Madison Avenue turmoil
In the last 18 months, the shelf life of advertising executives started expiring at an alarming rate: More than 40 major agencies – creative, media or digital – have replaced their top dogs. CEOs and chief creative officers were dismissed in droves, announcing that they wanted to “spend more time with their family” or “pursue other interests.” A "talent drain" has transformed agencies beyond the working from home trend, abundant freelancing and in-housing.
There’s a pending business crisis on the horizon, and the economy is teetering toward a recession. As agency people clear out their lockers and exit in increasing numbers, they’re taking more than just their belongings. They’re also taking with them a lifetime of precious institutional knowledge and skills that are difficult, if not impossible, to replace. This upheaval, a massive exodus of talent, exasperates clients and poses significant challenges for brands at a time that they need agencies most.
Turnover has become the biggest problem for agencies during the pandemic. In fact, no industry has been impacted as much by this problem as Madison Avenue, not even the hospitality sector. The turnover in the big agencies and the holding companies can reach a whopping 35% or 40% according to the data that our firm collects. And, especially, in an ominous sign of things to come, the marketing firm We Are Rosie found in a recent survey that 63% of agency talent say they plan to change jobs.
The flood is especially bad among middle managers, namely those in advertising between 10 and 20 years. This is critical and harmful for brands. Middle managers are the backbone of agencies. Account managers, copywriters and art directors that dedicate themselves to a particular client account and hold complete responsibility of end-to-end requirements of the client. They are passionate about the brand. They are the problem solvers and productivity drivers, having those skills that come in handy in keeping the client happy.
That means that at the current rate of turnover, an agency literally becomes a new agency in 3 years! This is an astounding number. I became fully aware of this, when we began seeing a lot of the same people in pitches that we manage – only in different agencies…
When an agency is in a constant state of turmoil, replacement is a costly proposition, and it affects the bottom line more than spending cutbacks, or fee cutback. On average, hiring a replacement is 40% more expensive than retaining the person who left, in terms of salary, signing bonus and payment to the recruiter. This is a huge expense for the agencies and an explanation for why they are cutting back on staffing.
And, furthermore, there’s another significant cost to be considered. In many cases, frequent turnover in an agency leads the client to sever their relationship with the agency after the contract period, and then, establish a relationship with a new agency. This is exactly what is happening at this moment and it’s an explanation for the rash of creative and media pitches.
Talent retention is becoming a key criterion for selecting an agency right now, and just how a pitch is run. We’re starting to see clients treating staff turnover as a key KPI for agencies. Clients want to reward agencies that can maintain staffing stability and penalize the ones that can’t.
The “Big Exit” has weakened agencies and made the traditional pitch irrelevant. Because of the turnover, chances are that the people you were impressed with in the pitch and trusted with your brand, will quit the agency soon. “Chemistry” or “fit”, how the agency team and the client team align, criteria that used to be the main reason to select an agency, must be taken with a grain of salt now.
The commercial that agencies often come up in a pitch is not reliable either. Because agencies are so short staffed, they rely excessively on expensive, top-grade freelancers. These heftily paid freelancers work behind the scenes, create the winning idea, and then move on to the next pitch. For clients, this means that you're not getting a clear picture of the kind of work you would actually get from the agency.
An estimated 50% of the ad industry could be freelance within the next few years (the whole idea of spec work is suspect anyway, being that 90% of “winning” ideas never see the light of day and, usually, work starts from scratch, with client participation, only just after the pitch).
Large agencies and those with a high percentage of newcomers have the most trouble dealing with turnover-induced disruption. Their clients, as a general rule, are the unhappiest. In larger agencies, high turnover had caused service to deteriorate significantly more than in smaller shops, and thus resulted in greater client dissatisfaction and breakdown of relationships.
The agency model post-Covid needs to focus on stability and an effective employee retention strategy should be data-driven. It requires agencies to measure, both, just why employees leave the organization and why they stay. Agencies must have a strategic plan to improve retention and. And, especially, after implementing the plan, they must evaluate the results in order to assess the impact relative to the cost.
Establishing appropriate benchmarks – both external and internal—is a key first step in preparing the implementation of an employee retention strategy. Through external benchmarking, an agency should compare its turnover rates against industry and competitor rate. Internal benchmarking will help an organization tracks its turnover rate across time.
