As the internet and ICT continue to transform the way we work, making remote ways of working a reality, agency employees are increasingly requesting flexible ways of working. Not only that, but large numbers of consultants in the workplace has become commonplace. But what is the ideal combination of full-timers and freelancers?
Your agency’s freelance spend should be in line with potential variations in fixed costs – essentially transforming them into variable spending to manage the transition from periods of growth to contraction.
At Coworks, we believe an optimum level of freelancers/variable staffing costs should sit at around 20 per cent. This signifies a monumental shift in hiring priorities for the big six agency networks. As you can see from the chart below, the current level of freelancers and the numbers needed to achieve an optimal variable staffing spend.
Freelance Spend Versus Cost Variations
Let’s take WPP, the world’s largest communications services group, for example. The market leader employs some 179,000 people working in 3,000 offices in some 111 countries. The group has demonstrated that finding that right mix can work even at the largest scale, with traditional staff making up 88 per cent of the payroll and the remaining workers classified as freelance or similar. WPP not only holds the mantle of largest agency network by a wide margin but also boasts one of the biggest profit margins.
In contrast, networks like Publicis and IPG classify just 5-6 per cent of their staff as freelancers. This is likely to prove something of an Achilles Heel, as it’ll make them vulnerable to economic fluctuations and changes taking place in the demanding agency market.
How Do You Successfully Manage Fluctuation?
What’s the impact on your bottom line when more freelancers are brought on board? And does it bring with it any risk? A quick look at the accounts for industry leaders shows an abundance of caution at the first sign of clouds on the horizon. The second the wind turns they batten down the hatches and stop hiring. Despite quick reactions to periods of uncertainty, profits can suffer – fixed cost fluctuations of more than 20 per cent over a 3-5 year period are actually pretty common.
It’s possible to manage these fluctuations within an organization of full-time employees, but having to dismiss workers ends up defeating the purpose of investing in them in the first place – not to mention generating negative press. To account for revenue fluctuations of this size, 20 per cent of your staff could comfortably be freelancers.
Where Should Your Freelancers Sit?
If your agency wants to quickly adapt to changes in the market and embrace the freelance mentality, it’s important to consider what freelancers take responsibility for in the workplace. For example, using freelancers for critical tasks and big-ticket projects means that even in the case of a sudden need to downsize you’ll want to keep the freelancers on board, as they are now mission-critical. In this case, having a portion of freelancers that makes up 5, 10 or even 20 per cent of your staff means you’ll have almost no flexibility – financially speaking – as your business won’t be able to continue as normal without them.
This is why it is vital that you decide what function the freelancers in your business perform. If they become so ingrained in your everyday work that you cannot easily remove them, you may need to further reduce the number of full-time employees.
How Healthy Is Your Business?
Agencies tend to have people on board that have the skillsets they need now, but not the ones they’ll need in a year’s time – in fact, you probably don’t even know what skills your agency will need twelve months from now. In addition to those members of staff with skills that are rapidly going out of date, you are likely to have at least 5-10 per cent that will need to be made immediately redundant if a client suddenly decides to cut ties. This, then, makes up the number of your staff that needs to be converted to a variable cost as soon as possible.
Variable Compensation Is Not The Answer
Agencies entirely reliant on full-time employees often try to introduce a degree of flexibility into their spending by introducing variable compensation for their employees in the form of performance-related pay or profit shares. While variable compensation is a great way to reward staff for performance when times are good, it offers little in the way of downward flexibility when times are tough.
With freelancers as a meaningful component of your workforce, necessary spending cuts can be achieved by cutting back on billable freelance hours without making full-time staff redundant. When you return to healthy growth, you can open the tap on freelance spending once again.