Advertising agencies are facing a potential downturn as the economy enters uncertain times. While the National Bureau of Economic Research (NBER) has not officially declared a recession, the threat of one can lead to clients tightening their marketing budgets. The impact of a recession on marketing agencies can be significant, with missed business opportunities and lack of confidence among clients. The Great Recession in 2007-2009 saw a decline in global ad spending by $60 billion, and during the Covid-19 recession in 2020, advertising revenue fell by $25 billion.
“We see the decline in advertising budget by businesses as they are not optimistic about the current financial situation,” ROI Minds CEO Sandeep Kumar told us. “Most advertisers are pulling ad budgets due to the recession concerns. We have not done any layoffs as of now as we’ve enough funds to support our business operations in these hard times.”
However, a well-prepared marketing agency can not only weather the storm but turn it into an opportunity to become more efficient. Josh Rosen, founder of Hotspex Media, believes that companies who value experiences and maintain relationships with integrity will be successful.
He also believes that cutting costs in areas that drive growth and competitiveness can ultimately do more harm than good in the long run. “While it may seem counterintuitive to spend money on marketing when revenue is down, it is actually the perfect time to double down on marketing efforts,” says Rosen “When consumers are feeling uncertain about the economy, they are more likely to remember and gravitate towards brands that are consistently present and top-of-mind.”
Here are ten strategies for recession-proofing your marketing agency:
- Diversifying your client base: It is a common practice for many marketing agencies to rely heavily on a few key clients. However, during a recession, if one of these clients reduces their marketing budget, it can have a significant impact on the agency’s revenue. To reduce this risk, marketing agencies should consider diversifying their client base. This will help to spread the risk of losing business and minimize the impact of a downturn.
- Focus on cost optimization: Marketing agencies should be proactive in reducing costs and streamlining their processes during a recession. By doing so, they can increase their efficiency, and profitability and remain competitive in the market. This could involve looking at areas of the business where costs can be reduced, such as cutting down on unnecessary expenses or optimizing internal processes to increase efficiency. Jim O’Leary, US COO, Corporate Affairs Practice Chair, and Global Chair of ESG and Impact at Edelman agrees: “As our clients prepare for a recession, we are focused on tying the work back to material business results such as risk management, revenue, and shareholder returns.”
- Invest in training and development: Rosen says that “Investing in training and development can also pay off in the long run. By providing employees with the skills and knowledge they need to succeed, businesses can improve productivity and efficiency, which can lead to increased profits.” Providing employees with the skills they need to succeed will also help to create a more motivated and engaged workforce. This can lead to a better work environment and a more positive company culture, both of which are important in a recession.
- Build a strong online presence: With the growth of e-commerce and online marketing, it is important for marketing agencies to have a strong online presence. In a recession, people are more likely to be spending more time online, so it is critical to be visible and easily accessible. A strong online presence can help to reach new customers, drive business and generate leads. “In recessions, people don’t stop spending, they just spend more on brands they trust and love. We’re passionate about offering fluid strategic insights to help brands cut through,” says Damaune Journey, Global Chief Growth Officer at 72andSunny
- Offer flexible payment options: Offering flexible payment options during a recession can make it easier for clients to work with the agency. By being more flexible with payment terms, clients are more likely to choose the agency over a competitor, as it demonstrates that the agency is supportive and willing to help during difficult times.
- Foster relationships with clients: Building and maintaining strong relationships with clients is important at all times, but particularly during a recession. By being responsive and understanding of client needs, agencies can help to keep business flowing during a downturn. This can involve being proactive in finding solutions to client problems, being responsive to client enquiries and keeping lines of communication open.
- Stay ahead of the curve: To remain competitive, marketing agencies need to stay informed about industry trends and shifts in consumer behavior. This will help them to adapt and stay ahead of the competition. This could involve attending industry events, reading industry publications and keeping up to date with the latest marketing techniques. Sven Smit of McKinsey Consulting suggests that during a downturn or when one is anticipated, people often become defensive and cut back their activities. However, if they wait too long to start growing again, they may miss the opportunity to capitalize on the market. He recommends postponing growth initiatives until it is clear that the recession was not as severe as expected. At that point, it’s crucial to quickly ramp up growth initiatives again. However, deciding when to restart growth can be a difficult decision.
- Consider alternative revenue streams: Marketing agencies should consider offering complementary services or branching into new areas to supplement their income during a recession. This could involve offering new services, such as social media management, or expanding into new markets, such as international markets. “Disruptive technologies like Web3, blockchain and AI will continue to create new revenue streams for businesses. It’s essential to evaluate unique datasets and the capabilities and tools to model potential risks and opportunities within clients’ marketing activities,” said Audrey Melofchik, CEO at Wunderman Thompson North America
- Be proactive with new business: Marketing agencies should not wait for clients to come to them during a recession. They should be proactive in seeking new business opportunities, such as attending networking events, reaching out to new potential clients and building relationships with new businesses.
- Focus on delivering value: Clients are more likely to choose a marketing agency that delivers value, so it is important to focus on delivering high-quality, results-driven marketing services. By doing so, agencies can demonstrate their value to clients and differentiate themselves from competitors. “The agencies who will succeed are the ones who will provide the best value to their clients by creating an integrated approach of creative and media together, and delivering high-quality output at value,” mentioned Gary Vaynerchuk, CEO at VaynerMedia. We must be transparent in reporting results, demonstrating a deep understanding of the client’s business, and delivering innovative and effective marketing strategies.
The advertising industry is bracing for the impact of an impending recession, but industry leaders remain optimistic about the future. Rather than solely focusing on cost-cutting measures, they advocate for creating efficiencies, nurturing new revenue streams, focusing on results metrics, and helping brands differentiate themselves in a crowded market. Agencies are doubling down on their efforts to offer fluid strategic insights, creativity, and nimble execution to help their clients succeed. The key to navigating a recession is having the right balance of caution and boldness, and being prepared to put the gas back on when the time is right. With the right approach and mindset, the advertising industry can emerge stronger and more resilient in the face of economic challenges.