Are Industry forces driving up freelancer demand?

While talking to agencies about &FRIENDS and their freelance needs, I stumbled onto something that surprised me. Large agencies seem to rely on Freelancers to the same degree as smaller agencies.  Like me you’d be forgiven for thinking that large agencies are able to reduce their relative freelance needs by having the scale to bolster their existing teams and recruit in a broader spectrum of experts. However, while these tactics are typically put in place by large agencies, it seems freelance demand still remains consistent.

Why then does agency scale seem to have almost no impact in reducing freelance demand?

I believe macro industry trends could play a major role in driving freelance demand while relaxed internal management of freelancers also naturally plays a part. Below are three industry forces and one internal company dynamic that I’ve observed:

1. Fragmentation

There is ongoing fragmentation in almost every aspect of marketing, advertising and digital.  It typically starts with fragmentation of channels and technology which leads to fragmentation of project types, which leads to fragmentation of skills which then leads to fragmentation of service offerings by agencies. The end result is a greater diversity of projects for agencies requiring a greater diversity of experts than agencies can justify or afford adding to their in house teams. Given the full service nature of large agencies, it’s only natural they fall victim to this market condition more than smaller agencies.

While agencies are typically selling more services to establish a competitive strategic position, the majority of their revenue is still typically centred in the heartland roles such as account service, creative and production. This means its hard for agencies to justify bringing in full time roles for the services that have future strategic importance but low current utilisation. The result is more freelancers to help support strategically important innovative projects.

2. Cyclical demand

Agency revenue is typically cyclical with clear peaks and troughs through the year. Usually business slowly ramps up in Q1 with Q2 and Q3 being the heaviest periods.  Q4 can be a bit of a wild card depending on how much momentum you have in your business.  Regardless though, it always falls off a cliff at Christmas time and takes two months to pick up again the next year. Given this trend, responsible agencies will balance staffing decisions based on planning for the peaks and troughs in the year. Consequently, freelancers end up playing an important role in handling the peaks, no matter what size of agency.

3. Tighter Budgets

Retainers seem to be mostly out of favour with clients and project budgets are increasingly tight which I assume is directly correlated to brands needing to spread their budgets across an ever fragmenting channel eco-system (see point 1). All of this forces agencies to reduce their staff costs and become more nimble in how they resource the projects they win.

4. Internal Checks and Balances

Larger agencies are inherently harder to run efficiently and I know from personal experience, it’s easier to justify and ‘hide’ freelancers in the corners of departments and on project teams. Though recently this is beginning to change with the big holding companies shining a spotlight on this behaviour. There is no doubt that efficiencies can be gained by tightening up the way freelancers are managed within agencies. It makes complete sense to ensure that every freelancer is either billable or a conscious investment decision (e.g. pitch). Additionally, holistic resource management avoids the all too common situation where full time team members in one team are twiddling their thumbs while comparable freelancers are brought in to work on a brief for another team.

What does this mean for agencies?

If current industry conditions really stretch agency staffing needs like they appear to, it’s likely that freelance demand will continue to increase regardless of the efforts to drive more internal efficiency.  This in turn will increase the relative importance of freelancers within agencies and encourage consideration of how to create a competitive advantage in how quality freelancers are found and engaged.

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