(This article was first published in Campaign Magazine 23.2.2012)
Since clients and agencies made the departure from commissions, it was inevitable that agency fees would steadily get screwed down. Commission-based remuneration, although largely arbitrary, represented a ratio of investment in message to the media it would appear in – it was a value judgment. As soon as hours became the currency of strategy, creative and account service time became a measurable commodity with a cost that could be leveraged rather than an investment to be willingly made. But, much like any investment, the more you reduce it the lower the return you should expect – unless you also change your investment strategy.
Many marketers have thought the market would correct itself, that these fee reductions simply represent the profligate and heady days of vast commission-based fees somehow righting themselves, but the truth is that these reductions are diminishing the agency talent pool – and it’s only the agency talent that can deliver clients the value, the ROI, they want.
Tom Knox has it right, that agency remuneration models need to be more accountable to their advertisings’ performance, but for this to work their relationships need to be rebalanced, agencies need to have control over their work consistent with the accountability they would have for its e e ffectiveness. And there needs to be an agreed measure for the effectiveness the agency is expected to deliver for, as we all know, advertising is far from the only determinant of a client’s success.
But by switching client and agency behaviour from the defensive/protective habits of today’s commercial and day-to-day business, to finding more efficient ways of working, by defining what “value” could mean and how it could be measured, and by sharing performance goals – then agencies’ work could improve, clients’ return on investment increase, and the savings would be sufficient for clients to reduce their fees but for agencies to still begin to improve their failing profits – a three sum game for marketing, procurement and agencies.
It sounds far fetched, and I admit it’s not without complexity (indeed, it took me nearly two years to develop such a model). The question is which client and which agency is ready to take a big step to a new kind of relationship, because the small steps clearly aren’t working.