Fighting Inflation: The Creeper returns and this time he’s after your agency

Simon Quarendon | May 21, 2021

The fictional manhunter from Jeepers Creepers only appears every 23rd Spring. Surprising, tormenting and scaring his victims, he uses the scent of fear to decide what he feeds on.

Much like The Creeper, inflation rears its head every so often. Driven by surge demands and shortages, it also torments unprepared and vulnerable businesses, particularly in overpopulated industries. Only the smartest tend to survive.

The Creeper from Jeepers Creepers
The Creeper from Jeepers Creepers

You need to go back to 2011 to see inflation’s last spike (6%), and even further to 1981 to see the last time double-digit inflation was recorded (10%).

(That’s ancient history to most people so I won’t mention what it was like in 1975 when it topped 25%: Suffice to say it was scary!).

Successive governments have done a great job keeping this particular nasty locked up, but the signs are it may be about to escape.

For marketing and creative agencies in particular, this is going to cause some sleepless nights because they are, by and large, supplying services in an over-supplied market.

That means they’ll have virtually no chance of passing on increasing costs onto their customers as raised prices, and with a cost base largely made up of labour – whose prices are rising dramatically with the ‘war for talent’ – that means profit margins will be further squeezed. Which makes some agencies extremely vulnerable.

Recent articles in both the UK and US press – along with comments from government spokespeople, industry analysts and other commentariat – suggest the ‘spectre of inflation has spooked the market’ and that alone may cause a stampede of sorts.

‘Inflation may be around the corner, so I’d better put my prices up’ is the sort of behaviour that fuels inflation. And once fuelled, is a very difficult beast to tame. Hence everyone’s concern.

If you consider the plight of the marketing and creative industry in more detail and what options are open to it to mitigate the worst effects of inflation; pricing plays a key role here. But some agencies, instead of putting up their prices, may have to reduce them.

Why? Because as the economy comes back to life so the gig economy will too, bringing with it an untold number of new suppliers with close to zero cost bases and a huge appetite for work.

Addressing The Demand Side of the Equation

Firstly, agencies will need to re-insert ‘cost of living’ increases in their contracts, so if they’re on fixed term or annual contracts, they can at least raise prices at the end by the rate of inflation.

These terms have fallen by the wayside in the last two decades as inflation rates remained at less than 2% so were barely worth considering. They will be soon.

Secondly, they should consider un-bundling their services so they can add extra charges that would have previously been included.

Thirdly, they’ll need to redouble their efforts to prevent clients indulging in ‘scope -creep’ to ensure they don’t provide extra services for free.

Fourthly, they’ll need to have a very clear idea of which services are the ones their clients value the most and therefore will be prepared to pay a premium for.

(Conversely, there may need to be some service portfolio culling, where the least profitable service lines are killed off).

Finally, they should consider sending all their business development teams on negotiation courses, paying particular attention to pricing.

Addressing The Supply Side of the Equation

If agencies thought the demand side of the equation is difficult to deal with, wait until they tackle the supply side. Normal market forces no longer apply here, mainly because 70% of an agency’s cost base comprises labour, which means they have very limited room for manoeuvre when t comes to screwing down costs.

As I write this post, there are 22,000 digital marketing job vacancies on LinkedIn.  That’s 22,000 employers with vacancies to fill. Some may be inhouse, but the most will be in agency. With gaps in their workforce, these agencies are either losing work or making existing staff work harder leading to increased wage demands.

Wage inflation is therefore going to be an issue. And that’s putting it mildly.

Agencies can mitigate this to some extent by offering their employees less costly benefits but most of all, they’ll need to demonstrate to their staff that they can provide them with a meaningful, rewarding and structured career path with lots of learning and development thrown in.

‘Hygiene’ factors, like the agency’s culture and mission will be increasingly important too as will the agency’s attitude towards (previously) soft issues such as diversity, environment, society, purpose, and yes, profit too.

Agencies are notoriously – and curiously – lax when it comes to improving productivity and, rather than struggle to fill a vacant position, now might be good time to review agency operating systems and see if tasks can be streamlined, automated or even out-sourced.

Similarly, some previously sacred cows may need to be slaughtered now. That means reviewing and cancelling subscriptions, licenses and other SAAS costs, driving harder bargains with suppliers or finding new ones.

Some reader’ hearts will be sinking by now and no doubt their shoulders too as stories of The Creepers return occur. But they needn’t. Preparing and focusing more exclusively on what the agency does best is a bit like decluttering – it’s strangely liberating.

If you’re a specialist agency, it means you can double down and be even more specialist which means generalists can’t compete with you. With fewer competitors you can charge more, attract better staff and have a better chance of surviving.