Design is alone in seeing profits rise
Design and branding is the only sector in the marketing mix that has seen its average profit margins rise over the past six months, according to a new report.
Source: Howard Lake
The Kingston Smith W1 Marketing Monitor shows that design and branding saw a 0.5 per cent increase in profitability in the first six months of 2012, with profitability (operating profit measured as a percentage of gross income) standing at 10 per cent.
Kingston Smith W1 says productivity had continued to rise in the sector. It says, ‘Having continued to maintain headcount and control costs, design consultancies are now achieving results similar to those before the recession.’
It adds, ‘Design businesses reacted swiftly to the economic downturn, cutting costs and reassessing their staffing requirements, and are now reaping the rewards.
‘They have continued to improve their productivity and profitability, albeit at a slower rate than the previous six months.
‘The continued challenge for the next six months will be to maintain these levels during what remains an uncertain economic time and in the face of continued pressure from clients to keep costs down.’
The branding and design results compare to the PR sector, for example, where profitability dropped by 0.6 per cent due, Kingston Smith W1 says, to increased costs and pressure from clients to work for lower fees.
Digital was the least profitable sector, with operating profit margins slumping to a new low of 3.5 per cent, down from 4.7 per cent in the previous six months, with Kingston Smith W1 predicting that the low results might force some digital consultancies to close.
The report also notes an increase in mergers and acquisitions activity, with recent deals seeing WPP buying AKQA and Aegis’s agreed sale to Dentsu.
Kingston Smith W1 says, ‘With the big advertising companies building up their digital capabilities as marketers shift spending from traditional media to the Internet, mobile applications and other digital formats, others will be sure to follow, so we expect more deal activity in the future.’
It adds, ‘For now, independent agencies must continue to keep up with the ever-changing digital landscape, deliver innovative campaigns, and keep the pressure on overhead spend. Agencies must also continue to resist clients’s pressure for more work and lower fees.
‘If these steps are not taken, it is highly likely some digital agencies will be forced to close, as the low margins experienced in recent years will have used up valuable working capital and borrowing in this economic climate may not be an option.’
The Marketing Monitor is compiled every six months by surveying consultancies across all marketing disciplines.
As well as design and branding and digital, it also studies the advertising, PR, media buying and direct marketing sectors.