The fallout from Covid 19 and lockdown on digital agencies
What’s been the impact of lockdown on businesses across our region? How bad has it really been, and which areas are doing better than others? Silicon South has been hosting a number of discussion groups for leaders of digital creative and tech businesses. The groups have been curated so leaders talk with others in similar positions and kindly been facilitated by several local directors. This article provides a summary of the discussions held by leaders who employ between 6-16 staff.
There has been an increase in actions from clients that have a negative impact on business.
- Top of the list, from the moment lockdown was announced was the cancellation of proposed projects
- Secondly clients have halted projects in progress,
- Clients have also cancelled ongoing retainer-based contracts.
- Some clients have simply stopped paying for ongoing services including web hosting, without any contact. This raises the immediate question do you still want your website? More charitably agencies are reacting by offering more flexible payment terms.
- As lockdown continues, clients have been looking to reduce prices/quotes, but without any specific basis other than they don’t want to pay as much.
This last point raises the question of how you value your business. If there is no profit for you is it worth delivering, just to keep turnover going? What message does this send to clients – will they expect discounts in the future, regardless of lockdown? Most agencies feel its important to rates as best as possible, while some discounting is okay – you don’t want to come out of this only to find you’ve driven the expectations of your business to operate at an unprofitable level.
It’s also possible to renegotiate the spec if you’re charging a lower level of revenue. For instance, there’s only so much discount a store would give you if you go to buy a shiny new iPhone – at some point you have to accept you can only afford to buy an iPhone SE!
The biggest hits are coming from retail, leisure and tourism. As this continues, this will continue to affect the supply chains that serve them. For clients outside of these industries, the biggest reasons for halting work is to retain cash. Businesses in all sectors see that cash is king right now – they need to have the ability ride through the crisis. Once they see the green shoots of recovery, the indications are that they would be more prepared to pick up on their previous project plans.
This puts our own sector in the same position. If customers are not commissioning from us, then we will need to ride the slowdown and still be ready and able to pick up on the work when it finally recommences.
Most companies have placed at least some staff on furlough. The level varies greatly depending on how badly impacted they have been. Some companies have revised their initial furlough plans to retain more staff as the knee-jerk reaction of clients has reversed with some, in fact, pushing forward with planned projects.
It is heartening to see that some companies have secured new contracts. In many cases these were in the pipeline before lockdown, so the concern is in the absence of new work being originated since lockdown began.
Most agency financial forecasts suggest April will be down on March – which was already down on February. At best, May and June are unlikely to be any better than April, and the jury is out as to what happens in July onwards. Some companies are really only looking one month ahead suggesting that the current level of uncertainty, makes everything else mere conjecture.
Where is the good news?
This is not the case for everyone, happily. The most amount of interest for new business enquiries seems to revolve around ecommerce. More businesses who are unable to trade right now are looking to establish direct relationships with customers online.
This raises really interesting question for the future of high street. Already the high street has been witnessing a slow decline for a number of years. If online commerce works successfully for these new players does this reduce their incentive to reopen a bricks and mortar shop when lockdown is lifted?
Other sources of new business have come where existing agency relationships have been challenged because too many staff are on furlough to deliver the client needs, which is pushing clients to look for a new supplier.
Some Agencies are also looking at offering performance delivery model options – i.e. revenue share. This mean you can build, for example, a new ecommerce site for a business, not charge for it and take a percentage of the revenue made by the platform.
This is attractive to clients – it looks like they get something for free, but it is not straight forward.
The issues are that, unless you control all the data, it has to be done on trust – and the clients have to report back accurate figures. They are also in charge of the business delivery. You don’t have a say in what they do, so you have to believe they are making the right business decisions. You have no control if they run out of stock. Do you have the right level of trust to be able to do this?
With client work at a lower level it has been possible to focus staff on developing some internal projects which have been kicking around for a while but never had the time to do. This might be anything from sprucing up the company website, to reviewing SEO strategy.
There are mixed expectations about how things will evolve out of lockdown. One thing that everyone agreed on is that normal business will not be resumed all at once. There is likely to be a tiered approach to re-establishing normal levels of contact.
How this happens might influence the confidence of client sectors and their ability to commission new work going forward.
Retail is likely to one of the early areas to reopen as social distancing can be observed. Likewise, office jobs – where there is enough space in the office to maintain distance between staff.
Pubs and bars are likely to be last as they support the greatest level of social interaction. It’s worth looking into the sector you work with most closely to assess where they are likely to fall in the phased relaxation of lockdown.
Perhaps the staff who have been worst hit by furlough are at the junior level – as they require the most amount of support, which is hard to do remotely. This means that in the autumn this is likely to be the group which has endured the highest level of redundancy, especially considering how many companies expect to reduce their workforce numbers.
Hopefully as business picks up again there will be new job opportunities, but this does raise questions for the school and university leavers who are keen to get their first job in the creative digital and tech industry.
An unknown quantity is how people are feeling? The great British public, who drive the consumer economy and consequently much of the business economy which support them. It would be helpful to have a better idea of people’s attitudes towards spending once lockdown relaxes. If expenditure is down, who has the money?
Consumers whose jobs are unaffected are likely to be better off because they won’t have been able to spend so much, but how does this balance out of the economy as a whole given the number of people whose jobs have been affected and are on furlough or universal credit. The same question applies if applied to businesses as well. Further insights into this can help in strategic planning and identifying where business development might be focused.
Overall, will people and companies be cautious about spending – or will they hold onto savings until they have more confidence that things are on the up and their revenues are protected. If a cautious approach is expected it is likely that growth economy will be in a U shape not a V shape
We are hosting regular directors discussions – see Eventbrite to find when the next ones are