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Dear Commercial Acuman...

Dear Commercial Acuman...
What does 2015 hold and where does the money lie?

With a resurgent America, a return of the Cold War, Europe’s economy in the doldrums and continued technological advancement, you could be forgiven for thinking it’s 1985 all over again.

Essentially, if 2014 was the ‘Year of Margin Erosion’, 2015 looks set to be the ‘Year of Back to the Future’.

So, mount your hoverboard and crank the DeLorean up to 88mph, as I talk you through the key trends to look out for, before talking through some tips on how to navigate this state of flux…

Key trends:

The IPA’s Q4 2014 Bellwether Report shows continued growth to marketing budgets – nine consecutive quarters, albeit at a slower rate.

This loss of growth momentum, according to reasons cited in the Report is due to marketers’ increasing caution about the slowdown in the wider economy which stems from: a halving of global oil prices; an escalation of the Eurozone crisis; risk aversion due to an inconclusive General Election; global market stress caused by the impact of a strengthening US dollar on emerging markets, as well as the potential for interest rate rises.

Pollsters Ipsos MORI have also set out their trends to look out for in 2015, calling it the year of the 5Ds:

 - Danger; from Africa to Ukraine via the Middle East, there is famine, plague, war and death.

 - Disorientation; call it future shock or mass anxiety, we are in a period of technological accelerative change.

 - Downturn; less a triple dip than declining optimism, Ipsos quotes 80% of people as experiencing a statistical recovery, rather than living it.

 - Devices; the internet of things (IoT) and digital snacking are changing the way we behave.

 - Devolution; the Scottish referendum and the West Lothian question have tapped into a general desire for more localism and the sort of populist “anti-politics” espoused by UKIP.

Against this uncertain backdrop, Ipsos adds certain megatrends – long-term factors that are so glacially omnipresent, you almost don’t notice them:

Demographics
 - The world’s population is getting more middle class, fatter and older; more people are living in cities and travelling more.

Economics
 - Europe’s economy remains stuck somewhere between first gear and reverse; increased global energy needs are set against declining resources.

Attitudes and technology
 - We have less trust of authority and are less likely to live in a traditional nuclear family; we are reaching digital ubiquity yet are more nostalgic for authenticity.

Your DeLorean flux capacitor (ie. how to navigate the flux…)

Many of these trends will have numerous, often contradictory, implications with both winners and losers. For example, falling oil prices will reduce inflation, making consumers better off and interest rate rises less likely, but are not such good news for anyone reliant on the North Sea oil industry.

Equally, savers with no mortgages may benefit from lower inflation, but may not be so pleased about the prospect of continued low interest rates.

So, how can you ensure your agency not only weathers this but is in the best position to adapt and thrive throughout it?

The key is to ensure you have solid financial foundations in place and under control.

These include:

 - Robust revenue forecasts that are reviewed regularly.

 - Good quality management information about revenues and costs; it should be timely, accurate, insightful and well-presented.

 - Good working capital management and cash forecasting.

 - Focus on cost management, but not to the exclusion of everything else.

 - Balancing short-term financial needs with longer-term financial sustainability measures.

 - Sufficient reserves to get you through quieter periods – especially independent SMEs; you are always in a better negotiating position if you are not desperate for the revenue and a more volatile top line needs a more flexible cost base.

These can be achieved by ensuring your agency employees have:

 - Good selling and negotiating skills coupled to a high level of commercial acumen.

 - Good client management; both project management and scope of work management.

 - Good management information on what drives your business performance:

Short-term financial measures for revenues, costs and efficiency, such as client profitability, overservicing and staff utilisation.

Longer-term behavioural measures such as client satisfaction, advertising effectiveness, staff development and pitch win rate.

 - And of course, underpinning all of this, a fundamental understanding of the importance of sound financial management.

If you have any agency questions or queries about enhancing your commercial performance that you need advice on, email the IPA’s Commercial Acuman, aka the IPA’s Finance Director Tom Lewis at toml@ipa.co.uk. All questions will appear anonymously.

Last updated 15/01/2015

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