More than half of independent agencies have grown their revenues over the past six months, but rising staff costs and increasingly cautious clients are making that growth harder to convert into profit, according to a new industry benchmark.
The latest Agency Performance Pulse, produced by the Alliance of Independent Agencies in partnership with Prolific North partner Synergist and accountancy firm Moore Kingston Smith, found 54% of agencies increased total revenue in the six months to July.
Just 22% reported a decline. But the figures also reveal a more complicated picture beneath the improving top line, with agencies facing longer sales cycles, greater procurement scrutiny and rising employment costs even when they are not adding significantly to headcount.
The survey, based on responses from 87 independent agencies, found new business was the biggest engine of growth.
Some 59% reported increased revenue from new clients, against 19% recording a decline.
Existing clients proved a tougher proposition. Only 43% grew revenue from existing accounts, while almost a third – 32% – suffered a decline and 25% remained flat.
The Alliance cautions that the findings should be viewed as directional rather than statistically representative, but says they provide a snapshot of how independent agencies are responding to changing client expectations and market conditions.
Profitability has nevertheless improved for a significant proportion of the sector.
Almost half – 48% – reported an increase in EBITDA margin, compared with 35% whose margins declined. Project profitability was more stable, increasing at 33% of agencies and remaining unchanged at 43%.
One of the clearest warning signs, however, is the cost of employing people.
Employee costs increased at 62% of agencies during the period, despite only 38% increasing their headcount – suggesting much of the additional cost is being absorbed without corresponding expansion in team size.
The pressure appears particularly acute among agencies turning over between £5m and £7m, where 92% reported rising employee costs.
At the other end of the market, smaller agencies emerged as some of the strongest performers on profitability, with 64% of agencies turning over less than £1m reporting EBITDA growth, compared with 48% across the survey as a whole.
The findings form part of a wider picture of an agency market that appears to be recovering without necessarily becoming easier to navigate.
Compared with last year’s Performance Pulse, the report says agencies are seeing stronger revenue growth, improved profitability and greater confidence about future opportunities.
But slower client decision-making, increased procurement scrutiny, forecasting difficulties and rising employment costs remain persistent problems. The report concludes that 2026 is less a story of a dramatically improved market than one of agencies becoming better at adapting to difficult conditions.
Pipeline volatility was the most frequently cited barrier to performance, appearing in 33% of responses. Agencies reported longer sales cycles, more heavily scrutinised pitches, delayed sign-off and uncertainty over whether apparently healthy pipelines would ultimately translate into revenue.
Pressure on agencies’ operating models was identified in 27% of responses, while client budget pressure and cost scrutiny appeared in 25%.
AI is adding another dimension to that pressure.
Agencies reported using AI to improve productivity through automation, research, reporting and workflow efficiencies, but also said the technology was changing client expectations around speed, pricing and perceived value.
Jay Neale, chief executive of Synergist, said: “The work is out there but getting it over the line is harder than it used to be. I’m hearing this across the board from agency owners right now.
“That tracks with what we’re seeing in this year’s Agency Performance Pulse. Growth is up, profitability is improving, but sales cycles are longer and procurement is tougher. The opportunities exist. The hard part is knowing when they’ll land, understanding what the actual capacity is, and whether you can deliver them profitably.”
The outlook for the rest of the year remains cautiously optimistic.
More than half – 53% – expect new business opportunities to increase over the next six months, with only 6% predicting a decline.
Some 51% expect existing-client revenue to increase and the same proportion anticipate improved EBITDA profitability.
But agencies are not expecting many of the underlying pressures to disappear.
Two-thirds – 67% – expect employee costs to rise further, compared with 45% planning to increase headcount. And 56% expect client decision-making times to remain unchanged.
The report also identifies a shift in what the best-performing independent agencies are doing to protect themselves.
Stronger client relationships, commercial discipline, clear positioning and leadership investment are highlighted among the biggest performance drivers, while agencies are increasingly looking towards AI-enabled services, value-based pricing, higher-value advisory work, specialisation and service diversification.
Terry Martin, managing director at the Alliance of Independent Agencies, said: “When I look at the agencies performing most strongly in this survey, what stands out isn’t that they’re facing fewer challenges. They’re dealing with the same cautious clients, tighter margins and economic uncertainty as everyone else. The difference is how they’re responding.
“The highest-performing agencies have a clear sense of who they are and where they create the greatest value. They’re commercially disciplined, they’re building deeper client relationships, they’re investing in their people, and they’re embracing AI where it genuinely improves productivity and enhances the value they deliver to clients. These aren’t dramatic changes, but together they create stronger, more resilient businesses.”
He added that successful independent agencies were also increasingly recognising the value of partnerships with specialist businesses as clients demand broader capabilities.
You can download the full report here.
