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By Leah Montebello
Whilst brands crave flexibility and agencies need stability, what compromise is needed?
It is a balancing act of allowing brands to work on a project basis, but also giving agencies enough commitment to charge at a price that fits both parties
Seeking reactionary solutions in an uncertain world, the requirement for marketers to do more for less has become increasingly important. Budgets are leaner and agencies are working hard to navigate a way of working that works for brands.
Like the global recession of 2007/2008, the pandemic has led to a shift away from retainers to project-based work. This has been felt more dramatically by some agencies than others, and it demonstrates how brands crave flexibility over commitment, and are arguably paying a higher price for it…
What’s the difference?
A retainer is a recurring agreement that reserves a set amount of time and resources for a regular fee. This is typically monthly or yearly, and provides both parties with consistency.
Although appealing from an agency perspective, it can be a huge burden for brands during times of economic instability. Rapid changes in the market mean that they need to pivot and redirect resources quickly, which can be difficult to do alongside regular retainer payments.
In contrast, project-based services are normally used on a campaign-by-campaign basis, and mean that agencies will support specific pieces of work, defining goals and outputs, rather than regular payment schedules. This project-based model utilises the roster of resources used by brands beyond just an Agency of Record, and allows for greater flexibility.
However, from a brand’s perspective, project-based work doesn’t provide the deeper relationship often nurtured during a retainer, and may lead to additional payments when work falls ‘out of scope’. This can be challenging, especially when fees are already higher than retainer-based work. Equally, as Simon Francis, CEO of Flock Associates, adds, “project fees can take a lot of administration without clearly defined rates” and therefore prove more expensive in the long run.
Striking the balance
Like all businesses, agencies must balance their income with staff retention and direct their resources correctly. This can be difficult to achieve when working on a project basis since it lacks the steadiness of retainer work. As such, agencies are more likely to move away from full time staff, and opt for agile, and usually more expensive, freelance talent to cater for this uncertainty.
As Cliff Campeau, Principal at US based Advertising Audit & Risk Management (AARM), explains, “With the scope of work being known [as found in retainers], the agency is better able to identify the personnel required to execute tasks and develop a staff mix that is most efficient for delivering the type of work (i.e. origination versus adaptation) and volume of activity required.”
He continues, “When an advertiser moves to a project-based approach the ability to optimize staff mix, due to potential restrictions on availability and or to aggressively price their services is more limited”. As a result, this cost is often incorporated into charged fees, and brands must accept that more ad hoc support means potentially steeper prices.
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The fact is commitment can provide you a greater discount, and without it, you will end up paying more. As Darren Woolley, Founder & Global CEO at Trinity P3 Global Marketing Management Consultants, says, “if the agency becomes uncompetitive, you could always go to tender. We cannot guarantee this strategy will find you as good or better agency, but we can guarantee you will end up paying less. Why? Because there is always someone out there willing to do your work for less.”
As such, we perhaps shouldn’t be too surprised that when also combined with a pandemic, agencies are boosting their prices; it provides a buffer that isn’t available without a steady and consistent flow of work.
However, Iain Seers, CEO of benchmarking specialist RightSpend, argues that brands can temper this by using a benchmarking solution. “You shouldn’t end up paying a high price for a project if you are managing it right, it’s all about transparency”, he says. Seers goes on to explain that RightSpend advises clients on what they should be paying for certain services on the basis of historic data collected.
How to make sure you’re paying the right project-based price
Communication is crucial and the best way to approach an agency-brand relationship is to try and find a happy medium for both parties.
A key starting point from a brand’s perspective is to communicate the type and volume of resources needed. This may be a price based output model, or it could just be building an open dialogue between agency and brand to establish direction and the resources needed through Scope Metrics.
Essentially, proper scoping and commitment to activity levels is the easiest way to achieve the best possible fee/ rate arrangement. It builds a stronger relationship and establishes a way to negotiate more competitive pricing from the offset. As Campeau explains “proper scoping and committing to certain activity levels is the best way to secure the best possible fee/ rate arrangement. Longer time commitments by brands can also give agencies the confidence in the level of work they will be doing together.” This way, agencies can plan and gauge the volume of work needed versus the value it is charged at.
Aside from commitment, clients can also shift to an output based pricing model. This is something that Francis has noted that a lot of Flock Associate clients have shifted to. He explains, “Think of it, if you like, as a set of Scope “Lego blocks” with a pre-agreed price. You can add blocks, or take off blocks, throughout the year giving great flexibility, but without the hassle of renegotiating or approving pricing”. It may take a little longer to set up, but once it is set up, it can be a value driver and time saver (and also offer the benefits of flexibility that project fees bring).
It is ultimately a balancing act of allowing brands to work on a project basis, but also giving agencies enough commitment to charge at a price that fits both parties.
At a higher level, this links back to Seers’ point on transparency. “As someone who has worked on both agency and brand side, project-based arrangement works for some tasks, but it doesn’t work for everything”. He says that a hybrid approach of retainer and project-based is often the optimum solution, and brands need to balance their highly creative tasks that require regular supervision and brand stewardship, alongside flexible models of payment. “Clients can mitigate paying high prices by working with a benchmarking solution”, he emphasises.
So whilst it may be frustrating that prices are higher for project-based work, this can be justified by the fact that clients are getting the flexibility and a flow of talent that simply isn’t feasible in a lower price bracket.
An abridged version of this article first appeared on Rightspend, which you can find here.