In our latest Pulse comprising five questions, we decided to drill down on the nitty gritty of managing growth in a market where inflation still runs rife.

Most of our CEOs represented medium-size agencies. Nearly two-thirds (65%) declared an anticipated fee income of up to £3 million for 2023 whilst a further 15% of CEOs/managing directors from larger agencies said they are expecting a fee income of over £10 million.

Which one of these, if any, best reflects the growth you expect this year?

Cautious optimism

Almost one-third (30%) appeared cautiously optimistic with a prediction of 10-15% growth this year. 50% of CEOs go further and envisage growth of up to 10% which suggests an underlying level of positivity. At first blush, this is encouraging. However the reality of inflation has been felt by most CEOs with one noting they were disappointed in their growth of 10-15% due to these pressures; another commented on clients “pushing back on fee increases” leaving them on uncertain ground.

Which one of these, if any represents the inflationary increases you will make this year to your staff salaries?

Salary concerns

Salaries continue to be a “massive issue” for many so it is hardly surprising that this topic proved a divisive one. 40% revealed they will only be increasing salaries between 5-8% and 15% will increase salaries by 15% or more, 16% stated they were “not planning any changes”. 

Any parsimonious decisions in terms of rewarding staff may seem harsh at first, but inflation it seems, has managed to torment every agency. One CEO comments that: “Salary inflation has to slow down as it is eroding margins and meaning we have to earn 10% more in fees just to break even this year,” and another states that: “Salary increases are dependent on fee income”.

Inflationary pressures

There is, of course, the option to pass on inflationary cost increases to clients. Understanding whether CEOs will let clients bear the brunt of inflationary pressures was therefore worth asking. An impressive 45% of agency CEOs say they will take the full weight of inflationary difficulties and presumably leave their clients more satisfied. However, 25% will be charging their clients 5% or more as a means of mitigating the impact of inflation on their P and L. While this is not an easy decision to make, many CEOs are looking at the wider implications of inflation: “Ultimately if you don’t pass increased costs on to clients, the staff suffer and leave. This doesn’t help clients in the long term.”

Given today’s economic situation, how much, if at all, of the inflationary pressures on your cost base are you passing onto your clients?

The bottom line is how effective agencies will be in sharing the financial burden with their clients. You would like to think every client is expecting this to be part of contract negotiations going forward. Yet procurement has its iron side and some agencies may decide it just isn’t worth the battle and soldier on.

Methodology

The PR and Comms Agency Growth Tracker pulses around 350 PR and comms agency CEOs based in the UK and internationally