to be over if the findings of a new agency study are to be believed, although many agencies are still growing at over 25% a year.
According to Econsultancy’s 2011 Digital Agency Rate Card Survey published this week, agencies have been forced to lower their daily rates since the last survey – in 2008 – across a raft of areas, including project and account management, creative, search engine marketing and media planning.
Those surveyed cite increased competition, staff recruitment and retention, declining client budgets and increased difficulty attracting clients as their biggest challenges.
The rise in competition supports the recent analysis of M&A expert Keith Hunt, managing partner of Results International, who claimed that social media agencies have just over six months to exploit the big marketing groups’ land grab in the sector before other agencies catch up with their specialist skills.
But despite a fall in day rates, agencies remain optimistic about their opportunities for growth. On average, digital agencies report that they will grow by 26% year-on-year in 2011, compared to an equivalent percentage of 28% in 2008 and 31% in 2005.
Econsultancy research director Linus Gregoriadis said: “The digital marketing sector continues to evolve and offer great opportunities for agencies who can provide clients with sought-after skills and experience. Agencies are still managing to grow their businesses despite more competitive daily rates. Even the largest agencies are anticipating average year-on-year growth of more than 20% in 2011.”
According to the report, daily rates for senior technical staff and data analysts have bucked the general trend by showing slight increases.
The research also found that the projected average increase in overall daily rates for 2012 is 8%. At 10%, the equivalent figure is slightly higher for the smaller agencies (under £1m turnover) but only 4% for the largest agencies (higher than £5m turnover) which is around the level of inflation.
The study is based on information provided confidentially by 364 UK digital agencies. The 2011 survey, carried out in June and July, follows similar surveys carried out in 2008, 2005 and 2003.
The report aims to give a clear idea about what UK digital agencies charge for different types of skills and levels of seniority, and to understand how and why rates may vary, for example by size of company and by region.
According to the report, the proportion of agencies surveyed with more than 50 employees has increased from only 5% in 2003 to 18% in 2011. One in nine agencies surveyed now has more than 100 employees.
Almost half of agencies (48%) expect more than £1m in revenues in 2011, while 10% have a projected turnover of more than £10m. A further 6% are expecting earnings of £5m-£10m.
The most frequently cited opportunities for growth within the digital agency market include the growth of mobile and social media, data integration and analysis, and providing behavioural customer insights across multiple channels.