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Agency salary and compensation trends in 2024 (featuring Nicholas Petroski)

In this episode, Chip and Nick discuss digital agency salaries and the findings of a recent research report on the topic.

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In this episode, Chip talks with Nicholas Petroski, founder of Promethean Research.

Chip and Nick discuss digital agency salaries and the findings of a recent research report on the topic. They delve into the importance of balancing billable hours, the impact of pricing on agency profitability, and the role of benefits and stipends in attracting and retaining talent.

They also touch on the need for standardization of job titles in the agency industry. 

Key takeaways

  • Chip Griffin: “You need to be thinking about pricing and salaries hand in hand if you’re going to be running a healthy agency.”
  • Nicholas Petroski: “You’re not going to compete with the large tech companies on salary. The lifestyle that you offer for your employees, that’s what you’re competing with.”
  • Chip Griffin: “I encourage owners to think as early as possible in their evolution, even when they’re just hiring one or two employees, to start thinking about the hierarchy of titles and how you’re going to compensate them so you don’t create a problem down the road.”
  • Nicholas Petroski: “If you’re pushing that utilization rate to crazy high numbers, either A, they’re lying to you. Or B, you’re working them so hard that they’re not going to be doing quality work anymore.”

Resources

About Nicholas Petroski

Nicholas runs Promethean Research, a boutique consultancy that helps digital agencies grow more reliably with higher margins and simpler operations. Since 2015, he’s been helping digital firms better understand their industry and chart more effective paths to success. Prior to co-founding Promethean, he worked as an equity analyst at a Wall St. firm where he covered the enterprise software and semiconductor industries. Before that, he spent a bit of time in corporate finance. When he’s not in the office, you can find him backpacking around the Midwest or making fancy firewood in his woodshop.

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The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

Chip Griffin: Hello and welcome to another episode of Chats with Chip. I’m your host, Chip Griffin, the founder of SAGA, the Small Agency Growth Alliance, and I am delighted to have with me today, a repeat guest, Nick PetroskI of Promethean Research. Welcome to the show, Nick.

Nicholas Petroski: Thanks so much for having me again.

Chip Griffin: It is great to have you back in particularly because we’re going to talk today about agency salaries, something that I know I get asked about all the time. What’s the right amount to pay my account manager or my project director or whatever the, the role is. And you’ve led some great research on this, just recently. And we’re going to talk about some of your findings and, and, let people know what they would get if they actually were able to download the entire report.

So before we do that, though, why don’t you tell me a little bit about yours or tell listeners rather, I know lots about you, but tell listeners a bit about yourself and Promethean Research.

Nicholas Petroski: For sure. so I’m, I’m Nick, I run Promethean. we do, I try to do the best research in the world on this stuff.

I don’t know if I do, but I like to think that I do. The digital agency industry as a whole is, is really interesting to me. And so I, I’ve just been asking questions since, you know, 2015 and apparently that’s led to a bunch of people looking to me for answers. So it’s worked really well. I do consulting work for, for, digital agencies.

So I help with strategy and kind of guiding how you should position yourself, how you can build, you know, repeatable rev gens is like the big one that I’ve been doing recently. Kind of anything on the strategy side though. And it’s been very interesting. And I love digging into, you know, different shops and seeing what they’re doing.

And because weirdly, when I walked into this, everything I thought, Oh, they’re a digital agency is a digital agency and they’re all the same. Yeah. This can’t be too hard. And they’re not, it is the exact opposite of that. So each one is, is really different.

Chip Griffin: They’re all very different. And I would argue that they ought to be because they’re all reflections of their owners and, and, and ought to be, because as I always tell people, there’s no reason to be running your own agency, if you’re not getting what you want from it. And that means that you have to structure it differently than you or I might, because we’re looking for different things.

Nicholas Petroski: Absolutely. That’s perfect advice. I love it.

Chip Griffin: So, so you’ve done this research on salaries. Tell me a little bit about what the, the research entailed, and then we’ll start talking about some of the findings.

Nicholas Petroski: Yeah. So we, we get this, this is the third time running this. and before I start, I want to say thank you for participating in this one.

Your community was awesome. You know, getting more people involved in this and it only increases that salary transparency. So I wanted to say thank you to you and your community first.

Chip Griffin: Well, thank you. They are a great community and always willing to step up and they’re hungry for information. So if, if it means they have to give some to get some, they’re open to doing that.

Nicholas Petroski: That’s how it works. We’re all sharing here, right? So the research, it’s the third time we’re doing it. And, we really came out of just wanting more transparency around this. You know, you, you have different instances of, of large, recruiting firms and large salary shops, or large shops that will provide some salary data, but it was always kind of hard to tell. Like when you’re looking at those salary ranges displayed, is that what agencies are really paying? Like, what are their costs associated with this? What are they, what are they really paying that developer? and so that’s really what this was born out of back in 2018, I believe.

And so this was our third episode of it. And, it really, it’s just increasing transparency. So we, we go out and we survey, a bunch of different firms and we ask them to just send over their salary data and their benefit data. And then we crunch all the numbers and it results in, in what I think is a, is a really transparent guide on not just what to pay different roles, but also kind of the, the overarching trends of what’s happening in how you compensate your team, which is arguably more important.

Chip Griffin: And you do take a look at all of the levers of compensation, whether that’s salary, whether that’s bonuses, benefits, time off all of those kinds of things, and I think it is important to take a look at the whole picture, because particularly today, employees, I think, are coming in and expecting not just the salary to be good, but also to have some of these other benefits.

I mean, you even look at things like the difference between hybrid and in-person, agencies and, and remote and, and all these different things. You look at, the number of hours billable versus non-billable. There’s just a wealth of data in there to go along with, you know, the expected thing you would see in a salary survey, which is a long list of titles and what the ranges are for those roles.

Nicholas Petroski: Yeah, absolutely. And it was super important to take that into consideration because when we did the first one, we did, but I got a lot of questions that were very detailed that I couldn’t answer. So I’m glad we’re on iteration number three now to be able to answer those a little more completely.

Chip Griffin: Yeah, and like anything, you learn as you go, right?

Nicholas Petroski: Exactly. It gets better, hopefully, right?

Chip Griffin: So what were some of the big takeaways that you had from this edition of the survey?

Nicholas Petroski: Yeah. So, the biggest one is that the, the massive salary growth that we saw in the last survey, has cooled. So last time we did it was in 2022 and we looked at changes from 2019 to 2022 and obviously something big happened in that time period.

And so part of that was a massive pull forward in digital transformation spending and digital marketing spending. What that resulted in was a huge fight for talent and that was kicking salaries up. I believe the average was 25 percent salary increase from 2019 to 2022. Which is just insane. It’s very difficult for a digital agency owner to, to eat that kind of salary increase.

And so what we saw in this one, we specifically checked for this again, was that the, the average growth rate of salaries between 2022 and 2024, was only 7%. So that’s kind of like more in line with, with typical raises and inflation and, you know, cost of living upgrades, that kind of stuff. So it’s much more manageable, especially when you factor in, you know, some of the other work we do is around pricing and price increases.

And so when you factor in the price increases that agencies were able to get in that time period. It kind of offsets, or more than offsets, this increase in salary.

Chip Griffin: Well, and I think that it’s important to be thinking of, of pricing and salaries together because part of the reason why agencies feel so stressed when, when salaries go up is in part because many agencies, not all certainly, but many have traditionally underpaid their employees versus what they might be able to earn somewhere else, in part because they are not pricing high enough in order to generate a profit if they were to pay what are truly fair market salaries for the talent that they’re getting. And then now you’ve got a situation where you had large salary growth.

Now you still got pretty strong. I mean, 7 percent is still pretty strong in a two year window. It’s not nothing. Yet the prices the agencies are charging are not going up at anywhere near that kind of rate. And so, you know, you do need to be thinking about the two hand in hand if you’re going to be running a healthy agency.

Nicholas Petroski: Absolutely. Absolutely. And one of the things that we were telling people, I’m sure you were telling them too, two years ago was don’t compete on, on salary. You know, you’re not going to compete with the large tech companies on what to pay a developer. You’re just, you can’t. So you, you have to build, and this is, this goes into like the benefits and the stuff you brought up earlier.

PTO, number of hours you’re expected to bill, all that kind of stuff, that lifestyle that you offer for your employees and for your team, that’s what you’re competing with. It’s not the salary. You can’t. It’s impossible.

Chip Griffin: Right. Well, I think it’s particularly acute for digital agencies when you’re talking about, you know, development talent, right?

Because that’s just, there is a lot more of the, the frothy tech sector spending that has been going on. It’s certainly been cooling. And we’ve seen layoffs from some of the the major players, but you know, it’s still, they’re always going to be able to offer more just because of the nature of, of what they do.

But I would say that it’s true across the agency community and not just in, in digital spaces that, you know, salary is only one piece of the puzzle. And, you know, if you’re a small agency and you’re competing against on the PR side, say an Edelman, they are likely going to be offering higher salaries, but you as a smaller agency have other things that you have to offer or should be able to offer. And so thinking about the entire package that you’re offering your potential employee or to retain your existing talent is important.

Nicholas Petroski: Absolutely.

Chip Griffin: So I want to talk about this since we started wading into pricing and all that kind of stuff.

You mentioned billable hours, and I was, I found the slide in the report on billable hours to be really interesting because if you listen to a lot of our fellow agency advisors out there, they will spew things like, you know, you’ve got to try to get to 85 percent billable or 90 percent billable for some of your junior employees.

And I always tell them that that’s just rubbish. That you’re, first of all, I, you shouldn’t be managing towards utilization rates. If that’s how you’re managing your team. you’ve completely lost the plot. And so, you know, I can show you plenty of agencies that have really high utilization rates are not profitable, don’t have happy customers, don’t have happy employees.

So you need to look at the bigger picture. But I was really fascinated because across the board in digital agencies, they’re only what, about three quarters billable? Something like that on average, I think it was about 30 hours a week and different roles were even less than that, but that’s the average across the board, counting everybody.

So, you know, you need to really be mindful of that when you’re thinking about utilization rates and not go overboard.

Nicholas Petroski: Absolutely. Right. It’s a, I think you, you captured it really well. It’s a, it’s gotta be a balance because if you’re, if you’re pushing them into that. 80 90 percent you know, utilized. there’s just not enough time for any kind of real thought work.

Like you, I heard it put well when AI kind of hit the scene last year. Like if you do push your kind of menial tasks off onto AI and you can kind of push those menial tasks off onto even, you know, more entry level employees. You’re the challenges that you’re working with that you’re thinking about every day and constantly throughout the day are more difficult.

And if you try to just think about hard things for eight hours a day, you’re gonna burn out. So you if you’re pushing that utilization rate to, you know, crazy high numbers, you’re either A, they’re lying to you. Like those aren’t real utilization, right? Or B, you’re working them so hard that they’re not going to be doing quality work anymore.

They’re not gonna be happy doing it and clients aren’t gonna be happy getting it.

Chip Griffin: Right. And I think more often it does come down to your employees will just lie to get you the number that you want to see, because, I mean, I was a junior account executive many, many moons ago, and I know that I had certain expectations from the owner of the agency that I worked for, and she laid out, you know, how much time we should be spending on certain clients and certain activities.

And so myself, along with all the other employees, I can guarantee you our time sheets always fell within those ranges. Absolutely. I can also guarantee you that in no way reflected what the actual reality was. Because if we didn’t put more time on certain clients, they would yell at us for not getting the job done.

They would complain to our bosses who would then tell us we needed to get the job done, but we also couldn’t spend more time on it. So we just told everybody what they wanted to hear and tried to get through each day as we could. And that is how employees function. It’s not because they’re evil. It’s because they’re human.

Nicholas Petroski: Exactly. The incentives don’t line up for them. They don’t. They don’t own a piece of the company. And even if they do, they don’t own a big enough piece for it to make a, you know, difference in their life.

Chip Griffin: Right. And so I was, I was encouraged by this part of the survey because it suggests that the, the people who were submitting the data to you were being completely honest.

Nicholas Petroski: I think so.

Chip Griffin: At least as best they could understand because otherwise they would be, you know, reporting all sorts of inflated numbers to you to feel good about themselves, right? So, I mean, that is encouraging that they seem to be going down that path.

Nicholas Petroski: Yeah, I thought it was really good. you know, looking at like some of the individual ones, like I think the highest one, where is it?

The highest one was a designer that, you know, on average, the designers were expected to bill 31 hours a week. you know, and then your lowest one was in biz dev and sales, which was only expected to bill 7. 8 hours per week . So you have this kind of really, like you said it earlier, you have this really wide, swath between, you know, what type of role they’re in and what type of billable they’re expected to do.

But nobody, even the, the designer at 31 hours a week, that’s not insane. Like that’s not breaking anybody.

Chip Griffin: No, no, that’s not, that’s not grinding them down. And, and it, and it seems to suggest that it accurately reflects that they do spend time in staff meetings and you know, doing other things and, and contrary to popular belief, all meetings are not bad.

And so, you know, when I talk to an agency owner and they say, we have too many meetings, I need to cut back on the meetings. No, you need to have better quality meetings. You don’t necessarily, it might be less, but it’s the quality of meetings that sucks. Not that the meetings themselves are occurring.

There you go. So, you know, obviously owners care about how much they make. So, you know, there was a, there’s a good section in the report where you address what the owners themselves are taking home. And I was incredibly encouraged by it because I mean, A, it backed up what I generally tell people, which is always good when, when my gut and experience and all that kind of match up with the reality of the data that you’re producing.

But it showed that the owners of small and medium sized agencies made more than owners of large agencies. And it, it isn’t… it, the important thing to take away from that in my mind is it’s not all about grabbing as much revenue as you can, because the more revenue does not necessarily mean the more money in your pocket, right?

Nicholas Petroski: That’s absolutely it. It’s all about what you said it right at the beginning. It’s like, what, what do you want to design your agency to do? What does this vehicle, where does this vehicle need to take you? And then what should that look like to take you there? And if, if it’s, you know, a really nice comp package, maybe stay in that medium or small agency size.

Like the challenges you’re going to deal with are, they only get bigger. Like they only have larger numbers that tie to them. So you might as well deal with less risk and enjoy it.

Chip Griffin: Well, I mean, and the thing is too, I mean, you know, small, small owners do still outpace. Super solos or studios or whatever you want to call the, the, just a couple of employee agencies.

So, you know, there is an advantage to getting at least a little bit bigger from that size. But, but you do hit a point of diminishing returns where, you know, you, you do just have larger scale problems to deal with. and I think it’s, it’s important not to be afraid of some growth, but it shouldn’t be only growth that you’re focused on.

Nicholas Petroski: Yeah, absolutely.

Chip Griffin: So as we, as we think about the actual salaries and the data that, you know, those, the tables in there. Some roles, there was a really wide spread between high and low. I mean, dramatically. Sometimes it was a two X difference between lowest paid and highest paid in it, and some, some, they’re a little bit tighter.

Do you have any observations about those or, you know, things that, that you take away from it?

Nicholas Petroski: One thing that, that really stuck out was how creative, creative agencies are with job titles.

Chip Griffin: There were certainly a lot of them.

Nicholas Petroski: There were so many and so many of them were different variations of guaranteed the same job description.

Absolutely. So I, in looking through it, that was my big takeaway was, maybe some standardization here could be helpful. I see this a lot when you go out to hire, when agencies go out to hire and they say, we’re looking for a business, developer or someone in business development and to the, the outside world and other industries that is communicated as someone who’s going to deal with primarily partnerships. In the agency world they mean that they want a salesperson. And so you have this, that’s a, the most common example, but you have this kind of thing where they’re asking for certain job titles, and what they mean is different than what’s being communicated out there into the larger world. And then they say, well, I’m having a little trouble hiring.

I’m having trouble filling these roles. and if there’s some standardization there with the, you know, broader industries or other industries, I think it could help out pretty significantly.

Chip Griffin: Yeah. And, and, I mean, you’ve got to start with standardizing within your agency. I mean, one of the things that I observe a lot of times is that even within an agency, they don’t have good standardization and they don’t have, you know, consistent salary bands based on title.

And you just, it’s natural. You start small and you just kind of start throwing around titles. And you’re like, Oh, this sounds good. That sounds good. This is what I need to bring in this person. And it’s all of a sudden you look at an org chart and you’re like, this just doesn’t make any sense. Right. And so I always encourage owners to think as early as possible in their evolution, even when they’re just hiring one or two employees to start thinking about the hierarchy of titles and, and how you’re going to compensate them. So you don’t create a problem down the road. Cause I’ve seen too many mid sized agencies really struggling to try to correct this many years down the road.

And it’s really hard when you’ve got a lot of existing people, because nobody wants to take a salary cut. Nobody wants to have their, their title diminished, but if you don’t do some of those things, then you’re going to be in a position where you have, great distortion within your ranks.

Nicholas Petroski: Absolutely.

That’s a great point. I think it’s pretty synonymous with tech debt. So if you have, you know, HR debt is essentially what it is. I don’t know if there’s any firms out there fixing this. If there are, please shoot me an email because I have a lot of challenges, a lot of clients with challenges in this area.

Chip Griffin: Yeah. I mean, essentially what you have to do is you just set it right going forward and then hopefully through attrition you can get to a rational place. I mean, that’s, that’s usually the safest way of, of dealing with it. There isn’t some great magic wand that you can use. but I, I think that, you know, the other thing that that tells you, because you have that kind of lack of standardization across the agency industry is you need to be a little bit careful.

Even when you’re consuming this data, there’s a lot of good data in here, but you also need to think about it in context and understand that your junior designer may not be the same as someone else’s junior designer. For titles like account manager, I mean, that’s all over the map, right? You know, an account manager in one place is like junior on the totem pole, but I’ve seen agencies where the account manager is like the boss of things.

You just don’t know. And a lot of it comes from what the owner’s background was, you know, what, how they had hierarchy of titles in some other agency. And so that’s what they inherit. There’s so many things that go into it. So be careful about saying, well, this data says specifically that, you know, my senior designer should be between X and Y and mine.

It may still be okay.

Nicholas Petroski: Absolutely. And you still, you have. You have individual aspects of that too. Like it’s not just the company, it’s the, you know, how many years of experience do they have? Are they designing in the right world that you’re in? Like, do they have experience doing stuff for product design?

If you do product design, you know, it’s very, it’s very individualized, which just further complicates it. I guess there’s, I guess the big takeaway is there’s no, there’s no easy way to just go about solving the salary challenge.

Chip Griffin: No, but I mean, it does. I think it is helpful when you sit down and you look at it and you’ll say, okay, well.

Are my folks at least in the ballpark here? And, and if they’re not in the ballpark, then, then you start asking, well, why are they not? Are my employees markedly higher or markedly lower than the data that, that you’re sharing? And if you can explain it, then that’s fine. If you can’t, then that’s where you need to keep digging until you can find the explanation for why you have deviated so much from the norm.

Nicholas Petroski: Absolutely. Absolutely.

Chip Griffin: And then ultimately you need to take your own data and figure out, are you actually profitable? Right. You know, if you, if you’re paying your designer $90,000 a year, and so that comes out to whatever it is from an hourly cost basis for you, are you pricing their work high enough that you’re still turning a profit on it?

And if so, it kind of doesn’t matter whether they’re within the market guidelines or not. Because you’re making money.

Nicholas Petroski: Yeah. You said it right at the beginning. You cannot, you know, distance this from the pricing conversation. Right. If you’re up at the higher end on all of your salaries, well, that’s fine if you’re pricing appropriately for that higher quality, like theoretically higher quality work.

You know, you, you should make your margin there. If you’re, if your pricing’s horrible though, and you’re 10 percent higher. And your standard, you know, cost of goods sold is, is 55%. Well, all of a sudden you’re losing 5 percent on your bottom line. Right. And that’s, that’s a hit. That’s a third of your average margins.

Chip Griffin: Right. And geography isn’t as important as it used to be, but it used to be, I mean, if you had an employee at a New York agency, they were naturally going to be paid higher than someone here in New Hampshire. I mean, that just, the cost of living is so much higher. You’re just not, even a junior employee, you’re not going to get to be able to work for you in Manhattan for the same that you could get them to work for in New Hampshire.

Now, obviously with a lot of folks working remotely and, and all of that, it’s a little bit less of a factor, but it still matters.

Nicholas Petroski: Yeah, absolutely. Absolutely. I think we back in, you know, 2019 when we first did this, I think those differences were pretty stark. I did. We didn’t get enough data from people in like the direct high cost of living cities to really do like a blanket kind of, you know, this do this in the report for, for every instance.

But what I did find was that if you’re, if you do live in a high cost of living area, or if you’re hiring from a high cost of living area, add 10 to 20 percent to whatever the base, like the average salary line is, and that’ll get you, that’ll, convert or roughly convert this.

Chip Griffin: Before we’re completely out of time here, I do want to touch base on, you know, one of the other sections of this report, and that’s the benefits. We’ve alluded to a little bit before, but in the benefits section, were there things that jumped out to you? Any key observations that you’d like to share with listeners about the benefits section of the data.

Nicholas Petroski: Yeah. It overall, the benefits, so this was very much a US based report. so we can talk about things like healthcare and, and, things along those lines, stuff they don’t have to worry about in other areas. benefits, they remained largely stable. There weren’t any kind of major deviations from prior years.

So it, it makes me, it’s encouraging to see that, you know, even though 2023 was maybe a very rough year for a lot of agencies, they maintained providing, you know, a good kind of well rounded compensation package for their teams. They didn’t deviate largely from, from the norm. So it is, it’s nice to see that, you know, you, it’s very easy to start saying, okay, well we’re going to cut a bunch of benefits or stipends or, or whatever.

And if you do that, you’re setting yourself up for longer term challenges.

Chip Griffin: And I think that’s another area of the report that’s very beneficial is it talks about, you know, what some typical stipends are, which is not, You know, a lot of agencies are like, well, you know, should I give some kind of a conference stipend or home office stipend or these kinds of things?

And you walk through in the report what some typical numbers are for agencies, at least you have a starting point to think about. On those things.

Nicholas Petroski: Well, you like, you want to be competitive, right? You, ultimately you’re providing a certain lifestyle and a certain amount of compensation. And part of that is those, you know, do they get to go to various conferences?

That can, that can be a sizable perk for certain people.

Chip Griffin: Right. And generally not a huge hit to the agency’s budget. Right. Right. I like agencies offering them because it’s not a huge amount of money. And if you do it with very few strings attached, you can’t just give it, you know, willy nilly, but at the same time, you should really empower the employee to make their own decisions about how that gets spent.

Nicholas Petroski: Yeah, like if I look at the different stipends available, you know, education stipend on average is right around 900 bucks. you can go and get some decent training for that. Like you’re not going to get all your certifications paid for, obviously, but right. That’s a good start. Same thing with the conference stuff.

Conferences did take a little bit of a hit since last time, but, it’s still a few hundred dollars. that’s enough to usually go to a conference a year. and it, it obviously varies by role. So. Dig into the data, but right.

Chip Griffin: And even if you don’t look at the numbers, at least it gives you some ideas of the kinds of things that you might be thinking about as an agency, particularly if you don’t offer any kind of stipends to your team right now, it helps you think about, Oh, is that something that I should offer?

And you know, it’s not even the dollar amount. It’s should you have it? How would you use it? How would your team respond to it? And so it hopefully will open your mind as you read through this report for some of those things.

Nicholas Petroski: Yeah, absolutely. Absolutely.

Chip Griffin: So if someone is interested in getting a copy of the full report, where should they go?

Nicholas Petroski: Yeah, it’s, I think there’s gonna be a link in the show notes, but check out, prometheanresearch.com. all of our research is, is pretty prominently displayed on our, on our homepage and under our Insights tab. I, you know, you can get obviously this full report there, and then there’s a bunch of others that we, we’ve published over the years as well.

Chip Griffin: And as you say, there will be a link in the show notes along with the discount code. So I would encourage all of you to check that out and, pick up a copy for yourself and, and, you know, supplement all of the spouting that I do on my various shows and in my articles, with some actual hard data from Nick and his team.

So, again, my guest today has been Nick PetroskI from Promethean Research. I appreciate your time. I appreciate the research that you’ve done here, and I look forward to having you back again to talk about some more data in the future.

Nicholas Petroski: Absolutely. Thanks so much for having me.

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