How agencies should actually get paid (and stop doing work for free)

“If you’re good at something, never do it for free.” As every cinephile knows, that’s advice given by the Joker in “The Dark Knight,” the second Batman film directed by Christopher Nolan. And while the Joker may not be the most obvious choice for a life coach, he makes a good point. Which begs the question, why are agencies giving away their best work for free? Ad Age recently celebrated the Small Agency Awards, and for good reason. Independent agencies are winning major pitches for big brands—not solely because of their entrepreneurial spirit and attaboy chutzpah—by offering a different kind of partnership for perilous times. In some cases we’re talking about innovative models like X&O or Murder Hornet, a core team orchestrating an adaptive network of senior talent and specialists as clients’ needs change. In other cases, it’s an independent shop like Mischief that resembles the great agencies of yore, a perfect playground for fresh ideas. Many recent agency arrivals were founded by world-class talent that was cut loose by margin-strapped networks that seem to judge the value of their employees by the inverse of their salaries. (For a primer on how some indies have been changing the conversation about compensation models, see this eye-opening report from Ad Age’s Lindsay Rittenhouse.) After all the consolidation and alphabet soup left behind by the holding companies, it’s easy to forget why this business was once fun and profitable, but emerging models remind us of what we’ve lost. And one thing agencies lost along the way is any instinct for making money. Ad Age Creativity Bookmark our section covering the best in brand creativity every day Read more here This is ironic given the most effective advertising campaigns are also entertaining, and the entertainment business—movies, TV and so on—is famous for paying top talent extraordinarily well, controlling their IP and monetizing the long tail of any ideas they create. In other words, the opposite of how creative agencies get paid today. Charging for billable hours never made sense because you’re basically asking clients to approve staffing plans that favor mid-level, client-facing talent over iconoclastic high-impact creators. Even worse, hourly billing encourages agencies to take longer to solve problems, sell process over ideation and avoid assigning experienced talent to anything but pitches. Not to mention the cowardice of conflicts, which limits agencies to working with only one brand per category despite consulting firms selling “category expertise.” That inexplicable double-standard prevents any agency from scaling through specialization while also denying clients from having access to the true maestros of a given industry. Therefore, for the sake of agencies new and old—for clients who want more bang for their buck—and for procurement people who want to know what they’re paying for, let’s borrow a page from the entertainment industry and build a bigger box office for everyone. Absent the simple solution of taking a percentage of the overall marketing budget as a retainer, one compensation model analogous to the entertainment business is a combination of fee plus long-tail income stream based on performance. We’ve all seen the case studies from the Effies, WARC and Cannes that show lifts in sales, shifts in purchase intent and increased market share resulting in millions to the bottom line. That’s our box office, so if clients are demanding ROI to justify their marketing budget, why doesn’t a percentage of the upside go to the creators of the campaign? We all know the answer to that one. Our industry ate its own tail when agencies became financial chess pieces instead of idea factories. But now the ouroboros of consolidation has come full circle, and it’s time to reconsider what we’re worth. A CFO might say an obvious place for fixing finances is to mitigate costs, and now that we’ve solved the problem of sharing in the profits of our clients’ growth, let’s tackle our expenses. There are signs of solidarity among agencies when it comes to reforming the industry’s approach to new business. The recent 4A’s and ANA study on the cost of pitching for agencies and clients suggested that both parties end up underwater, since even clients divert resources for a pitch while also incurring the costs of brand discontinuity when a campaign changes. As a cautionary tale the study is well worth the read, but what if we added some cold, hard cash into the mix? If you talk with enough agencies, you’ll hear the biggest problem with pitching lately isn’t the scope of the initial RFP, it’s that the brief, timing and deliverables often change, again and again, before the pitch is over. And in many cases, so does the size of the prize. A six-week local pitch becomes a six-month global odyssey. A promised budget of $100 million gets broken into separate assignments given to three different agencies, each worth roughly $10 million, and we’re not sure what happened to the rest of the money. A senior executive who’s never attended any of the other meetings shows up for the final with a different brief in mind. And so on. Why don’t agencies have pitch insurance? I can’t take credit for this idea but love how it forces focus and accountability. If the specs for a pitch are written into an RFI, consider that a contract. So, if a pitch gets called off, there’s a kill fee because a top agency probably turned down something else to participate. And if the scope changes, there’s an automatic penalty, since every agency made a business decision to join the hunt and incur costs based on a client’s original promise... which turned out to be bullshit. I’m pretty sure a court would call that fraud in any other industry, so why not make a commitment at the start of the pitch to ensure no one gets shafted in the end. If marketing works by differentiating a brand, then by definition creativity cannot be a commodity. Therefore it shouldn’t be priced as such. Like a hit movie, long-running TV show or champion sports team, a winning campaign stands out in a highly competitive landscape. Agencies need to remember this, stop pandering and start profiting from their actual performance. And if breakthrough advertising doesn’t matter, why did companies spend almost $300 billion on promoting their brands last year? It’s time for a sanity check, because with numbers like that at stake, you’d have to be as crazy as the Joker not to get your fair share. Check out the latest Ad Age events and award programs

How agencies should actually get paid (and stop doing work for free)

Featured Stories