Download the whitepaper here: http://digitalagencyperformance.instapage.com/ Did you know the average Australian Digital Agency generates $109,335 of net profit per working owner? Or that average staff productivity is 83%? We explore these stats & industry benchmarks in our white paper then highlight how to improve your financial management through our tips and metrics tracking.

1. How does your agency compare?
Agency Benchmarks Report
2016

2. Contents

3. I II
III IV
INTRODUCTION INDUSTRY OVERVIEW
INDUSTRY BENCHMARKS HOW TO INCREASE THE
PERFORMANCE OF YOUR FIRM

4. Introduction

5. Welcome
The Australian advertising and marketing industry is going through a phase
of fragmentation, driven by the emergence of technological innovations and
new media. This includes smartphones, tablets, wearable technology, online
advertising, pay-TV providers such as Netflix and Presto and social networking
channels.
As agencies become progressively more data driven, many firms fail to capture
and manage their own financial data. This white paper assesses the movements
in the Australian advertising and marketing industry and outlines key industry
benchmarks. This provides agencies with the ability to compare their financial
performance against the benchmarks.
Rapid advances in technology and consumer trends have provided growth
opportunities for small, niche and specialist digital agencies, despite the
historical dominance of high-overhead, long-established agencies. There has
been a movement towards fixed fees combined with results-based payments.
Clients are increasingly demanding accountability and value for money which is
increasingly become more transparent with software to track and monitor data.
Jason Andrew
Co-Founder

6. Industry Overview

7. 2.1 Sector Overview
The advertising and marketing industry is a $2.1B industry in
Australia, represented by approximately 7,900 agencies
1
. The
industry is going through fragmentation, driven by the emergence
of New technology, such as smart devices, better internet service
providers, social channels and streaming channels like Netflix
and Hulu Plus. This has provided a challenging and disjointed
media environment for advertising agencies and has prompted
many of these businesses to reinvent themselves by moving
away from their traditional roles.
2.2 Geography and Demographics
The industry is mainly concentrated in New South Wales and
Victoria, with these states earning 70.9% of industry revenue in
2015-16. These two states are also estimated to account for 68.5%
of industry establishments for the year. These statistics reflect
population concentration, business numbers and the economic
influence of these two states. Queensland has a disproportionate
number of establishments compared to revenue distribution,
indicating a significant level of competition within the state.
Industry Overview
Figure 1: Distribution of revenue vs. establishments
1
Source: IBISWorld 2015
REVENUE ESTABLISHMENTS
PERCENTAGE

8. 2.3 Product and Market Segmentation
Many firms in the industry have transformed into large one-
stop marketing and communication companies, or smaller niche
advertising agencies. The large firms offer all above-the-line
services, such as mass media advertising
through:
• Radio,
• TV,
• Newspapers,
• Magazines,
• Cinemas and
• the Internet
in addition to many below-the-line services, including public
relations, promotions, direct mail campaigns and web-based
social media campaigns. The smaller niche or specialist agencies
are seen by some clients as providing better service and creativity
at a lower cost, but may not offer a full suite of services.
With respect to industry specialisation, retailers are the primary
industry from which the majority of revenue is derived, followed by
motor vehicle dealers and finance and insurance firms.
Figure 3: Major market segmentation (2015-16)
OTHER SECTORS
RETAILERS
MOTOR VEHICLE DEALERS
FINANCE & INSURANCE FIRMS
ENTERTAINMENT & LEISURE FIRMS
REAL ESTATE FIRMS
TOURISM, TRAVEL & ACCOMODATION FIRMS
GOVERNMENTS
Figure 2: Products and services segmentation (2015-16)
2
BROADCASR ADVERTISING CAMPAIGNS
PRINT ADVERTISING CAMPAIGNS
ONLINE ADVERTISING CAMPAIGNS
OTHER ADVERTISING CAMPAIGNS
BILLBOARD ADVERTSING CAMPAIGNS
TOTAL: $2.1 bn
TOTAL: $2.1 bn
2
Source: IBISWorld 2015

9. 2.4 Industry Trends
The trend towards greater integration and specialisation in differing
advertising media has prompted agencies to undergo restructuring. There is
significant demand for employees with digital and quantitative skills, which
have not traditionally been present in the industry.
Due to limited needs and budgets, firms are unbundling service requirements
and seeking specialists in each specific area. This has provided growth for
small, niche and specialist advertising agencies, despite the dominance of
high-overhead, long high-established agencies.
Many small and newly established creative agencies, built by former
employees of large agencies, are actively competing against the larger and
more established firms. Some of these smaller agencies can guarantee that
senior staff will be assigned to, and actually work on, clients’ accounts and
are therefore more responsive to clients’ needs.
The role of executive creative director previously represented concentrated
power over the direction of advertising campaigns. This has changed
significantly over the past five years. Greater investment in market research,
an increased desire by clients and agencies to quantify results, more intense
competition for advertising production and the rise of different advertising
mediums requiring different skills sets to previously have meant that the
position has become more number-focused and managerial in nature.
This trend is a reflection of how the industry
as a whole has changed, with the lines
between marketing, public relations and
advertising becoming increasingly blurred.
The other major industry change has been in remuneration. There has been
a significant shift away from commission based remuneration and a move
towards fixed fees combined with results based pay has been made possible by
advances in the measurement of advertising effectiveness with analytics. The
main driver of the trend, however, has been competition among advertisers for
clients that increasingly demand accountability and value for money.
Fixed Fees

10. Industry Benchmarks

11. Industry Benchmarks
3.1 Margin analysis
Figure 4 outlines expenses and earnings benchmarks of
advertising and marketing agencies in Australia.
3
Figure 4: EBIT margin analysis (2014- 15)
PercentageofRevenue
Advertising Agencies
3
Source: SmartBooks Online analysis
40% 2% 24% 1% 34%

12. We note the following with respect to advertising and marketing industry
benchmarks:
• Earnings are consistent with professional services firms, with wages and
on-costs representing approximately one-third of revenue.
• Other expenses comprise of advertising, accountancy, office supplies and
computer expenses
• Earnings Before Interest, Tax and Owners Salaries (“EBITBOS”) are at 40%
of revenue – consistent with other professional services organisations.
The following table details the benchmark expenses as
a percentage of revenue.
Expense 2014-15
Advertising and Promotion 1.2%
Accounting & Legal Fees 2.2%
All Insurance 1.1%
Computer-related Expenses 4.0%
Print, Post, Stationery, General Office Supplies 1.6%
Rent of Premises 4.1%
Other Occupancy Costs 0.6%
Other Deprn, Lease & HP 2.5%
Other Repairs and Maintenance 0.6%
Staff On Costs 6.8%
Telephone & Fax 1.8%
Employees' Wages & Salaries 27.1%
Vehicle Operating Costs 2.7%
All Other Expenses 4.2%
Total Overheads 61.9%
Net Profit (*before owner's salaries) 38.1%
EBIT (BOS) 40.6%
*BOS – Before Owners’ Salaries
*EBIT – Earnings Before Interest and Tax expenses
Industry Benchmarks Cont.

13. 3.2 Other Benchmarks
AVERAGE ANNUAL REVENUE PER AGENCY
NUMBER OF FTE STAFF PER WORKING OWNER
AVERAGE NET PROFIT PER WORKING OWNER
AVERAGE STAFF PRODUCTIVITY
TOTAL REVENUE PER PERSON
$1,522,255
$90,184
$109,335
3.85
83%

14. Increasing
the Performance
of Your Agency

15. Increasing Your Performance
4.1 Increasing Billable Hours and Managing WIP
Practices that record 100% of their time are able to manage
their job efficiency and price effectively. It is therefore vital to
educate all fee earners on the benefits of recording their time
and encouraging that behavior.
♦♦ Time records should be monitored to ensure that
the business and the operator are achieving agreed
objectives.
♦♦ Jobs charged on a non-time basis should also be
recorded to accurately assess efficiency and improve
pricing strategy.
♦♦ Produce monthly Work In Progress (“WIP”) summaries
per fee earner to assess and benchmark staff
productivity.
♦♦ Interim bill jobs where possible, preferably monthly.
♦♦ Inform clients of billing policy and adhere to it.
4.2 Debtors Management
Debtors inhibit cashflow and growth potential. It is essential to
manage their collection effectively.
♦♦ Alter terms of trade to payment on receipt of invoice (where
commercially possible).
♦♦ Ensure that all clients understand your terms before you
commence any job.
♦♦ Automate chasing of debtors - Debtor Daddy and Chaser
are recommended.
♦♦ Small jobs should be billed in advance via credit card or
Paypal.

16. 4.3 Practice Efficiency
Effective management is about delegating work and outsourcing
non-core tasks. There is an expectation that all partners source
and delegate work
to employees.
♦♦ Review target staff / partner ratios and set a long-
term staff/ partner ratio target and constantly review
the ratios light of changing types of work and differing
clients of the practice.
♦♦ Establish an estimate of the number of additional
employees required to meet firm revenue forecasts
to enable capacity budgeting.
♦♦ Work to or around these strengths and weaknesses
in allocation of team members and responsibilities.
4.4 Marketing
♦♦ Practice what you preach.
4.5 Maintain Your Financial Data
You can’t manage what you can’t measure. Accurate and
timely financial data is critical to manage the financial
performance of your agency. Therefore:
♦♦ Maintain firm accounts on a weekly basis at
a bare minimum.
♦♦ Financial metrics should be tracked and
reviewed on a monthly basis with our
financial controller or accountant.

17. LET’S DISCUSS YOUR RESULTS.
Book your complimentary 30 minute
consultation with one of our
bookkeeping experts today.
LEARN MORE GO
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36 Mein Street, Spring Hill QLD
info@smartbooksonline.com.au
www.smartbooksonline.com.au