Ted Horton (name changed) runs a relatively mid-sized agency which among other things also provides digital marketing services to brands out of Los Angeles. With revenues of over $1 Million and a lean staff, Ted has been constantly facing a unique challenge of on one hand growing his agency business along with this co-founder while concentrating on ensuring a high quality project delivery that would retain his existing accounts within the agency.
This was in fall 2013 when we first interacted with Ted and his partner. Cut through to 2016. While Ted’s business revenues have grown from $1 Million to $1.5 Million, his bottom line profits have jumped 150% giving him the opportunity and cash flows to open up a secondary office on the East Coast.
How did this magic happen? Quite simple he took a leaf out of what large agencies like WPP, Sapient and others had been doing for years and implemented it with Impact Marketing.
In-short, Ted now has a dedicated digital production work force located in India through Impact Marketing that handle all his client’s digital project needs. Leverage the large labor arbitrage that happens in international outsourcing, Ted leveraged it and created a larger business opportunity for himself and his agency.
Through digital production outsourcing, agencies, especially those whose digital revenues account for at least 30% of their business can aim to significantly improve their bottom line margins by as much as 100-150%.
Here’s why this makes great business sense for agencies like Ted.
1.Digital Business is Resource Intensive
Despite all the DIY tools in the world, Digital continues to require significant amount of resource deployment to plan, manage and execute client projects. By retaining core planning resources internally, the actual management & execution of digital projects with clear project scope, deliverables, wire frames, checklists et all get out-sourced to professional digital production units.
Digital production outsourcing business units like Impact are resource intensive units
2.Digital Business require a wide Talent Pool
Size notwithstanding, the talent pool requirement for the digital business is fairly large. Technology skills set requirements are wide, so is knowledge of various campaign tools, analytics engines etc. Trying to bring all the necessary talent pool internally is prohibitively expensive and impossible. Which is why most agencies turn to professional freelancers to bridge the talent pool gap when a specific project comes by.
Digital production outsourcing units like Impact have a wide range of talent pools that are continuously in need on some project or the other. They are able to sustain this wide talent pool because of the multiple project requirements that come their way.
3.Digital Business is not always a straight line business model
Unlike the media business, digital business is dependent of campaign execution. There are highs and lows of resource utilization that happen in an agency business. These are usually factored into the charge out rates and the multiple of the time-cost usually accounts for this.
By exploiting the digital production outsourcing model, agencies are able to better streamline their resource utilization while yet retaining the same charge out multiple. The savings go directly into the project profitability.
4.Freelancers can be un-predictable
One of the core problems of working with freelancers is that of their un-predictability, not to speak of the higher input costs that go into the project. Local freelancers obviously need to earn money too and their charge out is usually a notch higher than what the same resource would cost if hired on a monthly basis. But of course since the need is for just about a week or a fortnight’s requirement, hiring a freelancer makes more sense.
However, the unpredictability of human behavior is often a nightmare for the digital producer. Freelancers fall ill, take time off or worse still are unable to cope with the sudden deadline pressures that are often faced in the agency business.
On the other hand, by working with a professional business in the same space, the agency is assured of a 100% resource uptime which is built into the SLA agreement. No more time offs, lost hours and looming time pressures!
5.International Digital Production Outsourcing drives costs down significantly
Countries like India, Philippines, Malaysia and parts of Easter Europe thrive on providing significant labor arbitrage opportunities for businesses. Little wonder why large agency groups like Digitas, Lbi, Sapient to name a few have full-fledged, fully owned digital production backed operations in these markets serving the global needs of their client projects.
The average salary difference between a mid-level resource in the US or UK and a commensurate resource in India both in terms of skill and experience level can be a 6X to 10X difference in dollar terms. For example the average salary for a PHP Developer in India with a mid-level experience works out to only $650 per month as against the national Avg salary in the US could vary $4000-$6000 depending on the city.
Now that’s straight to the bottom line for agencies! Now every time they invoice to the client, one can estimate the huge cost saving. Little wonder that Ted and his partner chose the Impact route to better agency profits.
If you would like to know how we could add value to your agency business through our proven digital production outsourcing model or simply have a chat to know more, please write back to our CEO at email@example.com to set up a chat.
Impact is a 10 year old digital agency located out of India serving brands like Microsoft, Cisco, Britannia, Virgin Mobile, Samsung, Coca-Cola and others over the past 10 years. We are an agency at heart and live the agency life. Our digital production outsourcing business unit called Productive works with other agencies located outside of India helping them deliver better agency profits.