Why Agency Margins Keep Shrinking (And What That Really Means)

If you run an event agency, you already know margins are tight. You've probably known it for years, so the question isn't whether the squeeze is real, it's what's actually causing it, and whether anything can be done.

I spent 14 years inside event agencies, much of it leading procurement and supply chain functions. I've seen the margin conversation from the inside, and I've watched the same dynamics play out, year after year, without much changing.

The conventional explanations — client pressure, commission erosion, rising costs — are all true, but they're all symptoms rather than causes. The real issue goes deeper.

The Race That Nobody Wins

When I was negotiating on behalf of agencies, there was a phrase that kept coming up: "race to the bottom."

It described what happened when agencies competed primarily on price. Client procurement teams would pit agencies against each other, extracting concessions until margins became razor-thin. Agencies would accept the terms because losing the business felt worse than winning it unprofitably.

The logic was understandable. Fixed costs don't go away when you lose a client and agency staff still need paying. The office still needs rent, so better to have low-margin work than no work at all.

But that logic misses something fundamental and illustrates why it’s counter-intuitive thinking. When you compete on price, you train clients to value you on price and price alone. A core problem with that is that there's always someone willing to go lower and it extracts all value — and perhaps even goodwill — out of the service.

The Commission Question

Agency commissions have been under pressure for as long as I can remember. When Marriott cut group commissions from 10% to 7% in 2018, followed by Hilton, there was industry outcry. But the move wasn't surprising to anyone paying attention.

Hotels had been signalling their frustration for years. Distribution costs were rising. Conversion rates from agency channels were poor, often at 5-8% from enquiry to confirmed booking. The value equation wasn't working for the hoteliers.

I'll repeat something that won't be popular: I understand why hotels made that move. When I sat on industry association and hotel advisory boards, the complaints about agency conversion were consistent. Hotels felt they were paying commissions for leads that didn't convert.

The agencies I worked for took this seriously. We focused on improving conversion rates, on being a genuinely valuable distribution channel, but we were definitely in the minority. The industry, as a whole, hadn't addressed the underlying value question.

What AI Is Actually Threatening

The latest pressure on agency margins comes from technology, especially from AI and automation.

In 2025, 45% of event organisers are actively using AI tools. The most common applications? Data analytics (20%), personalisation (18%), and content creation (15%). These aren't peripheral tasks, as they’ve become core agency functions.

But AI isn't threatening agency jobs directly, at least, not yet. What it's threatening is the work that agencies charge for.

Venue sourcing, proposal generation, supplier management, budget forecasting, are all tasks that AI can do faster and cheaper than humans. Not perfectly (yet) but, perhaps, good enough for many clients.

The question agencies need to ask isn't "Will AI replace us?", it's "If AI can do the transactional work, what's left that clients will pay for?"

The Value Perception Problem

This brings us to the core issue: value perception.

Event agencies do valuable work. They bring expertise, relationships, creativity, and execution capability. They solve problems that clients can't solve themselves, and they take on risk and complexity.

But much of that value is invisible because it's embedded in the process, not itemised on an invoice. Clients see the commission or the fee. They don't see the dozens of hours that went into sourcing the right venue, negotiating the right terms, managing the logistics.

When I was running procurement, I took the approach that hotels and venues were both clients and suppliers. If you're paid by someone, you're providing them a service. That service should deliver demonstrable value.

But the commission model tends to obscure this. Agencies get paid by hotels, not directly by clients, so clients don't fully perceive the service they're receiving and often think they can just do it themselves. That’s often an on-going battle for agencies and corporate procurement departments and can feel like herding cats. On the other side, hotels and venues question whether the commission reflects the value delivered.

Everyone feels shortchanged and margins shrink as a result.

The Tactical Trap

Most agencies respond to margin pressure tactically. They cut costs, work harder, add technology, and hope it gets better.

These responses aren't wrong, exactly. After all, efficiency matters and technology can help, but it doesn’t address the underlying dynamic.

If your value isn't perceived, working harder won't change that. If clients see you as a cost centre rather than a strategic partner, cutting your costs just confirms their assumption.

The agencies I've seen thrive — genuinely thrive, not just survive — are the ones who've found ways to make their value visible. They've shifted the conversation from "What do you charge?" to "What do you deliver?"

That's not easy. It requires a different kind of client conversation. It often requires a different commercial model, and it requires confidence that your work is worth more than the current market will pay.

What This Means

I'm not going to pretend I have all the answers here. The margin dynamics facing agencies are structural, not cyclical. They won't be solved by waiting for the market to improve, but I do think there's a question worth sitting with:

If technology can do the transactional work, what's the work that only you can do?

And a follow-up:

Are you charging for that work, or are you giving it away while charging for the parts that are being commoditised?

The agencies that figure this out will look very different in five years. The ones that don't will still be racing to the bottom.

______________

Alan Newton spent 15 years in event agency leadership roles, including heading procurement and supply chain for agencies managing £70M-£250M in annual spend. He now advises agencies on strategy and transformation.