Art & Commerce: Making the Grade

Brace yourselves, it’s Report Card time again. In our April 24 issue, we will publish our annual evaluation of nearly 100 full-service, U.S. advertising agencies. We examine, and yes, assign grades to financial performance, creative output and various management initiatives.
This year, as usual, there’s good news and bad news–although it might not be what you think.
The good news is that many agencies reported a remarkably strong 1999 in terms of year-to-year revenue gains. For example, the average for the 60 regional agencies we evaluated (10 in each of the markets where we publish), was a healthy 15 percent. By comparison, in 1998 the average was 11 percent.
But those strong gains are also bad news, at least for agencies that posted what typically would be a strong performance; say 12 percent, which in 1999 fell below the group average. Nationally, the 30 or so shops we graded have an average revenue gain of 13 percent, about the same as 1998.
“The bar was raised, and what would have been a satisfactory performance in a normal year is a yawner [in 1999],” explains Alan Gottesman, a financial consultant at West End Consulting and Adweek columnist, who helped us run the numbers and make sense of them.
The breakout in the six regions looks like this: The top 10 agencies in the Southwest led the regions with the highest revenue percentage gain at 22 percent. This was followed by New England at 20 percent; Eastern at 18 percent; Western at 14 percent; Midwest at 12 percent. The worst performance was found in the Southeast, where the 10 agencies combined had an average gain of 6 percent.
In addition, 1999 was also the year in which the fewest number of regional agencies, of the 60 we graded, saw revenue declines.
One interesting new factor in judging agencies is the issue. When looking at some shops’ billings vs. revenue, we noticed a lot of mismatched numbers. Often, it was explained to us that the culprit was the funky payment system some clients have with their agencies. Hence, the account shows up in the billings number but not always in the revenue figure.
Now, we realize profits, not revenue, is the true measure of financial performance. So we considered factors other than pure revenue growth, such as revenue to staff ratios, in an effort to get a more accurate read.
Still, many agency folks have griped over the years that our financial grades are not entirely fair because they don’t reflect the whole picture. They would yell and fight but still refuse to supply profit information which would better clarify the situation.
Then Colin Probert of Goodby, Silverstein & Partners presented a calm, cogent argument as well as a suggestion. While he didn’t quibble with the accuracy or fairness of our numbers or our grades, given the data we had to work with, he suggested we could rename the section–“financial”–to show that it is not all encompassing. We agreed, and made a change.
Now, if only the creative would improve like the numbers.