How HR Costs Shape Agency Growth in the Digital Age

Human resource is a critical factor impacting agencies’ decisions to expand their digital solutions.

In a recent survey conducted by Sonnet of 90 agency leaders and founders, 38% of respondents indicated that HR costs were either very or extremely significant. This statistic underscores how pivotal managing HR costs can be for an agency’s growth and competitive edge in the industry.

This blog will explore the significance of HR costs in agency expansion, how they affect the decision-making process, and the strategies agencies can adopt to mitigate these costs. We’ll share insights from our own experiences at Sonnet and provide recommendations to help agencies navigate these challenges effectively.

The Strategic Impact of HR Costs

For most agencies, people are both the biggest strength and the most significant cost. And while investing in people is non-negotiable, it’s just as important to ensure those investments are aligned with the agency’s growth goals. When HR costs go unchecked, they impact cash flow but more importantly, they shape what’s possible for the future.

1. Budget Prioritisation

HR costs can quietly become the default line item that eats away at innovation. Agencies often find themselves funnelling resources into maintaining the team without realising how much they’re sacrificing in terms of forward momentum. Tech upgrades, automation tools, new service lines. These are often the first things to be postponed. The challenge isn’t in spending less on people, but in spending smarter. Strategic budgeting should regularly assess how people costs are contributing to delivery, growth, and profitability.

2. Attracting the Right Talent

In an industry where people are the product, hiring the right talent is critical as it will build or break your agency. But in today’s job market, standing out as an employer means offering more than a paycheque. Candidates are evaluating flexibility, work culture, career progression, and alignment with their values. This increases the cost of acquisition and lengthens hiring cycles. Agencies that want to attract high-performers need to treat recruitment like marketing: clarify the employer value proposition, tailor the offer to the candidate, and stay agile in response to market trends.

3. Retaining Skilled Teams

Retention is often less visible than recruitment, but far more impactful. The true cost of losing a high-performing team member includes lost knowledge, disrupted workflows, delayed projects, and the time it takes to rebuild trust with clients. More than ever, employees are looking for purpose, progress, and recognition. Agencies that actively invest in growth pathways, mentorship, and a culture of continuous learning see the payoff in loyalty and in performance and morale. Retention, done right, builds internal advocates who strengthen your brand from the inside out.

4. Scaling Without Overspending

One of the trickiest parts of growth is adding capacity without losing efficiency. Scaling a team often means taking on fixed costs before the revenue follows. But with flexible staffing models; such as project-based contractors, remote teams, or fractional roles, agencies can expand their capabilities without committing to long-term overhead. Understanding when to build in-house versus when to bring in external support is a strategic decision, and one that can protect both profitability and performance.

Final Thoughts

In any business including agencies, HR costs aren’t just a line item – they’re a strategic lever that can accelerate or slow down growth. The agencies that win are the ones that manage people investment with the same discipline they apply to client work: balancing cost with capability, staying nimble in how they scale, and creating an environment that keeps top talent engaged. By being deliberate about where and how you spend on people, you give your agency the best shot at sustainable growth without sacrificing innovation or profitability.

Contact us to find out how Sonnet’s white label digital solutions can help you grow your capabilities, keep costs in check, and deliver more for your clients.