Agencies are facing a perfect storm of conditions, including rising costs, declining new business opportunities, and clients asking them to (once again) do more with less—despite stretched budgets and resources.
Ironically, while many agencies feel pressured to reduce prices, they should raise them. The Drum has published accounts of agency leaders who have successfully navigated price increases with their clients, a reality the UK-based Institute of Practitioners in Advertising (IPA) recently said was “inevitable” due to inflation.
How can agency leaders stand their ground on pricing and turn a potential point of weakness into a strength for their agencies? To start, get creative about options, get strategic about approach, and get planning to set your agency up for success with pricing.
If you must reduce fees, minimize scope accordingly. When you agree to do more for less, you devalue your agency just as if you'd reduced rates. Learn more about why and how you should avoid devaluing your agency at all costs.
And not just because they want to lower costs. It’s mostly because they want to increase efficiency—and the billable hour rewards the opposite. That’s according to Tim Williams at the Ignition Consulting Group, who cites studies by the Association of National Advertisers which show that most Fortune 1000 companies “want to change the way they pay their agencies.”
Williams also believes its agencies that cling most fervently to the billable-hour model, noting that the brand marketers he’s spoken to “express enormous frustration regarding their agencies' unwillingness or inability to step forward with more productive remuneration models.”
This is much easier to do if you have a track record of proven results. See what proven results look like.
The first place I’d start is with the Ignition Consulting Group’s Propulsion Blog, authored by Tim Williams. If you’re looking for help negotiating with procurement, Mike Lander at Piscari is another knowledgeable resource.
It requires knowing what questions to ask to learn about their goals and the perceived value of having (or not having) what your agency brings to the table. Find questions to help with pain and value identification here.
Two years ago, the IPA’s Marc Nohr (also chairman of Fold7) warned that agencies are "colluding in their own demise" if they don’t evolve their pricing strategies. As dire and dramatic as that sounds, there is some truth in it.
The current conditions have put agency pricing back on the front burner for many agencies. What is your group doing to evolve its pricing strategy and fortify itself against devaluation?