Knee Deep in Pitches

If you want the attention of an agency leader, manager, or department head, you’ll have to wait until they get a break in the action from the latest new business pitch. In agencies of all types and sizes, new business presentations are all-consuming.

Many agency professionals point to new business presentations as models for how campaigns should be developed. They believe much of their best work and thinking has come from the concentrated bursts of energy required for the new business process (despite the fact that precious few of these ideas or recommendations are actually executed).

This shouldn’t be a surprise. Important new business pitches draw upon the talents of the very best people in the agency. Strategies and ideas are developed without the daily constraints experienced in formal agency-client relationships. Clients are not second-guessing (or even inputting) as concepts are developed. The entire agency team puts its best foot forward in every respect.

Misallocation of resources

So why is this a bad thing? First, the agency invests incredible amounts of time and money on pitches despite the fact that the odds are usually against them. As a speculative investment, this is always a gamble. But an even bigger problem is the misdirection and misallocation of agency talent spurred by the new business process.

Why are important leadership and management initiatives stalling? Because the agency CEO is devoting 110% of her attention to the upcoming new business presentation. Why do the firm’s biggest clients often feel they were promised the talent and expertise of the A team but are only getting the attention of the B team? Same reason.

One might reasonably argue that new business is the lifeblood of a professional service firm. Given the natural attrition that happens with “old” clients, new clients are essential to feeding the revenue streams of the business. This is true of any business, whether an ad agency or a hamburger stand.

The problem in agencies is the disproportionate amount of time and resources required to keep refilling the pipeline. This is due to two dynamics. The first is the flawed selection process in which agencies have agreed to participate. The typical pitch process requires multiple rounds of submissions of credentials and ever-increasing demands for sometimes extraneous information, all with limited access to the real decision makers. Worst of all, of course, is the unfortunate expectation that agencies will provide in-depth analysis of the prospective client’s business, recommended strategies to solve their most pressing business problems, and fully executed creative solutions in an array of media channels — all at no charge to the client. This is the equivalent of a restaurant habitually providing spec meals to prospective customers then wondering why they’re struggling to turn a profit.

While many industry observers agree this is a suboptimal way for the new business process to work, they have convinced themselves that the system can’t change, and that agencies have built the cost of the pitch process into their overhead. Even if it’s true that agencies can sustain the financial hit of pitches, the drain on their talent is unsustainable.

Refilling a leaky bucket

The second problem is the hourly rate system. When agencies win a new account, they are simply filling up a leaky bucket. As long as the agency is selling time, they need people to put hours on the timesheets. New business is therefore not scalable. Compare this to most other business who have a set of fixed expenses and pricing that is not tied directly to labor costs. Each new customer provides the company with the ability to earn new revenues with only marginal increases in their costs. This enables their leadership teams to spend their weekends on the beach, not in conference rooms pulling all-nighters with new business pitch teams.

While agencies may not have complete control of the pitch process, they do in fact have full authority over their revenue model. The only reason today’s marketers have the expectation of paying agencies by the hour is because we, the agency industry, taught them that system. It’s our system, not theirs. We introduced it in the 1980s in place of the commission system. Thankfully, thousands of progressive agencies around the world are now teaching their clients a better approach to remuneration — one based on the value of outputs and outcomes instead of the cost of inputs.

Agency leaders can exert more influence over the broken new business process than they assume. They can politely push back on the flawed approach used by contemporary procurement departments by following the principles outlined in books like The Challenger Sale, The Power of a Positive No, and Negotiating With Backbone. And agencies can fix the leaky revenue bucket by replacing the hourly rate system with modern pricing methodologies. The result is a more profitable firm that is able to deploy its top talent on the work that matters most.