TL;DR
2026 State of Digital Services Report
Introducing a new dimension this year, Agency Archetypes!
We sliced the data by service mix and analysed growth, margins, and more by agency type: Design, Dev., Marketing, or Blended. Purchase the report and find out how Design shops surprisingly outperformed across just about every measure! If you purchase the report before 3/25, you'll also get an invite to our live readout and Q&A webinar at 10a ET on 3/26.
State of Digital Services Executive Summary
Growth expanded unevenly in 2025. Large agencies rebounded sharply, Studio and Medium shops posted healthy gains, and Small agencies grew the slowest. Focused agencies (Design, Dev., or Marketing) grew faster than Blended Agencies that offered diverse service mixes. Average revenue growth came in at 7.5%, a welcome improvement but still only about half the industry’s long-run average. Service mix changes again mattered, but the pattern shifted. Agencies that expanded services outgrew those that held steady, yet the fastest growth came from agencies that reduced services and narrowed focus. Specialization remained the rule, with 86% identifying as specialists this year, and more focused firms again outpaced pure generalists on revenue growth. Holding or reducing industry focus also worked better than expanding it. Pricing and revenue remained closely linked. Agencies that raised rates grew more quickly, even as pricing pressure increased at the low end of the market, while value-based pricing lost ground and underperformed more standard models last year. Agencies that transitioned into serving larger clients and larger engagements again grew substantially faster than others. Average agency headcount contracted again (-2%), driven largely by Studio shops. Turnover improved to 19% overall, but revenue per full-time employee fell for the first time in years, pointing to weaker efficiency across much of the market. Medium-sized agencies were a notable exception.
Net margins slipped to 13%, with Studio shops again earning a standout 19%. By archetype, Design agencies led on margins, and the biggest surprise was specialization, as service generalists outperformed service specialists on profitability this year. Expanding services supported growth but weighed on margins, while reducing services produced standout results on both fronts. AI was again the biggest disruptor. About a third of agencies have already implemented AI across their businesses, and another quarter are in the process. Copywriting and coding remain the most mature use cases, but project management, design, sales, and video creation all made meaningful gains. Sales, profit margins, and lead generation were the biggest concerns, while M&A interest cooled and buying and selling sentiment moved closer to balance. Overall, the headline numbers look better than they did a year ago, but under the surface, there are major gaps between agencies that are excelling in this new environment and those that are falling behind. As most agencies grow from reinvested cash flow, this divide could widen significantly in 2026.
If you're planning on buying it, make sure you purchase the report before 3/25, so you'll also get the invite to our live readout and Q&A webinar at 10a ET on 3/26. Looking forward to seeing everyone there! -Nick |
