The digital services industry is changing. That is beyond doubt. What it meant to be in the industry in the late ’90s and mid-2000s and what it means to be a part of it today are hugely different. And every year, someone decides that the end is near. Sometimes it’s a member of the old guard, and sometimes it’s a member of the new.

But we’re still here. Not because they were wrong, which they were, but because we are resilient and strong. We learn and we adapt. And the digital services industry is maturing. Where will it end? We don’t know. But we do have some insights into where it’s going.

The 2016 and 2017 State of the Industry Surveys

For the past two years, the Bureau of Digital has surveyed alumni composed of over 120 digital agencies across North America (37 states and four Canadian provinces) about how their companies are doing. From sales to operations to finances, we’re getting data that shows not only what shops are going through, but where the trends are heading.

12 Trends Going into 2018

1. Coastal Superiority is a Myth

Number of employees, revenue, profit and hourly rates are not related to where a digital agency is based. This continues to be true and seems to be aided by more companies going to a distributed or located/distributed workforce.

2. The Sky is Not Falling

In the first State of the Industry survey, we found that 65% of all shops surveyed realized an increase in revenue and more than 50% also saw an increase in profit. This trend continued throughout 2017 with revenue growing at the same amount and only a slight drop off in profit growth. Things are not slowing down for the digital services industry. Growth is still the trend for shops in the Bureau community.

3. Increased Revenue, Increased Profit

In both 2016 and 2017, of the 65% of digital agencies that saw an increase in revenue, over 70% also reported an increase in profitability. Not only are they selling more, they are keeping more.

This is a sign of the digital services industry moving from accidental entrepreneurs—craftspeople holding on as their businesses grew—to companies investing holistically in their organizations: fine-tuning their service offerings, learning how to communicate what it is they are great at and optimizing their operations to deliver more efficient processes. Generalist shops are also doing well and finding ways to express their focus through either a unique culture, work style or expertise.

4. Scale of Projects Continues to Increase

Over 50% of the shops surveyed in 2016 reported that the scale of their projects had increased. With nearly one in five reporting it had greatly increased. In 2017, nearly 65% of all shops reported an increase in the scale of their projects, but those reporting it had greatly increased dropped to one in 10. So while the trend continues, it seems to be slowing down. We may be getting to a new normal in terms of project scope.

5. Increasing Revenues Led to Staffing

While 2016 and 2017 both had some shaky moments where quarters seemed doomed and layoffs inevitable, the trend overall was hiring. Over 60% of the companies surveyed hired and increased their employee base in 2016. That slowed down to 45% in 2017, but the trend was still increasing staff size or maintaining the same size employee base. Diversity and inclusion conversations were very noticeable during this growth phase but the actual impact of the growing employee bases on the overall makeup of digital agencies is unknown. Gaining more insights into diversity and inclusion will be a focus of the next State of the Industry survey.

6. New Job Roles and Titles

Almost half of the digital agencies surveyed said they did not staff to meet new client requests or enable new service offerings. Though not part of the surveys, during this same time period there was a noticeable increase in the areas of sales and account management roles at shops. Sales teams, business development executives and account managers made up some of the hottest topics throughout the community, as well as the industry. Much of the conversation was around how to find the right people and integrate them into the existing culture.

7. A Slow Shift from Gathering to Hunting

In 2016, 75% of all work came in from existing clients. This has dropped to 68%. While still a significant number, the change shows that there’s a new focus on not keeping all of our eggs in one basket. But not at the expense of existing clients. This gives some understanding to the desire to add account management and sales expertise over the past two years. Especially as project scope continues to grow, becoming a larger threat should a project stall out or go in-house.

8. A Better Focus on What We Sell

Perhaps the biggest and most telling change from how shops focused from 2016 to 2017 is the drop in digital agencies that respond to RFPs. Over 75% of digital agencies responded to RFPs in 2016, dropping to 53% in 2017. That is nearly a 30% drop. During this same time, the emergence of systems like Strat Ops and EOS started being embraced by many in the Bureau community.

Considering the high percentage of shop owners who weren’t trained in business, these systems helped add structure and focus to everything from sales to operations to finance. As this takes place and we add new roles to our organizations, it makes sense that fewer shops would chase work that isn’t best for them or their newly aligned organizations.

9. Retainers are Still Preferred, but Value-Based is Desired

In both 2016 and 2017, those surveyed preferred retainers in terms of billing methodology. Given the increase in project scope and overhead this makes sense. Growth can be uncertain and retainers give us comfort. But a growing number of shops want to play with value-based billing. It seems like the Holy Land, but there are still many issues with it gaining traction. When those surveyed in 2017 were asked to define “value-based pricing” the responses fell into seven main categories:

  • Finding out what the client values, and what it will cost to provide that
  • Pricing based on the value added to the client’s business by the results
  • Charging what the market will bear
  • Pricing based on clients’ ability to pay and their return on investment
  • Pricing based on the perceived value of deliverables
  • Compensation based on a percentage of sales or a defined metric
  • Price is linked to the outcome, not the hours spent

Until we can agree on what “value-based pricing” is, it’s going to be difficult to make it viable. But as we continue to see specialization through focus it seems more accessible to more shops. We are moving from digital agencies to consultants focused on digital outcomes.

10. A Continued Shift to Research and Strategy

When it comes to a shifting service offering, over 70% of shops have been actively adding more capabilities and over half say they will continue into 2018. While these new offerings take many forms, the categories of these new services are heavily research and strategy. Research is the most profitable offering while Strategy often allows a shop to bill higher rates. It’s a bit of a broken record at this point, but the industry is rising up above the nuts and bolts of HTML and focusing on our understanding of humans.

11. Culture Feeling the Changes

In 2016, nine out of 10 shops rated their internal culture as strong or very strong. That number dropped to six out of 10 in 2017. So while overall our internal cultures are still strong, there has been a lot of change in a short period of time. Based on conversations in the Bureau community, the addition of new roles in the business seems to account for some of this drop. But a strong bottom line and a strong focus will lead to strong cultures. Nearly 70% of all shops feel their culture is strengthening.

12. A Sunny Outlook for 2018

So where are we heading? According to 89% of those surveyed earlier this year, a much better place. And as we come through this latest evolution from accidental entrepreneurs to focused businesses, we should be.

2018 Digital Agency Salary Survey

Where is compensation headed for founders, partners and team members? We’re currently working on the 2018 Agency Salary Survey which will capture industry trends across a wide range of roles in digital services. Stay tuned for details, and subscribe to receive an invitation to add your voice to the mix.

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