Agency by Agency has published the second edition of its comprehensive mapping of the UK agency market. We spoke to co-founder Tom Salmon about the latest findings, from the rise of nano agencies and regional growth hotspots to investment imbalances and what AI could mean for the future shape of the industry…
What was the motivation behind this latest piece of research?
This is the second report we’ve produced on the UK agency market. The first was published when we launched in March last year, and this time around, after a year of evolving the data we’ve been collecting, we wanted to go deeper into some of the themes and trends we’d been tracking.
The original report was the first time anyone had produced a comprehensive mapping of the UK agency sector. Before that, nobody really knew how many agencies there were in the UK, what they did, or what their size, shape and distribution looked like.
Each year the picture becomes richer. We can provide more intelligence and more insight, and ultimately the motivation is to help the sector better understand itself.
That understanding can help agencies make decisions about their own futures, help investors identify opportunities, and help government and policymakers better support the sector as a whole — especially now that agencies sit within the creative industries covered by the government’s new industrial strategy.
What stood out most from this year’s findings?
The more you look at something, the weirder and more complex it becomes.
What we’re seeing is almost a tale of at least two sectors in one. There’s the agency sector we see represented most often: the larger agencies, what’s happening at Cannes and the stories that tend to dominate industry coverage.
But then there’s this huge long tail of boutique, small and nano agencies that actually represent the majority of the sector by volume. Quite often they don’t necessarily see themselves reflected in the way the industry talks about itself.
We also found that when we talk about the agency sector, we can be guilty of seeing it as purely a London phenomenon. It’s true that London contains by far the largest volume of agencies and accounts for a huge proportion of overall employment, but when you look more closely, average growth rates are often higher in places such as Manchester or Sheffield.
You can also see different levels of profitability and productivity emerging across regions. When you look at productivity, places like Bristol and the South West start to move up the radar.
There are some really interesting trends that challenge the way we’ve traditionally understood the sector.
Were there any findings that genuinely surprised you?
There were definitely some uncomfortable truths in the data.
For example, we see a healthy proportion of agencies founded by women, but when you compare that with the proportion that continue to be led by women over time, it suggests we’re potentially losing female leaders from agencies and perhaps from the industry altogether.
What’s particularly striking is that women-led agencies are generating higher economic value per employee than other agencies. When you see that alongside the leadership trends, you have to ask what is happening to that talent and what we’re doing as a sector.
Investment patterns were another area that stood out. Investment remains heavily concentrated in London and the South East, despite strong growth, innovation and productivity indicators in other regions.
It feels like there are opportunities being missed to support and grow agencies outside the capital.
One of the most interesting findings was the scale of the nano agency sector. What does that tell us?
I completely agree. A lot of these nano agencies are doing brilliant work with great clients. They are proper agencies in every sense.
The important thing is that many of them aren’t trying to grow headcount or scale in the traditional way. As a sector, we can sometimes be guilty of thinking the only reason to build an agency is to sell it to a larger group one day.
But the data suggests the opposite. Most of the market consists of agencies that are built around a different set of goals.
I hesitate to call them lifestyle businesses because that term carries a certain value judgement, but many of these founders aren’t interested in building large organisations. They’re interested in building sustainable, successful businesses that work for them and their clients.
Is that mindset becoming more common among newer agencies?
I think so. When you look at agency size alongside year of formation, you can start to see newer agencies being founded by people who share that nano-agency mindset.
They’re saying: “I don’t want to recruit a huge headcount business. I’ll build a bench of experts, work with talented partner agencies and freelancers, and stay agile rather than take on large fixed costs.”
That flexibility allows them to adapt to what clients need. The cult of headcount and the cult of growth increasingly feels like a historic mentality within parts of the sector.
Could current redundancies at the large holding groups accelerate that trend?
It’s an interesting question.
We’ve been asked whether the redundancies we’re seeing among some of the larger holding companies could result in a new wave of independent agencies emerging once contracts and restrictive covenants come to an end.
We talk about thousands of jobs being lost, but are those talented people actually leaving the industry? Or are they joining other agencies, creating new businesses, or finding different ways to participate in the market?
That’s something we’ll be watching closely.
Looking ahead, what are the biggest questions facing the agency sector?
One of the most interesting indicators we track is agency formation.
Every year since 2020, fewer agencies have been founded. On one level that makes sense. Why would you launch an agency in such a turbulent environment?
You would imagine that trend probably reflects wider business confidence as well, but it raises important questions about what the sector will look like in five or ten years’ time.
What will happen to the number of agencies, the types of agencies and the overall shape of the market? What does it mean for holding companies? Will they still be acquiring agencies in the same way, or will they become more platform businesses?
Then there’s AI. We’re constantly hearing about AI replacing entry-level roles and reducing opportunities for younger people entering the sector. If you combine fewer new agencies being formed with fewer young people coming into the industry, what does that mean ten or fifteen years from now?
Those are the really big questions. We don’t have the answers yet, but they’re issues the industry needs to start thinking about now.
