Following the great feedback I received from my last two posts on the changing face of the advertising agency industry, namely Advertising Agency BRIC Expansion Without The Fixed Costs and Advertising Agencies Hiring 1,000,000 Freelancers. Are You Onboard?, I now want to share some some insights into the scale of the changes we’re witnessing right now.
Many small, agile agencies have begun to embrace the benefits of the on-demand economy; some are taking baby-steps towards a freelance workforce while others like UK firm Nixon McInnes are disbanding their entire corporate hierarchy in favor of a nebulous network of self-employed consultants.
There are plenty of advantages to a freelancer-based business structure with agility, reduced cost base, and scalability among them. However, the advantage most large agencies will be interested in is the direct cost benefit of a well-managed freelance team supplementing or even replacing full-time agency employees.
The overall cost of hiring freelancers will always work out cheaper than hiring a comparable full-time professional, but the real cost savings can be made in using intelligent software to manage those freelancers. Think about some of the freelancer-driven business success stories from the past decade; Uber, Task Rabbit or Delivery Hero. All of these companies use software, which manages their freelancer’s time so they are only ever hired when there is demand for their services.
Although development or graphic design work is different from driving a taxi or delivering a Chinese takeaway, the same cost efficiencies brought to bear on agency work could spell big cost savings. In fact, research from the Aberdeen Group has estimated that the cost saving between an ad-hoc approach to hiring freelancers and one underpinned with a solid strategy is as much as 15%.
Inflated costs are attributed to the following:
- A restricted procurement process (the same teams hiring the same freelancers again and again and not achieving optimum value for money), or manual processes (where each team or brand within a larger agency group has their own freelancer compliance and billing processes which could be streamlined if centralized)
- Low visibility of needs (staff don’t realize a job could be done better, faster and cheaper with a freelancer)
Apply these efficiencies to the biggest agencies out there: WPP, Omnicom, Interpublic – and the saving become truly game-changing. WPP, the world’s largest agency, currently spends the most on freelancers and simliar set ups: some $900 million every year. Combined with the other five largest agency conglomerates worldwide, freelance agency spend currently equates to some $2.5 billion each year. If all of this spend could be properly optimized using a freelance management system the top agency networks will save themselves around $375 million a year, all while increasing internal agility and lowering fixed costs.
The opportunity is actually larger than that, though. Freelance usage within the agency world currently sits at around 6%, but this is below average for all businesses, and is steadily increasing. Staffing Industry Analysts found that in large businesses (1,000+ employees) the number of freelancers employed has risen 50% in the last five years, while a separate study by Ardent Partners found that 9 out of 10 in-house recruiters said freelancers were of vital or moderate importance to their corporate strategy.
In the agency world these changes are being driven by a desire to reduce fixed costs after many large agencies were burned by huge costs during the financial crisis, and recruitment becoming more inefficient – not least because so much of the top talent is going freelance. The ability to tap international talent at lower rates of pay is also an increasingly attractive proposition as technology makes it ever easier.
And as demand has increased, so has supply. Freelancing is growing across the globe as a way of working. The Netherlands has almost double the number of freelancers is had a decade ago, while there are 1.3 million more freelancers in the UK that there were 20 years ago. A recent report from Freelancers Union predicted that a full 40% of the working population will be freelance by 2020.
With the big six networks representing around a quarter of the agency market, worldwide freelance spend is currently some $10 billion, and could easily grow to $20 billion as more agencies begin to see the benefits of an increased freelance workforce.
At this point the savings available with a properly managed freelance workforce become truly monumental. If the 15% figure forecasted by the Aberdeen Group is indeed achievable, rolling out company-wide freelance strategy and accompanying freelance management systems will save advertising agencies around the world $3 billion.
What’s your freelance strategy? Why not take a look at how Coworks can help your agency find, hire, and manage freelance creative talent.