Even though the cost of acquiring clients in the marketing industry is on the rise, accomplished projects do not necessarily translate into profits. According to data from the National Debt Register (KRD), unreliable clients owe agencies 154.2 million PLN, which is significantly more than the agencies themselves owe their creditors (140.5 million PLN). Small agencies that serve larger clients, or one or two local clients, suffer the most from this.
The Polish marketing industry is a highly fragmented market with a large number of smaller or larger agencies specializing in developing communication, promotional, advertising and PR strategies. In recent years, mainly due to inflation, agencies significantly reduced their operating costs. For example, due to the introduction of remote working, they managed to reduce costs related to office space or administrative background. Furthermore, by leveraging AI technology, they have been able to focus on improving their efficiency without significantly increasing employment. However, customer acquisition and maintaining financial liquidity remain great challenges.
Recent research conducted by WTW Consulting on behalf of the SAR Marketing Communication Association shows that acquiring new customers is becoming more expensive. The costs of participating in tenders can range from 0.6 million to 2.7 million PLN per year. Meanwhile, data from the National Debt Register shows that even the clients they acquire do not guarantee consistent profits. Unreliable contractors owe them 154.2 million PLN, much more than the agencies should repay their creditors.
Non-Returnable Investments
Many small companies operating on a micro scale are subcontractors of larger agencies. This group also includes companies that serve local clients who do not operate on large budgets. Most of the companies that end up at the National Debt Register are such firms.
The industry currently has unpaid debts equal to 140.5 million PLN. This amount is distributed among 4.1 thousand companies, with an average debt reaching 34 thousand PLN. Due to the nature of their activity, advertising agencies have the largest sums to return to their clients – 107.5 million PLN. This group also has the most debtors – 3.3 thousand. Companies engaged in market and public opinion research have to repay 26.1 million PLN, and public relations agencies – 6.9 million PLN.
The majority of indebted agencies registered in the KRD are sole proprietorships. There are as many as 2.3 thousand of them, with a total debt of 67.6 million PLN. The biggest debtor from this group owe more than 3 million PLN. Commercial law companies need to settle 72.9 million PLN, but there are fewer of them in the register, at 1.8 thousand.
“Small advertising and marketing agencies mostly operate on a project basis. This involves the constant challenge of maintaining financial liquidity. Attracting new clients is a major problem. Even though these efforts do not always end in success, expenses related to the preparation of creative, substantive and price offers have to be incurred. They can absorb up to 8 percent of the total operational costs of a given agency. According to SAR data, annually this is about 870,000 PLN net. Fortunately, many agencies are helped in stabilizing their economic situation by advance factoring, where future receivables serve as a collateral, not the assets of the company. It allows companies to plan expenses while waiting for an invoice for a project that is yet to be realized. This relieves them from the necessity to apply for loans or borrowings that might burden their budget,” says Emanuel Nowak, an expert from the NFG factoring company.
Challenging Partnerships
But not all agencies manage to maintain financial liquidity. Those that ended up in the KRD due to unpaid obligations owe their contractors a total of 140.5 million PLN. The list of creditors is long and varied. Mainly securitization funds and debt collection companies are waiting for their money, which were generated by the agency’s original debts mainly incurred at financial institutions. This sum amounts to 64.1 million PLN. They also owe a sizeable sum, namely, 43.3 million PLN to banks, leasing and insurance companies. In addition, they owe 12 million PLN for phone, Internet and television services. Importantly, agencies have not settled their debts with partners from their own sector, accumulating about 10 million PLN in mutual debts.
Nearly one-third of the creative industry debt has accumulated in companies operating in the Mazowieckie province, amounting to as much as 49.2 million PLN. There are also the most indebted entities, 5.2 thousand. Second place is occupied by firms from Silesia where 17.5 million PLN of unpaid debts have piled up, and third place is taken by companies from Malopolska with a sum of 17.4 million PLN.
The agencies from Podlasie have the least to pay off, their total debt amounts to 612 thousand PLN. Companies from the Świętokrzyskie province – 1.1 million PLN and Opole province – 1.3 million PLN also have relatively small amounts of arrears.
Precarious Balance
Although the scoring of the industry is not the worst, KRD experts talk about a fragile balance, pointing out that both the most and the least reliable firms are disappearing from the market. They recommend thorough verification of clients to micro and small subcontractors who, operating in conditions of strong competition, seize every contract. This may limit potential financial losses resulting from cooperation with an unreliable contractor.
“July’s analysis of the payment reliability of companies from the advertising industry, conducted by the National Debt Register, shows that in the last 12 months the proportion of the most solid companies has decreased by 6 percent. But if you only consider those most active business agencies, which were often verified by clients in the KRD, 8 percent of the most reliable entities disappeared from the market. At the same time, the same number of firms with the worst reliability vanished. Therefore, it can be said that there is relative balance in the sector, but this stability is fragile. The financial situation of creative agencies is also affected by the fact that they are waiting for payment from clients. They currently have more to recover than they owe, i.e., 154.2 million PLN. In 2020, this was amount was twice smaller, amounting to 70.2 million PLN. They are owed the most by commercial firms: 36.6 million PLN, followed by construction firms: 34.7 million PLN and industrial companies: 14.5 million PLN,” says Adam Łącki, President of the National Debt Register’s Bureau of Economic Information Management Board.
Source: https://managerplus.pl/agencje-marketingowe-wydaja-miliony-na-pozyskanie-klientow-ktorzy-im-nie-placa-45334
