Sales promotion agency employment costs rocketed by 21 per cent last year depressing accumulated growth in the marketing sector, according to the latest Fees and Remuneration Survey by accountants Willott Kingston Smith for the Sales Promotion Consultants Association (SPCA).
The association surveyed its 41 member agencies and compared results with members of its US equivalent, the American Promotional Marketing Association.
The rapid rise in employment costs has meant that, despite SPCA members recording an average seven per cent rise in turnover and a 14 per cent rise in gross income, operating profit has fallen by one per cent.
SPCA chairman Matthew Hooper attributes the increase in promotion agency wage bills to the lack of skilled and talented people in the industry.
Hooper says the move by many in the industry into the dot-com sector had contributed to a decreasing pool of talented professionals, but clients had continued to expect the same level of service.
Hooper maintains that wages had to increase to motivate those who stayed in the industry.
The report suggests that one of the most worrying developments is the fact that other overheads had increased more slowly than gross income, disguising the ballooning cost base. It says that if overhead increases such as property rents had kept in line with gross profit increases, operating profit could have fallen by as much as 22 per cent.
Figures comparing the US and UK promotional consultancies showed a significant difference in one area – the split between retained and project work.
US consultancies showed a split of 70:30 between retainer fee and project work, while in the UK the split was much more even, with 48 per cent of income accounted for by retainer fees and 52 per cent project work.