Small and Midsize Agencies Find Landing New Business Increasingly Difficult
A RSW/US survey revealed a bleak new business outlook and few plans to fix it
New business is drying up for agencies ill-equipped to find clients in a squeezed market.
This is according to RSW/US, the 18-year-old business development firm that works with ad agencies, marketing services firms and PR firms.
Since 2010, the firm has surveyed agencies to diagnose new business trends. This year, it fielded the survey over a four-week period and collected responses from 250 agencies, and small and midsize shops were the predominant respondents to the survey.
The findings concerned Lee McKnight Jr., the firm’s vice president of sales, who co-authored the research. Only two years ago, 28% of agencies found getting new business more challenging than it was during the previous year. In 2023, the number hit 58%.
Those agencies find their bottom line bearing down on them. The work’s dried up, whether because of economic conditions or competition from large shops. The data shows many agencies are out of plans to address these challenges, since few employ new business experts for long, if at all. This year, ad industry layoffs are abound, and if agencies can’t find some way to generate more work, it will become harder to stay in business.
“Agencies are particularly struggling, and have been in 2023, from a business development and new business standpoint,” McKnight Jr. told Adweek.
‘There is no plan here.’
Agencies found opportunities plentiful after the pandemic—so much so that there was more work than most agencies had the bandwidth to take on. Marketers restarted campaigns and redistributed budgets pent up during quarantine.
It didn’t last forever, though. The survey results reveal a bleak outlook for small and midsize shops. They report dwindling new business opportunities, with 61% experiencing those difficulties this year, up from the 39% that struggled last year and just 23% that struggled in 2021.
Economic conditions are behind the relative squeeze, but systemic issues are also at play. Smaller agencies overwhelmingly admit they’ve run out of new business strategies, or that those strategies never existed in the first place.
“There is no plan here,” an anonymous survey respondent wrote in.
The so-called new business ‘plan?’ That’s asking other clients for referrals. Of agencies that responded to the survey, 60% said their new business strategy hinged on them. That’s a large number of businesses entrusting their survival on word of mouth.
What happened to all the projects?
Overall, marketers are embracing fewer AOR relationships, opting to distribute smaller projects to a wider variety of agencies.
It should be a good thing for smaller shops, but McKnight Jr. fears large shops are still monopolizing opportunities. Rather than accept disruption, small agencies believe that more large shops should be unwilling to accept the smaller projects. Simply put, the big agencies are “playing down,” a survey respondent wrote in.
Meanwhile, it’s taking agencies longer to close deals with the prospective clients they do find.
Respondents said sales cycles (defined as the first client meeting to when a deal closes) are, on average, between one and six months long. That’s actually better than last year, but fewer agencies are landing deals fast. Last year, 11% reported sales cycles less than a month long, and this year, just 7% said the same thing.
The hiring problem
New business strategies are absent, agencies report, because of how hard it is for them to find and hire the right employees for the job.
In 2021 and 2022, “hiring for the new business director position at an agency [was] at its second-lowest level since we started this survey report in 2010,” McKnight Jr. said. Just 36% of responding agencies hired a new business director sometime in the last three years, painting a bleak picture of hiring trends. While 32% reported the same thing last year, the pandemic and the subsequent new business surge in 2021 might’ve contributed to hiring being exceptionally low then.
This year, agencies that found new business directors also found that those employees didn’t stick around long: 29% said they lasted less than a year in the role.
With no new business strategy to fall back on, McKnight Jr. said small agencies often rely too heavily on new business leaders’ industry connections. Eventually, those dry up, and any opportunities along with them.
Hiring new business leaders is also a challenge because they aren’t scoped to work on clients. The agency must cover their salaries, and that risks pulling down a small shop’s margins.
According to McKnight Jr.’s own estimate, smaller agencies are competing for accounts worth between $200,000 and $500,000, when leaving out media billings. It theoretically prevents them from hiring large new business teams comprised of senior, and expensive, employees with deep industry connections.
“It is very difficult—especially at midsize or small firms—for one individual to be in charge of new business. I wouldn’t say it’s impossible, but I’m getting close to saying that,” McKnight Jr. said.
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