‘More with less’: How agencies are combating the fee crunch
For ad agencies, it’s never been harder to get paid. They forced to do more with less, even as margins and fees are getting squeezed.
We asked attendees at the Digiday Agency Summit in Phoenix, Arizona, some of the new ways they are coming up with to combat the crunch. From embracing value-based compensation agreements to adding newer capabilities, here’s how agencies are getting paid.
Answers have been lightly edited for clarity.
Nichola Perrigo, vp, associate director, digital marketing at RPA
We’ve addressed this by becoming more open and more flexible with our compensation models, to fit the client business structure. Sometimes this means a baseline agreement for what’s in scope and then a better framework for out-of-scope work. Sometimes it’s baseline agreement and a performance bonus. And sometimes we’ll take an investment position on a project with the understanding that it will become equitable later — that kind of trust helps sustain relationships.
Michael Duda, managing partner, Bullish
As consumers, we seek cheaper options and look for more value where we can. And when that happens, corporations have to figure out how to protect margins and become more efficient. The agency compensation issue is a part of that. It’s not personal. The issue lies with the lack of an honest, straightforward discussion. Speaking about fees feels like talking about sex at the dinner table. And it shouldn’t. Agencies cannot be afraid to stand up for what they need, because if we don’t, why should the client? We need to focus on compensation models that focus on the desired business outcomes and real KPIs, not just the cost to make ads.
John Osborn, president and CEO, BBDO New York
If agencies are providing ideas and campaigns that are an economic driver of a client’s business, the agencies should be fairly compensated. There should be a proportional upside in terms of incentive that the agencies should attempt to achieve. In our own relationships with clients, no contract is exactly like another. We structure these relationships uniquely based on the client. The types of services that agencies are providing are much more diverse than ever before, not only in terms of content, but also the data and the context piece. That does lend itself to looking at more diverse compensation structures.
Marcus Collins, svp, social engagement, Doner
Not only are scopes either flat or decreasing, but clients want more with less. And that’s because the industry is being disrupted. A lot of people can now generate ideas and do our jobs, and do it more efficiently than we can. So as an agency, we’re looking at what other ways do we service the client outside of creating creative products. We’re rethinking the role Doner plays for our clients: We’re not just outsourced hands, we’re partners. We’ve developed a production house that not only provides social and digital content, but also does TV production in-house, which was typically outsourced earlier. We’ve also reimagined our hiring strategy, we look for much more hybrid talent today than we did before. We need people who can don multiple hats.
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