The data that LinkedIn collects, once analysed, produces an interesting view of the marketing industry. In this article, I analyse this data, make some interesting observations and conclusions.
The data that LinkedIn collects, once analysed, produces an interesting view of the marketing industry. In this article, I analyse this data, make some interesting observations and conclusions.
The marketing industry as a whole has been going through a strong period. As platforms and channels expand, the information and marketing landscape will continue to grow in complexity and sophistication making these services more and more important. In addition, the ever increasing levels of competition for goods and services both locally and internationally, compel all but the most niche’d businesses, to increasingly improve their marketing investment performance. The specialization, sophistication and investment required to fulfill this requirement is such that it is increasingly difficult for most companies to be able to do this in-house.
This then represents the marketing/technical (martech) industry’s major opportunity. Whilst the opportunity is strong, this does not mean it is easy. On the contrary. Businesses in this sector face many challenges. They are complex and sophisticated. They need to be mission focussed, have sophisticated business strategies, a high level of internal organisation, have good teams and be able to recruit people with special skill sets. As will be shown, many agencies apparently do not possess the necessary business skills to capitalise on this burgeoning opportunity, one that will be around for many years to come.
As with any industry, some participants have successfully seized this opportunity and done really well and others, less so.
As someone providing advice to businesses in this sector, I have an interest in the overall composition of the market, and more particularly the information that relates to marketing industry business development and success.
The data that LinkedIn collects, provides an opportunity for an interesting if somewhat limited examination. For certain levels of LinkedIn and LinkedIn Sales Navigator membership, one can gain access to a substantial amount of data on listed businesses. Data relating to business age, number of employees etc.,even company growth data is sometimes available.
But LinkedIn’s data is not perfect. Companies and individuals that are on LinkedIn can choose what data they provide, if at all, and it’s sometimes noticeably out of date. But it’s the best data that is readily available and can provide some interesting information once analysed, as long as the condition of the data is borne in mind.
In its favour is the propensity for marketing professionals to keep their personal LinkedIn profiles up to date. This provides us with headcount numbers for companies that is generally quite up to date.
LinkedIn business entries have a field where one can self identify the size of the organisation, 1, 2-10, 11-50, 50-200 etc. This particular piece of data was not used as it is generally at odds with the actual linked members currently employed/associated/contracting that can be counted by other means.
Details of the data extraction are discussed in the appendix linked to this report.
Given the nature of the LinkedIn data that is being used for this report, it is necessary to make the assumption that the data is a sufficient sample for the analysis to apply to the market as a whole.
The majority of LinkedIn business entries comprise single member businesses and businesses with between 2 and 4 members, as shown in Fig 1. We use the term ‘members’ to denote full and part-time employees, contractors, directors and any other people associated with the business as denoted by their LinkedIn association.
The vast majority of the market, 84.7%, have 10 or fewer members.(on LinkedIn).
Size Distribution Observations
In these observations, we will be primarily considering businesses with 2 or more members.
What’s interesting here is that there are 77 agencies with 21+ staff members. That is roughly 9.1% of the agency market. Whilst there is obviously no financial data on LinkedIn, it is around this number that a reasonably well run agency is generating an EBITDA of ~$1+m. More efficient agencies are capable of generating this level of profit at lower headcount levels.
673 out of 877, or 77% of companies have less than 10 members. At this size, the principal is operating at full workload, and the business is not quite big enough to have management assistance. With such high levels of personal exertion, growth is slow as will be seen below. This is of course not the case for every business, as some have been able to transcend this growth barrier with aplomb.
3. Age Distribution
Of course there have been agencies in Melbourne market for a long, long time. Before the digital age many were ‘advertising’ and ‘design’ agencies. Whilst these still exist they are known nowadays as digital agencies.
4. Marketing Agency Growth Period
Over the past 10 -15 years, the complexity and sophistication of marketing technology and intensified competition, has made it increasingly challenging for companies that would previously have done their marketing in-house, to keep up. This has led to an increased number of agencies entering the market. In the same period the breadth of marketing activities that need to be undertaken has also increased markedly. Marketing service providers have responded to this in two ways:
- Some have taken a specialized approach, focusing in depth on a particular aspect
- Others have endeavoured to cover as many common client requirements as possible in an effort to be as much of a one-stop-shop as possible.
As one would expect, in general, the bigger the company, the broader the offering and the greater the scope for expansion. This also results in greater stability and resilience, all other things being equal
In Fig 5. below, there is a discernible inflexion point that occurred in 2010 as the economy began to recover from the Global Financial Crisis. It was at about this time when a series of Google search algorithm updates pushed content marketing to the fore.(“So Long, 2010s: Reflecting on a Decade in Marketing and What’s Next”, Sean Callahan January 8,2020) This was a major change in the approach to online marketing and spawned the content marketing revolution. In addition, at around the same time, a lot more emphasis began to be placed on mobile platforms, a bigger and more exacting marketing environment.
This and other reasons, started a steady rise over a 7 year period in the number of new agencies appearing in the market, rising steadily until 2017, where the increase slows.
It is important to note that Fig 5 is showing the number of new agencies entering the market. The downward trend between 2018 and 2019 merely represents 51 entering in 2018 and 25 entering in 2019. It does not represent a reduction in the number of agencies. This is clearly shown in Fig 7, which shows the cumulative number of agencies.
Why does this strong rise between 2012 and 2018 (~ 50-60 new agencies for each of these years) end?
Some of the answers to his question can be deduced by looking at Fig 6, below.
Marketing is a mechanism for driving demand which is measured by consumer spending. Consumer spending is in turn primarily driven by employment, wage levels, and consumer confidence. The metric that most simply summarises this economic activity is Gross Domestic Product (GDP), and it is informative to look at this to understand the impact on the marketing agency market.
The rise in agencies entering the market starting in 2010 follows the rise in GDP (and consequent marketing spend) that resulted as Australia starting to emerge from the impact of the Global Financial Crisis..
In Fig 6, the ‘Headcount >1’ trend line (b) is closely correlated with the short term GDP trend lines (d) between 2010 and 2012 and (e) between 2013 and 2019, which are separated by a significant GDP growth reduction between 2102 and 2013 from 4.9% down to 1.9%. (Sources: Trading Economics: Australia GDP Annual Growth Rate1960-2019 Data and 5204.0 – Australian System of National Accounts, 2012-13, Analysis of Results,)
These GDP variations would have manifested as the perception in would-be entrepreneurs of increasingly less favourable conditions for starting a business. Following the strong agency growth situation up to 2018, the number of new agencies coming onto the market has declined. The authoritative Gartner CMO Spend Survey 2019-2020 noted a reduction in martech spend for the first time in 2018 for the first time since 2014. (4 Key Findings in the Annual Gartner CMO Spend Survey 2019-2020). Whilst this was a USA and UK CMO survey, it is not unreasonable to assume that Australia would follow this trend.
This could well have manifested as a perception of market saturation coupled with strong job opportunities attracting people who in other circumstances may have chosen to follow an entrepreneurial path.
Looking at the cumulative number of agencies over this period in Fig 7 above:
Over the period 2005 to 2019 there has been a net rise of 143% in the total number of agencies in the market. It breaks down into three periods as follows:
|% Increase||CGR*||% Increase||CGR||% Increase||CGR|
|Net rise (>1 member)||171||31.6||5.65%||288||42.2||7.30%||268||29.5||5.30%|
*CGR = Compound growth rate
It is quite clear that the marketing industry has grown strongly in this period, with compound growth rates around twice that of the growth rate of the economy. From the data, it would seem that the strong growth in the number of agencies has plateaued.
The LinkedIn data does not provide any insights into business attrition, although there are a number of listings that are clearly defunct. In 2012 the Department of Treasury published a report entitled Australian Small Business Key Statistics and Analysis. (There has not been a later edition of this document.) The document noted that “Survival Rates” of professional service business with between 0 and 19 staff members in Victoria from 2007 – 2011 was ~59%. This works out to an approximate annualized attrition rate for that period of ~-20% per annum, a plausible number. Now if we assume that this attrition rate was constant for the period of 2005-2019, and it applied equally to the marketing industry, then approximately 160 businesses (with more than 1 employee) could have failed over this period.
Beyond 2019 and the Covid-19 Pandemic
The start of 2020 was characterised by continuing concern in relation to certain aspects of the economy which would of course have an impact on the marketing market. In particular, very low to no wages growth, the cash rate dropping to below 1%, the threat of a USA – China trade war etc., etc. Nevertehless people were optimistic as is normally the case at the start of a new year.
All of this was completed overshadowed by the impact of the Covid-19 pandemic lockdown which severely constrained whole sectors of the economy and many businesses from operating. At the time of writing, Australia is officially in a recession.
It is highly likely that the will be very few to no new agencies entering the market and many of the smaller, general agencies will find things extremely hard going for some time.
Bigger agencies with low levels of client concentration and strong and enduring client relationships will come through relatively strongly. Some will be able to take advantage of the situation and recruit new staff with specialist skills.
5. Agency Size vs Age
The extent to which agency age and size are related is of great interest.
In the absence of revenue data, we can look at agency headcount as an indicator of size and value of business that the agency is doing. It obviously takes time for an agency to build and grow. To a large degree, this is an indication of the business ability to acquire new business, recruit and manage staff and operate effectively. It is also a measure of overall business leadership and acumen.
There are agencies in Melbourne that have been in existence for over 50 years that have less than 20 members. There are at least 6 firms that are less than 6 years old with over 20 members. There’s one that is one that is only 7 years old with 79 members! (although it’s possible that this business is the product of merger and acquisition activity or similar)
Not every agency owner is motivated to keep growing their business. There would be many agency owners who are more motivated by their craft than their business. Such agencies will tend to reach a point of comfortable equilibrium and stay there.
As with other business categories, relatively speaking, only a small percentage of agencies grow to a size that truly provides wealth for their owners. For many privately owned businesses including agencies, the owners compensation is low in relation to the risks and the hours that are put in. Many agency start up businesses are owned by people whose skill set does not include business. It can take a number of years before this situation is remedied one way or the other. Many never make a long term go of it, retreating from a failed business into full time employment or contracting. Some who stay on in their businesses, persist in a state of virtual enslavement.
- From the data in Fig 8, it is clear that the highest headcount numbers tend to occur with businesses that are less than 20 years old. In general, surviving older agencies tend to be smaller than some of their younger competitors.
- The shaded area in the chart above, identifies the agencies that are on a high growth trajectory. Businesses with a member/age ratio of 10 or more are stellar performers. In plain english, this represents ~10 new members a year. In fact this is a key issue for younger companies until they have developed the sophistication that allows for low staff-churn and effective recruitment, alongside consistent revenue growth and efficient operations.
- Most agencies with 50+ members are less than 20 years old. (12 out of 13, 92%)
and 6 out of those 13 are less than 10 years old. Only 2 other agencies have more than 50 members.
- There are 23 (4.5%) agencies under 10 years old with 26+ members and 11 (2.7%) that have achieved this in 5 years. What this demonstrates is that building a strong agency is quite possible in a relatively short time, yet most do not.
The high levels of business acumen required for such an achievement is not often found in typical agency founders in my experience, but with the right advice and assistance this can quite easily be achieved, as is also my experience.
Fig 10 clearly shows the age/size relationship on an average basis, most agencies falling within one standard deviation of the trendline. Of course this age/size relationship is not true for every agency, these are averages and this chart clearly shows how long on average it takes the typical agency to get to 20 members although many have done this a lot quicker.
Other specific observations from the data:
- The median age of the 10 largest agencies is 14 years. The average member count for these agencies is 74.2.
- The average member count for all agencies less than 5 years old is 3.6 and with 2 or more members 3.8 years old.
- The average member count for agencies between 6 and 9 years old is 5.8
- On average, agencies with up to 9 members are 17 years old
- On average, agencies with 10 – 20 members are 13.1 years old
- On average, agencies with 20 or more members are 16.1 years old, there are 73 of these.
The Melbourne marketing agency market is substantial, with a broad range of mostly small participants, with 84.7% of companies participating in the space having 10 or fewer members.
Since 2010 the market has grown strongly with more than 1,000 new agencies entering the market. Between 2010 and 2019, the number of agencies grew by at least 143%, a growth rate roughly twice that of the economy. Such a phenomenon can only take place where there is strong customer demand. In addition, the environment and high level of customer demand has fuelled the growth of some very large agencies.
Let’s take the position that business can be viewed as a motivated response to a given set of economic and commercial conditions. We will have entrepreneurs with varied amounts of business knowledge, acumen and capital. They will all try and do the best they can within the context of their personal circumstances and we clearly end up with a very diverse set of outcomes.
A small number of agencies have achieved exceptional growth in a relatively short time and others have taken a very long time to achieve mediocre growth. In the final analysis it comes down to the quality of business leadership.
In my experience the most important factor that drives results is the level of knowledge and business acumen brought to bear on a given business. No doubt, many agency entrepreneurs understand this and deal with it appropriately. But these are clearly in the minority. The market has a number of examples of young agencies that have done very well, whilst at the same time in the same market, many more have not dones as well.
The martech opportunity remains one of the biggest of our time. Start up requirements are modest and customers are plentiful. There are few barriers to entry and few restrictions on success potential other than ability, motivation and effort. With the right leadership, it is possible to build an excellent business.
I originally did not set out to produce any type of report. I was merely preparing some marketing for my own business and doing some market research to zero-in on my target market. Nonetheless I felt that the data that I had collected, produced information that was of more general interest. My investigation is confined to Melbourne, Australia, but I imagine that the information and conclusions that I have made would be generally true, certainly across most of Australia and for many other markets.
LinkedIn appears to generate business-employee relationships in a fuzzy way. There are many, many agency businesses around the world with similar names and LinkedIn often includes people from similar named business from around the world in its results. It also of course includes offshore members of Australian businesses. It was not practical to separate these two categories of data out. So, only businesses with head offices in Melbourne and their members that note Australia as their country of residence were included. My impression is that the bigger the agency the higher the proportion of members living on Australian soil.
By no means perfect. The data is what it is, but it still provides value.
LinkedIn data analysed
LinkedIn provides a list of categories for business to select from and identify themselves with. This is not always accurate as many businesses cross over more than one category and sometimes the description provided is not an exact fit. The LinkedIn categories of businesses that were captured in this data set are
- Graphic Design
- Marketing and Advertising
- Online Media
- Public Relations and Communications
There are some very closely allied categories such as Media Production, Broadcast Media and Internet that include many businesses that should have been included. But there are too many businesses within these broad categories that would fall outside my scope of interest to make such inclusions relevant.
Even within the categories chosen above, there are non-commercial entities, institutions and organisations that are not relevant to this analysis. The only means of control is to exclude these by way of keywords – not always 100% accurate.
Specifically excluded were entries that include the following keywords:
- user group
- not for profit
Searches were generated for companies and within the LinkedIn output limitations and usage restrictions a list of 2554 individual business entries were identified.
Is this the full set? Unlikely. There are specific people that I have had personal dealings with, that even though they have personal LinkedIn entries and own businesses with employees, do not have separate LinkedIn business listings and did not therefore appear in the base queries. Also, some business entries appear to be either quite outdated, never properly completed or even some who despite having many employees at the present time, have only one or two statutory directors listed.
Other data anomalies:
- Businesses with zero employees: 433
- No employee data or unable to locate employee data: 174. These are businesses who have self classified in a category with at least 2-10 employees but LinkedIn is unable to locate any.
This amounts to 607 businesses that were not included in the analysis. It is probable that a high proportion of these entries were either very short lived business, trading names or businesses that never got off the ground.
This reduced the data set for analysis to 1332 entries, 304 of which have no age information
Other data related points to note:
- Of this set, 456 had only a single member listed.
- The total number of people employed in businesses included in the results that are visible on LinkedIn is 7731.
- The number of people in businesses with 2 or more members: 7275
- Average number of people in an agency with 2 or more members: 8.3
- The largest and also one of the oldest, has 126 members in Australia and has been in existence for 52 years.
For the purposes of analysis, I did not count business with a headcount of 1 in many aspects of the analysis, as many of these are contractors working for someone else.