Scenario planning for performance marketing agencies during market dips

Key takeaways

• Scenario planning is your agency's financial shock absorber. It's a structured way to prepare for different economic futures, like a drop in client ad spend, so you're not caught off guard.
• Revenue diversification is your first line of defence. Relying too heavily on a few large clients or one service line (like paid social) makes you vulnerable. A balanced mix of retainers, projects, and service types builds stability.
• Cost-risk modelling shows you where to cut, fast. By categorising your costs as essential, flexible, or discretionary, you know exactly what to pause or reduce if revenue dips, protecting your core team and profitability.
• A contingency budget is your action-ready cash reserve. It's not just an idea; it's a separate pot of money and a clear spending plan that kicks in automatically if certain triggers are hit, giving you immediate options.

What is performance marketing agency scenario planning?

Performance marketing agency scenario planning is a practical exercise. You map out different possible futures for your business and decide how you would respond to each one. For a performance agency, the most critical scenario is a market dip where your clients reduce their advertising budgets. This planning helps you move from reactive panic to proactive control.

It's not about predicting the exact future. No one can do that. It's about being prepared for a range of plausible outcomes. Think of it like a fire drill for your agency's finances. You hope you never need it, but if you do, everyone knows what to do.

This process separates agencies that survive downturns from those that struggle. When client ad spend tightens, the prepared agency has a playbook. They can adjust their costs, protect their team, and even spot new opportunities while others are scrambling.

Why is scenario planning critical for performance marketing agencies?

Performance marketing agencies are uniquely exposed to economic shifts. Your revenue is directly tied to your clients' marketing budgets, which are often the first thing companies cut when they get nervous. Without a plan, a sudden 20% drop in client spend can force you into reactive, damaging decisions like laying off good people or taking on bad clients.

In our experience working with performance agencies, the ones with a clear scenario plan navigate uncertainty with confidence. They've already answered the tough "what if" questions. What if our three biggest clients pause their campaigns? What if new business inquiries drop by half for a quarter?

This planning gives you time. Instead of wasting weeks in crisis mode, you can execute a pre-defined strategy. This lets you focus on supporting your remaining clients even better and positioning your agency for the eventual recovery. Specialist accountants for performance marketing agencies often see this planning as the single biggest factor in financial resilience.

How do you start building your scenario plan?

Start by defining three specific scenarios: a best case, a base case, and a worst case. Your base case is your current forecast or budget. Your best case might include winning a major new client or a market upswing. Your worst case should be a realistic stress test, like a 30-40% drop in monthly retainer revenue for two quarters.

For each scenario, you model two things: your revenue and your costs. Be brutally honest. If a worst-case hit comes, which clients might leave or reduce scope? How would that affect your cash coming in? This is where you apply revenue diversification thinking. A client roster heavy in one vulnerable sector (like DTC e-commerce) is a bigger risk.

Next, model your costs under each scenario. Which costs are fixed (like office rent), and which are variable (like freelance support or software tools)? This exercise, called cost-risk modelling, shows you your financial levers. You'll see exactly how much you need to reduce spending if revenue falls by a certain amount.

What does effective revenue diversification look like?

Effective revenue diversification for a performance agency means not having all your eggs in one basket. It protects you when one part of the market slows down. The goal is a balanced mix of client types, service offerings, and pricing models that create a more stable income stream.

Look at your client mix. Do you rely heavily on startups or businesses in one industry? Actively seek clients in more recession-resistant sectors, like healthcare, professional services, or essential goods. Also, balance project work with retainer work. Retainers provide predictable income, but large projects can boost cash flow. A healthy mix might be 70% retainer and 30% project revenue.

Diversify your service lines too. If you're primarily a Google Ads shop, consider building out complementary services like SEO, email marketing, or conversion rate optimisation. These services often have longer-term contracts and are less likely to be cut immediately. This strategic revenue diversification makes your entire business model more resilient to market dips.

How does cost-risk modelling work for an agency?

Cost-risk modelling is the process of categorising every expense in your agency based on how essential it is and how quickly you can adjust it. This gives you a clear hierarchy of cuts if you need to reduce your burn rate (the speed at which you spend cash). It turns a chaotic cost-cutting exercise into a surgical one.

We recommend agencies use a simple three-tier system. Tier 1 costs are non-negotiable essentials for survival: core team salaries, key software licenses (like your project management tool), and professional fees (like your accountant). Tier 2 costs are important but flexible: freelance budgets, non-essential software, marketing spend, and training. Tier 3 costs are pure discretionary spending: team events, new office furniture, or premium subscriptions.

Your cost-risk modelling should show you, in pounds, how much you could save by pausing Tier 3 and reducing Tier 2. For example, if your worst-case scenario hits, you might immediately pause all discretionary spending and reduce freelance budgets by 50%. This pre-planned approach protects your Tier 1 costs – your people – for as long as possible.

What is a contingency budget and how do you create one?

A contingency budget is a separate, action-ready financial plan that you activate only if a specific bad scenario occurs. It's not your main budget. It's a stripped-back version that details exactly how you would operate with less revenue to extend your financial runway (how long your cash will last).

To create one, take your worst-case revenue scenario. Then, build a new profit and loss statement based only on your Tier 1 essential costs and a reduced version of your Tier 2 flexible costs. The goal is to show how you could break even or minimise losses at this lower revenue level. This becomes your survival-mode budget.

Critically, a contingency budgeting plan includes triggers. For instance, "If our cash balance falls below £X, or if we lose two of our top five clients, we immediately switch to the contingency budget." This removes emotion and delay from the decision. You also need to build a cash reserve, ideally 3-6 months of operating expenses, to fund this contingency mode. To understand where your agency stands on cash reserves and financial resilience, take the Agency Profit Score — a free 5-minute scorecard that reveals your financial health across cash flow, profit visibility, and more.

What financial metrics should you track to trigger your plans?

Track leading indicators, not just lagging ones. Don't wait until your bank account is empty to act. Monitor metrics that give you early warning signs of trouble, so you can activate parts of your scenario plan early and calmly.

The most important metric is your pipeline coverage. How many months of future revenue do you have in your confirmed and probable new business pipeline? If this drops below 3 months, it's a yellow flag. Below 1 month is a red flag. Also, watch client health scores and ad spend trends. Are your key clients talking about budget freezes? Are their monthly spends trending down?

Track your cash runway weekly. How many weeks can you pay your team and bills with your current bank balance, assuming no new money comes in? If this number dips below your comfort zone (say, 12 weeks), it's time to review your contingency options. Setting clear thresholds for these metrics turns your scenario plan from a document into a living, breathing management system.

How can scenario planning reveal new opportunities?

Good scenario planning isn't just about defence. It also helps you spot offensive opportunities that arise during market shifts. When you model different futures, you can identify gaps in the market or services that become more valuable when budgets are tight.

For example, in a downturn, clients become obsessed with marketing efficiency and proving ROI. Your scenario planning might reveal an opportunity to develop a new audit or optimisation service package. While competitors are cutting back, you could invest in a small business development effort targeting this specific need.

It also prepares you to act quickly if a competitor stumbles. If you have a contingency budget that protects your core team, you are in a position to hire great talent that becomes available or to pitch to clients who are dissatisfied with their current agency's instability. This proactive stance, born from solid performance marketing agency scenario planning, can help you gain market share during a downturn.

How often should you review and update your scenario plan?

Review your core scenario plan at least quarterly. The economic landscape and your own business change too fast for an annual review to be sufficient. A quarterly check-in ensures your assumptions are still valid and that your triggers and action plans are up to date.

Every quarter, re-forecast your revenue for the next 12 months. Look at your client contracts, pipeline, and market sentiment. Then, stress-test your worst-case scenario again. Have your costs changed? Does your contingency budget still make sense? This regular review embeds strategic thinking into your routine.

Update the plan immediately if a major event occurs, like losing a key client or a significant market downturn. The plan is a tool, not a relic. Its value comes from being current and actionable. Making this a regular discipline, perhaps with the help of a specialist advisor, is what builds long-term resilience for your performance marketing agency.