I was listening to NPR yesterday, and I heard a scientist talk about the records of El Niño that show up in coral. Apparently, over the last 500 years or so, El Niño, the warm water current that influences the global climate, has been getting stronger.

This generally tracks with heavier rain and bigger storms in the southern United States, and really dry conditions in the northern United States and Canada. The scientist was positive that this year's El Nino impact was going to be dramatically bigger than it was a decade ago. She pointed out that fruit crops in the southern U.S. are going to have a hard time & And the wheat crops in the northern U.S. and southern Canada are also going to have a really hard time.

When asked about the impact, she said, “Ummm…food prices are going up." The host immediately pointed out that energy prices, largely due to the Strait of Hormuz being closed, are also going to continue to go up. Add in whatever is happening in the bond market - which is driving up borrowing costs for everyone - and there is an answer that isn’t awesome for those of us in marketing:

This means that over the next 18 months or so, consumers and many smaller businesses aren’t going to have as much money to spend on the things we spend our days marketing.

I've seen this with an incredible degree of regularity as I review clients' sales calls. Even companies with the largest budgets are still looking for compressed pricing on creative delivery, content delivery, website builds, and all of that, because they perceive that there should be an AI discount of some sort or another.

Recently, I've seen pushback in the 10-15% range, once an agency leader talks about the efficiencies and the additional considerations that AI brings to the party. Of of course, there's no mandate that you have to give a discount because of AI, but I have seen several agencies adjust where they place their value, so strategy and research and ideation are carrying more of the cost, and execution has less cost.

In generally, however, that is not fantastic for agencies because, traditionally, the majority of your cost is on the execution side, and there's usually just a handful of senior people who are doing the ideation and strategy, there's a real compression on the execution margin and an expansion in the strategy margin, but to this point, it does not seem like those things are entirely offsetting.

With the racing ahead of frontier models and changing marketing surface areas, I would expect that the margin compression on execution is going to accelerate over the next 6 months. New models like OpenAI's Astra seem to be incredibly facile at many of the things that we have traditionally bundled into execution. This, too, is going to accelerate the margin compression in those services.

There are already some extraordinary tools that can help you create ads and videos and copy, and for the most part, they fit inside of a few hundred to a few thousand dollars a month of subscription fees.

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My good friend, Max Traylor works with agencies on their client retention and growth. In a LinkedIn post yesterday, he outlined the changes that he identified after reviewing a bunch of account management calls from his clients. He identified 3 places that a wide variety of agency clients said right out loud where they were adjusting their marketing & growth budgets:

The bucket that those spends are coming out of are media spend, content & web development. What's really remarkable is the rapidity of these changes. Already, clients are suggesting that they are going to spend less in Q4 because there wasn't enough proof that their increased budgets over the last 2-3 years have really made a significant sustainable growth difference.

No. Not at all. But just like the shape of the marketing surfaces has changed. The shape of your agency is going to change.

BI/Analytics: You already provide some version of this every month, when you show some sort of performance reports, your agency is already good at presenting data and forecasting its impact.

Your agency is going to have to get better at the collection and interpretation of the data, no doubt, but there are tools that you can use along with your favorite LLM that will allow you to take big leaps ahead rather than tiny baby steps. I am a big fan of so many different tools, but here are 2 that I really like for data aggregation & reporting:

Are either of these going to give you access to proprietary data and complex data warehouse-driven analysis? No, but can they give you an incredibly even-handed look at not only the things that you are managing for your clients, but also other marketing activities that they've got going on so that you can show very clearly how the impact of what you do influences and amplifies the impact of other channels. To enhance data pipelines and accuracy that is better than platform reporting, you might need to find some data nerd/engineering partners…but these two platforms (plus your favorite LLM) can make you seem very Matt Damon in Good Will Hunting.

Strategy: More good news: you already do strategy, but you probably just do it narrowly. You probably spend a ton of time doing strategic thinking around the channels or opportunities that you manage. For that to elevate to strategy worth paying for independently, you have got to really understand how all parts of the business are impacted by whatever you manage or create. You also have to understand the impacts of other parts of the business on your narrow slice of the world. In order to be ready for the shift to strategy as product: you have got to make a real, intentional effort to understand multiple facets of your client's business. It's not just CAC, ROAS, MER, & conversion rates - It's free cash flow, inventory turn, customer activation, customer reactivation, partnerships, new channels, better throughput to reduce cost of goods sold and million other variables that don't make it into Meta Ads Manager or your Klaviyo dashboard.

RevOps Engineering: Skills in this arena tend to live in the world of HubSpot agencies and folks who are very specifically focused on GTM activities. my advice here is to find partners because rev ops tends to be very technical, and it really focuses on customer data capture and usage. You, as a performance marketing agency or a content agency or an SEO agency, can participate in the breadth of business growth that happens simply by bringing a rev ops partner to the party. I know that agencies are sometimes afraid of bringing other agencies into a client engagement because they are afraid that the other agency will steal their lunch, but done right and well, two agencies with complementary strengths are an incredible win for the client. Most specifically, the client knows that the agencies are good at communication and sharing of data and are open to multi-threaded solutions to complex problems. If you aren’t a RevOps agency, go find one and become friends today.

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it doesn't have to be that way at all. Consider this your warning that things are changing. Things are going to be changing faster than you will be comfortable with. Things are going to be changing so quickly, you will feel out of control.

The good news is that your prospects and clients will feel similarly out of control. And that is your opportunity.

Go back to basics and think about what the job of your agency is…if you said something that just mentioned the service that you do, you are completely wrong. The job of your agency is to help your clients make more money, become more efficient, attract new customers, and increase customer lifetime value. Who knows? The channels that you work in and the execution-focused skills that you have are just your toolbox. You & your team, use that set of tools to do the job of your agency, but AI, data, and analytics have just handed you a new set of tools. You might think that it took you years to get really good at whatever it is your agency focuses on, but in fact, it didn't. You went from not knowing anything to knowing a lot about the channels and activities that your agency manages in a matter of months. You have already shown the capacity to acquire mastery, insights, and perspective in a really short period of time.

Your clients are so busy managing their own work and their broad perspective that they don't have the time or the expertise to be able to focus on a new set of tools because AI and analytics are not being applied equally across every part of a business. Shiny technical things often hit marketing first because platforms and startups think that's where the money is, so in HR, administration, and facilities management, AI is not lifting the burden for your clients. Many parts of your clients' businesses are moving at a rapid pace, but not all that different than it has been moving for the past decade. Marketing and data are where it is moving incredibly quickly, and you are the guide to the future for your clients because their attention is diffused over all aspects of their business - and you can have a laser focus on understanding marketing tools, marketing trends, and marketing data, and then apply it to the pieces of your client's business that they will happily make available to you if only you ask to help them with it.

Have a great long weekend.

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