BNET Ranking Shows Agency Network Efficiency in Decline Despite Layoffs

(MoneyWatch)  The efficiency with which the major ad agency holding companies generate their revenues continues to decline, despite massive cuts to their operating expenses, mostly in the form of layoffs.

In Q2 2009, only two companies -- ValueClick and Valassis -- showed an upward trend in the amount of revenues they collect for every $1 spent on salaries.

The news is depressing because it suggests -- as many of the network holding company bosses, such as Omnicom and Interpublic, have suggested -- that agencies must continue to cut jobs in Q3 in order to turn their businesses around.

ValueClick (an online ad provider) and Valassis (the newspaper coupon and POP giant) did well in BNET's ranking in Q1 also, suggesting that there are benefits to being a non-traditional, below-the-line agency during a recession.

Alloy Media + Marketing, traditionally a champion at generating revenues on its low cost base, is also struggling with a decline in interest from its military and college based businesses (despite the success of its TV show, Gossip Girl).

Bringing up the rear -- again -- was Interpublic, which is bleeding cash and still says it needs to make more layoffs in Q3 in order to maintain its margins.

The most notable mover was billboard king Lamar Advertising, which jumped from 12th to 7th place in the ranking. Its revenue yield per $1 of operating expenses went up in Q2 to $1.14, but the long-term trend is down. Another quarter with the same or better yield will see Lamar in the "up" category.

WPP and Publicis are both treading water despite both having made significant acquisitions (TNS and Razorfish, respectively). One possible lesson? You can't buy your way into efficiency, it has to be organic.

• Company, Yield, Trend
• 1. ValueClick, 1.94, up
• 2. Alloy, 1.57, flat
• 3. Alliance Data, 1.22, down
• 4. Aegis, 1.21, down
• 5. Publicis, 1.18, down
• 6. Omnicom, 1.16, flat
• 7. Lamar, 1.14, down
• 8. WPP, 1.14, down
• 9. Havas, 1.11, down
• 10. InVentive, 1.10, flat
• 11. Valassis, 1.09, up
• 12. MDC Partners, 1.07, flat
• 13. Interpublic, 1.07, down

Methodology: The BNET ranking is calculated by dividing revenues by total operating expenses. At most agency networks, the majority of operating expenses are salaries. The resulting yield tells you roughly how good the staff are at generating revenues for their company.

The ranking is, of course, flawed. An online business like ValueClick is very different from a billboard provider like Lamar Advertising, which may have high real estate costs. The "yield" thus gives you a good idea of which type of ad businesses are strong and which are struggling.

Also, numbers from European companies such as WPP, Publicis, Havas, and Aegis are six-month yields because European companies do not break out expenses in their quarterly results. This gives them a slight advantage in the ranking. Alloy is on a different financial schedule than the other networks and its most recent numbers were used.

• See BNET's previous network efficiency rankings:
• ValueClick Tops BNET's Network Efficiency Ranking; Interpublic Comes Last
• Alloy, Aegis Top BNET's Network Efficiency Ranking; WPP Slips
• Alloy Beats WPP, IPG et al in Network Efficiency Ranking