The 40 largest digital agencies increased their operating profits by 56% between 2006 and 2007, according to the New Media Agencies Financial Intelligence report. The surge in digital advertising and agency consolidation are the key factors in the growth.
The report, which covers agencies such as Outrider, LBi, Poke London, AKQA and Start Creative, also that the agencies surveyed kept their operating profit margins low, averaging 8.3% compared to a compared to a historic benchmark of 15% among traditional marketing agencies.
But it says that staff costs have taken their toll revenue for the period from mid-2006 to mid-2007, averaging 57.1% among marketing agencies and 53.4% overall. This may due to a reluctance to charge clients an adequate fee and expensive freelance work.
Bob Willott, the report’s editor (pictured), says: “Profit margins and staff utilisation levels varied enormously from the impressive to the depressive.”