how to avoid agency layoffs

Avoid Layoffs: How to Choose an Agency That Won't Leave You High and Dry

May 23, 2023

Seeking a job at an advertising or marketing agency?

Here's one of the most important things to look for that no one talks about...

I recently saw a large local ad agency lay off dozens of employees because one of its clients left. This big client made up about 35 percent of its business.

Ad and marketing agencies are known for having one or two clients that make up a significant portion of their income. This is especially true of traditional agencies that try to do everything (digital, TV, radio, print, etc.). 

Beware of agencies that have one client comprising a significant percentage of their business. It's risky and unhealthy.

It's great to have a big client. But if it leaves or lowers the number of hours it requires from the agency, layoffs are likely. This is why it is important for ad agencies to have a diversified client base, so that they are not too reliant on any one client.

Layoffs aren't Just a Convenient Business Tool for When Times are Rough 

Layoffs damage employee morale, customer relationships, and the company's reputation. Too many businesses casually turn to layoffs when quarterly numbers needs to be improved.

Google's parent company Alphabet recently laid off 12,000 employees with an impersonal email that some described as "heartless." No in-person updated. No phone call from a manager. Just a mass email. 

"Today, my 15+ year adventure at Google came to an unexpected end when bleary eyed and still half asleep I checked my phone and saw a notification that my corporate access expired alongside a NYT notification announcing the layoffs," according to employee Elizabeth Hart

Companies should only resort to layoffs as an absolute last resort, and they should make every effort to minimize the negative impact on their employees and their business.

The Ideal Percentage of Income a Business's Biggest Client Should Comprise 

At Blue Compass worked extremely hard to avoid this. We are the rare agency that actively works to keep our largest clients at a lower percentage of income.

This image shows Blue Compass' income from our top clients last quarter:

company income percentage by top client

Our largest client comprises 5.7% of our income. We try not to allow our top client to rise much above this level; not by limiting business from it, but by growing and gaining other clients. This is one of the reasons we avoid layoffs. If one of our clients leaves (which, thankfully, rarely occurs), the impact isn't too much for us to bare financially.

We weren't always like this. It took years of work, but I'm thankful and proud of the achievement. It leads to a healthier business and more security for our team members. Our employees enjoy a wonderful peace of mind not common at many other marketing agencies. 

How Nintendo Put Employees First, Avoided Layoffs, and Grew The Company and Profits

Unlike many of the tech giants, such as Microsoft which recently laid off 1,900 Xbox/Activision employees, Nintendo has proven the power of putting people before profits.

CEO Satoru Iwatta presided over Nintendo during the highly successful Wii/DS era. However, he also oversaw the disastrous Wii U launch - one of the least successful consoles in company history. When sales tanked and profits shrunk, Iwata decided to cut his own salary by 50%, while others on the leadership team reduced their salaries by 20%. This powerful example of servant leadership kept the company afloat while avoiding layoffs. 

"If we reduce the number of employees for better short-term financial results, employee morale will decrease. I sincerely doubt that employees who fear they will be laid off will be able to develop software titles that could impress people around the world. At Nintendo, employees make valuable contributions in their respective fields, so I believe that laying off employees will not strengthen Nintendo's business in the long run."

Indeed, layoffs can help the bottom line in the short term, but can greatly hurt the company in the long term.

Nintendo showed incredible character by cutting their leaders' salaries. Years ago at Blue Compass, we had to do the same thing. It was difficult to reduce my salary at the time, but I'm thankful we did so. 

CEO and financial expert Dave Ramsey explains this concept well in this video:

Understand an Agency's Top Clients Before Accepting a Job 

When you're interviewing with an agency, ask what percent of income the largest clients generate. Research the company's history of implementing layoffs. Avoid working at companies with one or two clients that make up a significant percentage of their business.