Big enough to grow. Small enough to delight customers.
After working in the agency space for 12+ years, I’ve found that marketing agency size is a key factor for determining its success or failure.
With the industry experiencing significant turbulence in the last decade, many marketers are unsure of how fast they should attempt to grow their agencies.
There’s a big argument to be made that the current market conditions greatly favor small agencies that can act contextually within high-demand niches. While large agencies have an advantage in resources and global reach, they have a disadvantage in their inability to make fast decisions. Smaller agencies are usually more nimble, while large agencies are better equipped for large-scale global campaigns.
Trends in the Advertising Industry
What’s the optimal size for an agency? To answer that, you’ll need to look at the major trends in the advertising industry over the last 5-10 years.
The most significant statistic is the increasing dominance of mobile ads. Internet advertising overtook TV for having the highest ad spend in 2017, with 52% of the digital ad spend going towards mobile-first advertisements. In 2019, it appears that digital ad spend will surpass all traditional ad spend for the first time ever.
Digital is by far the most significant context for marketers to work in going forward.
Meanwhile, the ad agency industry in the U.S. shows a lack of market dominance by any one player. There are 13,000 such agencies in the U.S. alone with a combined annual revenue of $43 billion. Yet, the top 50 advertising agencies account for less than 50% of total revenue. This is unusual considering the “long tail” distribution of many markets, and suggests room for niche players to find a strong footing in the ad agency marketplace.
Digital ads are revolutionary in ways that go far beyond the initial question of where to buy ad placements. The kinds of advertisements that thrive in a digital environment are of a different paradigm than traditional ads. The most successful digital ads tend to be highly targeted video, chat, and AI driven.
The interactive nature of digital ads is fundamentally different than anything that came before it. Hashtags and Instagram’s “swipe up” feature are two examples of marketing technologies that did not exist prior to social media.
The ability to track ROI to the penny and target individual market segments down to interests, age, gender and zip code make digital marketing a new force to be reckoned with.
Pros vs. Cons: Large and Small Agencies
It is not always best for a company to work with a large agency. While large agencies may have substantial strategic advantages and staffing resources in some areas, small agencies have their own advantages. The key is to pick the best choice for one’s company based on one’s goals and budgetary limitations.
Advantages of small agencies are numerous. They are often better suited to focus on niche markets that fly beneath the radar of the bigger agencies. Given the aforementioned fragmentation of the U.S. ad agency industry, for example, it is easy to imagine a well-positioned niche agency joining the ranks of the other 13,000 currently operating agencies in the country. Similar dynamics exist in other markets around the world.
Small agencies are more likely to have a personal touch and take care of customer happiness. If one works with a small agency, that agency is likely to be highly motivated, even hungry to prove themselves and do great work. A larger agency may be more focused on their biggest accounts, while smaller accounts are overshadowed or placed at a lower priority.
Large agencies have their advantages, too. They have enormous strategic insights that smaller companies can’t afford, and larger teams of well paid talent that are there for the long term. Larger agencies also have some of the strongest connections across the global media landscape. When it comes to bold marketing moves like Super Bowl ads or A-list celebrity endorsements, a large agency may be necessary for the influence and connections that allow them to close the deal. Larger agencies also are much better positioned to handle global marketing campaigns across different languages and cultures, as such campaigns require significant human resources and logistical fortitude.
Large agencies will tend to be more expensive, but also more reliable and experienced. Small agencies will tend to be more affordable, faster and more able to tackle innovation, but they are usually less reliable, with less funding, less experience and data to draw from. Creativity, depth and ingenuity are the name of the game for small agencies to make up for their disadvantages in other areas.
How Big Should a Marketing Agency Be?
There is a simple answer to the question about an advertising agency’s optimal size. An agency should be large enough to have the necessary amount of people, as well as the right kinds of people, to do the job it needs to do. However, agencies should avoid having even one more person than is necessary.
Any extra staff that isn’t necessary for the agency to succeed will result in two problems. First, it will increase costs for companies that want to work with the agency. Second, it will cause internal logistical bloat that slows down decision-making within the organization. Neither of these problems are affordable for a small agency, as each one cuts down the key advantages of being small.
A small agency will generally need to be more affordable and more relevant to its accounts than a large agency can be. This means a successful growing agency will identify the best niche to focus on, and then become the leader of that niche through hard work for its key accounts.
Remote Work Is a Game Changer
Small agencies have a new advantage in the modern workplace. Remote workers are now a common element of many businesses, especially small ones. This is crucial for agencies hoping to target a specific niche that appears to be a great opportunity. By tapping into the global pool of talent, rather than requiring applicants to be within driving distance of a company office, the likelihood of finding marketers who are experienced in the agency’s niche go up significantly.
Imagine an agency located in a medium-sized city such as Durham, NC or Sacramento, CA. Perhaps there’s a great marketer with experience in their niche and compatible expectations of work output and income. What if that marketer lives in Georgia? Remote work allows the agency to get the right people for the job, no matter where they live.
Many remote work arrangements are done as contract gigs, which allow extreme flexibility both for the agency and the marketer. This enables an agency to stay very lean during slow seasons, such as the first quarter slump after the holidays, while having access to massive resources during the busiest parts of the year.
Remote work could well be the secret weapon that small ad agencies have been looking for. It mitigates many of the disadvantages of being a small agency, while enabling safe growth even in a topsy-turvy economy.
The Perfect Size For Marketing Agencies
Many successful agencies make $1M+ per year with a small team of 4. That’s quite small and lean compared to the larger agencies!
But there’s no one-size-fits-all answer to “How big should a marketing agency be?” There are, however, several great principles that can be followed to ensure the right rates of growth over time.
Focus on carefully managing digital ad spend. Utilize new technologies, such as video, chat, and AI. Harness and harnessing the power of remote workers are all important for any agency to do its best work.
Big or small, your agency will need to adapt, but this doesn’t mean changing your strategy every day.
I’ve found that the most successful agencies don’t do a 180 every day. Instead, they maintain their long term focus on providing consistent results to clients, and end up building the best reputation for themselves and build the most value for the world.
About the blogger:
Chris Johnson helps Web Design Agencies unlock their potential and free up more time, by massively improving efficiency on all levels. He is the owner and operator of Upscale Method, a firm that helps agencies scale to the next level by narrowing and dominating your niche, land high ticket clients, learn from billion dollar agencies, boost client happiness, increase monthly revenues, leverage time and work smarter, automate, etc. For more information, visit upscalemethod.com, follow Chris Johnson on LinkedIn or on Facebook.