Welcome to the 2023 Agency Insights Report! As COO of Vendasta, I am thrilled to present our findings and takeaways to help guide you on your agency’s growth journey.

In the past year, we’ve seen major changes in the way agencies operate, with agencies of all sizes finding themselves at a crossroads. But it’s an exciting time to be on this journey, too.

One thing our research shows is that, despite all the advancements in tools and technology, the basics matter more than ever. Focusing on customers and their problems, building deeper and more sustainable client relationships, and finding time to do more of the work you love and are excellent at—these are the keys to success.

I hope you use these agency benchmarks as a compass to help you scale the next summit and make meaningful progress towards your agency’s goals.

Jacqueline Cook 

Chief Operating Officer

Vendasta

SECTION TWO

In this section, we’ll explore the peaks and valleys of agency service offerings, as well as the most pressing pain points faced in day-to-day operations.

We’ll also tackle growth challenges, how churn rates impact an agency’s journey, and what to do about it in 2023 and beyond. Let’s lace up our boots and begin.

While it’s valuable to address longer-term challenges or risks to ensure future sustainability, pain points currently impacting day-to-day agency operations need immediate attention first. Once urgent obstacles are removed, the path forward is often more efficient and profitable. What is currently getting in the way of agency progress?

Key findings:

Deeper dive:

It makes sense that maintaining project profitability and margins is a key concern for agencies; 51% of them are using a project-based pricing model. Here’s the rest of the breakdown:

• • 24% retainer-based pricing
  • 22% hourly rate
  • 3% performance-based pricing

💡 Pro Tip: Focus on delivery margins instead of overhead

Churn rate is an important metric for any agency, especially going into 2023 and beyond. While losing clients directly impacts the bottom line, it can also impact an agency’s reputation and level of trust. With an industry in flux facing the potential of economic turbulence, having strong, long-lasting client relationships can be a critical lifeline. 

Key findings:

Deeper dive:

• 28% of agencies with an average client revenue of $25k or less have no idea what their churn rate is; only 8% of agencies who make over $25k reported not knowing.
• 51% of agencies with higher average client revenue (over $25k) also reported higher than average churn rates.

Often, churn can occur due to a lack of perceived value or misaligned expectations. Shifting your mindset from a vendor or salesperson to a trusted expert and guide can help build stronger relationships with clients and ultimately reduce churn. What other tactics can agencies employ?

💡 Pro Tip: Reduce churn by upselling

Our analysis

Is low client churn always a good thing? Perhaps it’s time for a more nuanced approach. Churn rates between 2% and 8% are considered typical, and that’s where the highest percentage of our agency respondents fell. 

However, it’s alarming that 15% of agencies are unaware of their own churn rate, with this figure being significantly higher (28%) among agencies with an average client revenue of $25k or less. This lack of awareness may point towards a gap in business acumen or the absence of essential tracking metrics, which could be impacting these agencies’ ability to retain clients and maximize profits.

Another trend emerged: 27% of agencies with annual revenue per client that equals less than $25k have churn rates under 2%. Are these agencies more committed to retaining clients at all costs? Especially when facing a potential recession, focusing on retaining clients at all costs may actually be detrimental to the agency’s overall profitability. To survive a recession, it’s important for agencies to reevaluate their client books to assess whether each client is worth the resources they are investing in them.

SECTION THREE

Scaling an agency requires more than just talent; you need a solid sales strategy, an effective tech stack, and a keen understanding of the terrain. 

As we continue our ascent, we’ll explore agency benchmarks related to the most effective channels for closing new business, challenges in the sales process, and where sales leaders are investing most heavily in 2023. Plus, in light of the previous data on client churn, we’ll also discuss how agencies are demonstrating their value through effective client reporting.

Salespeople are so vital to the health and bottom line of marketing agencies we could have dedicated an entire agency benchmarks report to them. For now, let’s synthesize our most valuable learnings from the data.

Sales team structure and annual revenue

• Commission only: Nearly all (91%) make under $1 million in annual revenue.
• Base salary only: 79% make under $1 million in annual revenue.
• Base salary + commission: 53% make between $1 and $3 million in annual revenue; 14% make over $3 million.
• Base salary + bonus: 74% between $1 and $3 million in annual revenue; 5% make over $3 million.

Key findings

Deeper dive

50% of agencies that made over $3 million in revenue last year currently employ three to five salespeople or more; 19% employ more than 10.

Our analysis

More revenue tends to correlate with more salespeople, with agencies that have scaled past $3 million in annual employing three to five reps. Data on sales team pay structures suggest that the highest performing teams need some measure of stability in the form of a base salary, coupled with a bonus or commission structure to encourage motivation, drive, and a direct correlation between performance and earnings. 

Despite new technologies and digital marketing channels, tried-and-true methods like referrals and word of mouth continue to be some of the most effective ways for salespeople to close new deals in the agency space. 

While social media was perceived as the least effective channel for closing new business, some might argue that social media can function as a hybrid of word of mouth and networking. According to sales expert Robert Knop, the key is not to reinvent the wheel, but to move the racetrack. In other words, to adapt traditional methods to work in tandem with new techniques like social selling on LinkedIn.

According to these digital marketing agency statistics, a relatively small number of agencies identified handling objections (4%) and closing the deal (8%) as the most challenging aspects of the sales process. The real hurdles to overcome, it seems, are all the steps required to get to those crucial points.

In the “Other” category, agencies most frequently identified the length of their sales cycle as their biggest challenge, followed by having product and service features that meet market demand.

Key findings

Our analysis

According to these agency benchmarks, there appears to be a clear link between the challenges agencies face in their sales processes and how they plan to mitigate them. The main hurdles include identifying new opportunities, qualifying prospects, and following up consistently. To navigate these hurdles, sales teams must not only identify potential leads but also effectively evaluate their potential and ensure sustained engagement.

It’s no surprise that a significant portion of agencies—44% of respondents, in fact—are looking to empower their sales teams through sales enablement tools and CRM software and integrations. Such tools can automate and streamline various aspects of the sales process, allowing sales teams to work more autonomously, efficiently, and effectively.

The trend away from more traditional sales investments such as weekly pipeline reviews (14%) and joint sales calls (8%) seems to underscore the challenges agencies face with time management. The relatively low priority given to these activities may indicate a growing recognition that the key to success lies not just in intensive oversight and collaboration but also in leveraging technology to optimize sales processes.

💡 Pro Tip: Identify new opportunities with personalized outreach

As agencies grow, so does their collection of software and tech tools to manage day-to-day operations. But more tools can mean more problems. Are they all working together seamlessly? Is there too much technology to manage? And in today’s market, is it still a priority to simplify and streamline the tech stack? Our agency benchmarks set out to answer these critical questions.

Key findings

Deeper dive

Agencies that are committed to AI view tech stack consolidation as a priority (60%).

Our analysis

Agencies committed to implementing AI are more likely to prioritize reducing their tech stacks, which might seem counterintuitive at first. While AI can streamline workflows, it can also introduce complexities that can make integrating with existing software and tools a challenge. By focusing on consolidating their tech stack, these agencies seem keen on ensuring their investment in AI has a high ROI by making sure it’s properly integrated and utilized.

From key performance indicators (KPIs) and metrics to recommendations, client reporting has long been considered a crucial aspect of the agency-client relationship.

Our survey found that while some agencies provide regular reports to clients using automated tools that provide real-time data, others struggle to keep up with the demands of manual reporting and may need to adjust their processes to keep pace with competitors.

Key findings

Deeper dive

• 43% of agencies provide their reporting on a monthly basis.
• 25% of agencies using manual reporting methods only update their clients as needed.
• 44% of agencies using automated reporting with real time data update their clients daily or weekly.

SECTION FOUR

To adapt to current market conditions and position themselves for growth, agencies will need to update their climbing strategies to leverage a new roster of resources. 

This section of agency benchmarks look at how agencies can capitalize on a variety of external resources and outsourcing partnerships to optimize their existing teams, including reselling and white labeling. By exploring these options, our digital marketing agency statistics indicate that agencies can add additional value to their clients and position themselves for a successful long haul.

Scaling an agency is a delicate balancing act. How do you deliver high-quality work at scale without overburdening your team or ballooning the cost of in-house resources? According to our agency benchmarks, that’s where outsourcing comes in. Decisions on how much to outsource and which services make good candidates for outsourced fulfillment depend on various factors, including your agency’s strengths, capabilities, niche, and resources.

Key findings

Deeper dive

Agencies that don’t use AI or are just beginning to use it said content creation is the most difficult service to fulfill in house.

Our analysis

Approximately one-quarter of agencies complete less than 25% of their client work in-house, highlighting the fact that agencies are leveraging external resources. Outsourcing can be a savvy strategy driven by various factors. Some include the need for specific technical skills, adapting to rapidly evolving industry trends, and the strategic decision to focus on core areas of strength.

The tasks proving to be most challenging for in-house execution include website design and development, SEO/SEM, and content creation. Website design and development, along with SEO/SEM, require constant updates and highly specialized skills. It’s challenging to keep up with changes in algorithms, technological developments, and industry trends, making outsourcing a logical solution.

Content creation, despite seeming straightforward, can be nuanced and complex. It calls for an intimate understanding of the brand, its industry, and the target audience. Agencies specializing in law firm SEO or operating in the healthcare marketing space, for example, will have to produce content that demonstrates insider expertise about complex industries in order to add value to a niche audience. Understandably, then, it can be difficult to bring in third parties to do this work. 

Interestingly, agencies that are new to using AI or don’t use it at all cite content creation as the most difficult in-house service to fulfill. This finding underscores the potential of AI to significantly streamline content generation, from topic ideation to basic drafting, offering an avenue for agencies to explore for future optimization.

As agencies seek to provide a full suite of services to their clients, white-labeling and reselling solutions from other vendors becomes an attractive option. And according to our digital marketing agency statistics, the majority of agencies are taking advantage of these opportunities.

Key findings

Deeper dive

74% of agencies that said they do not resell vendor products and services manage fewer than 100 clients.

Our analysis

The majority of agencies that don’t use a reseller business model in some capacity have one thing in common: They manage fewer than 100 clients. These smaller agencies might be at the point where they are not yet focused on scalability. They might currently have the bandwidth required to build custom solutions for clients each time—but this will only bring them so far.

It’s also worth noting that agencies managing fewer than 100 clients likely have a smaller team with fewer resources. This can limit their ability to manage vendor relationships and integrate third-party products or services into their workflows without a single system of record. 

Vendasta value: Marketplace product catalog

SECTION FIVE

As we look to the future, agencies face both unprecedented challenges and exciting opportunities. 

The rise of AI has already disrupted the industry, encouraging agencies to evolve their approach and embrace its power. In our concluding agency benchmarks section, we’ll examine just how heavily agencies are investing in AI technology, to what end, and how respondents perceive its impact on the future of their businesses.

It’s worth noting that the potential for an economic downturn is still an uncertainty on the road ahead. While it remains to be seen whether a full-blown recession will materialize in 2023 or 2024, the economy is cyclical. The present moment presents an opportunity for agencies to plan and prepare for the future, regardless of the current circumstances. How agencies respond now can be insightful and predictive for their future success.

AI is a hot topic for agencies. Still, our agency benchmarks survey results show that well over half of them are relatively new to it. However, this doesn’t mean that they don’t understand the importance of increasing their investments as it becomes a more significant tool in the agency landscape. Only 11% of agencies surveyed do not use AI at all, reflecting the reality that AI will continue to have a growing impact on the market in the coming years.

Key findings

Deeper dive

Only 6% of agencies making between 1$ and $3 million in annual revenue do not use AI at all.

Our analysis

If agencies want to know what their counterparts making over $1 million annually are doing differently, our digital marketing agency statistics indicate that the answer is investing more heavily in AI. Of course, it can be a sort of chicken and the egg scenario: Are these agencies able to invest more in AI because they have more resources, or are they making more money because they’ve invested in AI?

While it’s tough to know for sure, what’s clear is that AI is rapidly becoming more accessible and affordable, so even smaller agencies can reap the benefits.

While only 7% of agencies surveyed reported that they would keep things business as usual during a recession, it’s clear most are preparing to adjust to potential shifts. The good news? Those potential adjustments do not typically include cutting headcount (5%). Whether or not a full-blown recession happens, it’s important to prepare for the cyclical nature of these types of economic downturns. Developing a game plan now could make it easier to not only weather any future storms, but even increase sales during a recession and grow. So what is the most likely course of action?

Key findings

Our analysis

If your clients don’t let you go, you won’t have to let your staff go. It’s hard to tune out the industry-wide layoffs, especially in the technology space, so it might seem as though cutting staff might seem like an inevitable move for agencies facing economic uncertainty. But agency benchmarks show that agencies are more likely to adopt automation and efficiency tools, or resell more SaaS solutions, than to cut headcount. It makes sense—downsizing can be a band-aid solution and doesn’t address underlying issues. It’s also important to note that cutting headcount can backfire if things bounce back quickly and agencies suddenly find themselves understaffed and struggling to keep up with demand.

CONCLUSION

The 2023 Agency Insights Report reveals a complex and rapidly changing industry landscape.

As the world continues to shift and evolve, agencies will need to stay nimble and adapt quickly to meet the changing needs of their clients. But given the resilience and innovation that characterizes the industry, agencies are well-positioned to lead the way forward and drive growth for businesses of all types.

By staying focused on customer-centric thinking, balancing profitability and growth, and remaining open to new technologies and approaches, agencies can continue to thrive in the years to come.

💡CMO perspective: Tactics to navigate a recession

I believe that success in any business starts with customer-centric thinking. To operate efficiently and effectively, even in times of recession, we must understand how our customers’ needs are changing and be prepared to adapt quickly.

In 2023, agencies have reached another moment that will call for quick prioritization, adapting to how AI is changing the industry and affecting customer expectations. To ensure our continued success, we regularly evaluate our ideal customer profile and adapt to these market changes.

At times of economic uncertainty, it’s more important than ever to stay focused on the metrics that matter and to be prepared to take risks when necessary. While the future of agencies is not without its challenges, with resilience and innovation, they are poised to lead the way forward and forge ahead.

Jeff Tomlin

Chief Marketing Officer

Vendasta

Find your footing and climb higher with Vendasta

The 2023 Agency Insights Report reveals key challenges in the industry:

• A fiercely competitive and saturated market
• Pressing concerns about project profitability and margins
• Difficulties in competing with larger, established agencies