Agencies Push For Value Pricing Over Time-Based
One trend that's been bubbling around in agencies for some time now might, aside from its other important benefits, may result in the elimination of the most dreaded operational activity: filling out time sheets. In recent history, following the shift from old-school 15 percent compensation, agencies have based revenue on the time it takes to complete a project mapped against the cost of hours to accomplish the project. There was then a shift to performance-based marketing that tied campaign performance to agency revenue. Now, the notion of value has been added to the compensation equation with several agencies, including Crispin Porter + Bogusky and Anomoly, setting fees based on the perceived value of the work they do for clients.
CP+B's Jeff Hicks tells Advertising Age, "We're in the intellectual-property business. We don't sell time." Davis & Gilbert's Ronald Urbach furthers explains, "The discussion is beginning to shift from 'What does it cost to generate work and services a client wants?' to 'What is the value of the services and materials the agency is creating for the client?"'
While the notion of value pricing is certainly not new, it is getting more play. However, it's going to be a difficult, uphill battle to convince cost-conscious, cost-cutting clients to view agencies more as true business partners than expendable "vendors." Time will tell. Unfortunately, our money is not with the agencies on this one.
Comments
Thanks for posting this story. It reminded my to fill out my time sheet.
It may be an uphill battle, but it's one worth having. How long it takes to create something and how much it is worth are two different things.
It's worth a shot. But clients obviously don't value advertising that much since it's the first budget they cut during a recession.
The work we do had better be perceived by clients to have a realistic degree of value. Otherwise we have done a lousy job of 1) determining their need, 2) qualifying them as a client who understands that the service we offer connects them to their target audience, and isn't merely words and images, and 3) selling ourselves as more than mere vendors. If that's how you're perceived by your cleints, fire 'em. Even though it's really your own fault.
Is there a Job number I can bill this time to?
They want results. They could give a shit about creative if it's at the expense of sales.
"'What is the value of the services and materials the agency is creating for the client?"'"
Do results factor in there or... no. Not really important. Just as long as the agency thinks the stuff is cool. Help me out here. All in favor? Ad Law!
This will be a tough sell. We hear agency executives complain all the time about the fact that agencies aren't treated the same way as other professionals like lawyers and accountants. Well, guess what: those professionals bill by the hour. "Expendable vendors" use "value pricing."
Agencies may not be able to have it both ways.
Great point, Cameron!
Jack - I guarantee that your client list (below) would cut advertising during a recession.
Telerx – Consumer Affairs subsidiary of Merck
Nabisco Specialty Foods Group
Schering Plough Health Care Products
Hoffmann-La Roche Human Health
Communique – Marcomm Agency
Merck (Merck Sharpe & Dohme)
Organic-Gro
Roche Vitamins Inc.
Avenging Angels – Advertising Agency
New Jersey Hospital Association
Hoechst-Roussel
Partnership in Philanthropy
RCA/BMG Records
Prepare Tomorrow's Parents
DSM Nutritional Products
AT&T Small Business Systems
City Limits Magazine
Fiore Associates – PR/Advertising Agency
Metropolitan College of New York
It's also a matter of owning your work. How much would it be worth to get royalties from a tagline/concept like "Absolut," "Priceless" or "Just do it" long after the client has left the agency? In fact, wouldn't they be more likely to stay if leaving meant losing their brands identity?
CP+B have an interesting approach with Haggar clothing: they bought a minority stake in the company, meaning they pretty much put their money where their mouth is. Not exactly the kind of thing that will catch on, but it uses share value as a performance measure; performance-based remuneration, in other words, but with all subjectivity removed.
A story that keeps resurfacing every couple years, with the same results.
On the agency side, you can't pay employees with equity/options locked up in another company.
On the client side, things such as reverse auctions and six sigma have made the Procurement dept a much bigger player in major contracts. Since these people were all born before 1950, asking them to try on a new "value" scheme is like smashing your head against a wall. They get paid to reduce cost. Period.
Since “Some guy” went through the effort to cut and paste the client list from my website, I feel that I should honor that profound and thoughtful effort with a response.
Yes, in times of a recession, advertising gets cut first. And those agencies who have allowed themselves to be treated as vendor scum will be out of luck. Once upon a time, agencies were considered to be valuable advisors. Then, as clients began bringing services like printing, design and media purchasing inside, and as the marketplace evolved into a quarter-by-quarter profit orgy with no long range thinking behind it, agencies were reduced to a mere variable cost.
I have survived recessions before. When clients have told me it was time to cut advertising, I brought other tactics to the table. Because that’s all advertising is: one tactic in the world of marketing communications and brand building.
Brand assets have to managed whether there’s money to pay for media or not. Market building efforts, distributor relations and incentive programs, customer retention programs, investor relations – I could go on and on, and bring added value to my clients’ tables.
Maybe others can’t do that for their clients.
OK “Some guy”, I’m done. You can go and anonymously cut and paste another section from my site.