Why Digital Marketing Agencies Have it Tough in 2023 | 5-Minute Whiteboard

3 months ago, a dear friend’s agency closed for good. 2 months ago, another close friend had a round of layoffs at their firm. And in just the last two weeks, I talked to four agency owners who reported their first revenue-declining year in the last five. It’s rough out there for a lot of digital marketing agency owners.

My hope is that, much like the email above from a colleague this week, sharing context of what’s happening at the macro and industry-levels, along with what continually-successful agencies are doing to maintain growth, can help. And although I went a little long in this week’s 5-minute whiteboard, I think you’ll find it worth the extra few minutes.


Howdy SparkToro fans, and welcome to another edition of 5-Minute Whiteboard.

I’ve been talking to a lot of marketing agency owners. I was on the road, last week at the Ascent and HotSauce conferences in New York, and I got to meet with a bunch of agency owners there. And then I have heard from a ton of folks over LinkedIn and chats and getting together with long time friends and new friends.

And I keep hearing how difficult the agency businesses is. This is actually not a surprise because, for the last especially nine months, probably since about, February of this year (2023), I have heard from and seen layoffs, stories of lost business, companies for the first year in, you know, the last five years where business is down 20%, down 15%, down 30% or more.

Clients not renewing or new client funnels not converting at the same rates, or, hey, our leads aren’t coming in the same way they used to. And I think two things have been helpful as I’ve been having these conversations: (#1) I get to aggregate a lot of knowledge and then share that out with other pull. And I wanted to share with you.

I can’t share a ton of specifics, you know, from individuals that don’t have their permission, but I did hear from a lot of agency owners that it was super helpful to just know that they weren’t alone, that this year, in particular, has been a bit of a bloodbath. And there are headwind forces in the economic sense that are driving this. I wanna talk through those, but I also wanna (#2) bring up some solutions from people who have had success. Either they’ve turned around their agencies, or they didn’t experience the downturn that other folks did.

So let’s cover both of those. First off, these headwind for what’s going on that’s causing so much stress and strife? Well, the first one is you have probably heard about how the, the fed, right, the federal reserve bank in United States is trying to increase interest rates in order to combat inflation, and that means what’s often called “the end of cheap money.” Right?

So for the last twenty years, there there has been very, very low, historically low interest rates, which of course was keeping mortgage rates quite low as well. That meant a ton of cheap dollars flooding into tech. It almost certainly funded my last startup, Moz, right?

Some of that money that LPs were looking for growth. They put it into venture capital firms who then put it into my old business and and thousands like them. You can see that the venture asset class did not have great returns over the last twenty years on average. A few firms did really well and almost everyone else did not.

So the end of that means not a lot of new startups are out there as compared to years past venture investing, of course, is down with with of a couple sectors. The second is plateauing internet adoption. So if you if you were to map the growth curve of sort of everything from, digital ad spending to number of people using the internet, number of searches on Google. All of those things had massive growth all the way to 2019.

Some of them were slowing even before that, but then in 2020 and 2021, because of the pandemic, growth exploded. Right? People were at home. They had nothing to do.

So they went on the Internet. And, of course, that ended or is ending in 2023. So you see that plateauing and that fall. After that pandemic spike, of course, digital marketing right, is in a cool down period.

People way overspent in digital. You could see this in in Google’s bottom line and Facebook’s, all the layoffs in tech and big tech advertising, right, were happening this year. And a big part of that is because they overcommitted and expected far more growth this year.

Then they saw, oh, wait, things are going back to, you know, a new normal. And so we’re not getting that growth we expected. It’s also absolutely the case that after the pandemic and this massive investment in digital marketing of all kinds, right, these same agency owners told me that 2020, 2021, and 2022 were often their very best years of the last ten because of this growth, and now there’s a very little low hanging fruit left. Every single sector, every vertical, every industry has tons of competitive pressure, because everyone is in it.

I like to think of when Geraldine and I, my wife and I used to visit Italy. She has a family there. We talked to folks and they were like, oh, we never use the web. We never use the Internet.

There’s no food delivery. No restaurant or small business has a website. But the last couple of years as we’ve gone back post pandemic, every business in Italy has a website.

Every restaurant has has a website because they had to. They had to change with the pandemic. And so now everybody’s online. Everyone’s competing for those ad dollars.

It’s not like it was those those previous years. So SEO, social, content marketing, and especially performance advertising, there’s just not a ton of low hanging fruit. Right? You can still do well if you’re in the top five percent, top one percent of high-performing folks in these fields, but you can’t be in just the top fifty percent and expect to crush it and do what you were doing in years past.

As this growth has slowed, these big platforms: Google, Facebook, Amazon, Apple, they’ve gotten greedier. Right? You can see it in their behavior, the the zero click trend of not sending any traffic out, the the trend of putting more ads above the fold, the trend of answering queries right in the results, the trend of, inserting themselves into vertical after vertical.

The the new Google Analytics, right, making their attribution platforms or the attribution models credit Google ads with with way more credit than they than they had in the previous Google Universal Analytics version. So all of these kinds things suggest, right, that platforms are taking more for themselves because they are looking for their own growth and that’s coming at your expense and the expense of digital marketing investments.

And then finally, one of the one of the big stories of the last couple of years as this cheap money has been ending and and dollars are more expensive and the interest rate that you can get with, you know, with the fed where the treasury bond is higher, there’s a shift from growth mentality to profitability mentality.

And that means that people aren’t investing as much in digital advertising, digital marketing, which is perceived as growth channel.

So it’s it’s not exclusively you. It’s the market. Right? The market is causing all of these things you’re feeling that are there things that you can do to mitigate this or or even, overcome it?

Absolutely. Absolutely. And a few of the people I talked to have had a lot of success specifically in three areas.

One, deep specialists, folks who don’t just focus on, hey, we’re a great SEO show We’re a great performance advertising shop.

We’re a great social media marketing shop. Those agencies that I’ve seen, have success and talk to who’ve done well, are usually specializing in three different ways. Like, we’re a content marketing agency for B2B companies who are in the clean energy sector.

That’s a lot of specialization, but those types of niche agencies who really, really focus and are known as the best in in their field have been doing well despite all of these forces. The second one is what I’m I’m calling them early adopters and trendsetters, but in very specific continuing to grow fields. So tech is a field that has seen a lot of slowdown this year. You can see it in stock prices and expected growth rates and all those kinds of things.

Right? The numbers from meta or from Google, Amazon, but in places like Health-Tech, where there’s huge amounts of investment, pharma, obviously, biotech, in AI, a very obvious one, but but that field is growing fast still garnering a ton of investment. In fact, I think the venture field would be way way down if it wasn’t for AI. Renewables and and clean energy.

And renewable agriculture. Those types of businesses. I have some friends in renewable agriculture or doing doing very well. Right?

There’s there’s just a ton of demand for that. And then some B2B, what I’d call hard goods and hard industry stuff. So, spaces that are more industrial spaces like aerospace and aeronautics have have had some some sectors of growth, batteries, those kinds of spaces. So if you’re in one of these sectors and you’re an early adopter, and you specialize in those spaces. You can do well there as well. And I would suspect there are of these that are underserved because they’re not thought of as popular or sexy or, you know, “interesting.”

I would suggest some digital marketers go after those sectors. B2B SaaS, by the way. That is that is not a growth sector. That’s a sector where a ton of people are getting laid off and and things are slowing down.

And then finally, C, I have talked to some folks who are outside of these fields are not deep specialists, but have continued to do well because their funnel functions in a really perfect flywheel kind of way. It is almost exclusively (at least in my network), almost exclusively through founder-led thought leadership content.

That content could be YouTube videos. It could be podcasts. It could be, webinars. It could be speaking on stages. I’ve talked to some folks who’ve started upping their stage presences, doing lots more events, including private events, charging less to speak, all that kind of stuff in order to rebuild their flywheel, which generally is:

Publish or create, distribute that content, right, collect traffic and emails to usually to their website or their their email list, their subscription, and then turn those folks into leads through nurture campaigns over time. And if you have a flywheel that functions like this, I’ve talked to a good number of folks who’ve had success.

So these three options might be the way to overcome this. I realize we’ve gone a little longer than five minutes, but I appreciate you sticking with me. And hopefully, if you’ve got a digital marketing agency or you’ve used digital agencies this year, and you have advice for other founders, other folks in the agency business and agency owners. Please go ahead and leave them in the comments on this post or thread I know there are people who would really appreciate that.

Thanks. Take care.