The official blog of Ignition Consulting Group
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-Pricing Strategy-
No activity within an advertising agency gets as much time, attention, and energy as the new business pitch. Countless times I’ve heard agency professionals confess that “We’re at our best when we’re developing new business presentations” and “Our best creative work is usually for new business prospects” …
One view of the future of our business is that increasingly agencies will make the majority of their revenues from the intellectual property they create instead of the hours they work. The “work for hire” model that has persisted for the last half-century is becoming a less and less profitable way to make a living.
In groups of agency professionals around the world I have often asked the question, “What do clients really buy from your agency?” Their answers usually include things like “Solutions to marketing problems,” “Insights and innovation,” “Expertise,” and “Successful marketplace outcomes.” Not a single person has ever said “Time.” Because deep down inside we all understand that clients don’t really buy our time. Time is just a means to an end, not the end in itself …
When you shop for a car, you’re looking for an “outcome”, not a set of components that comprise an automobile. Imagine visiting your dream car’s website and finding in place of a compelling description of the car and its main benefits, an exhaustive list of features. Or worse, a list of the components that make up the car – the hood, trunk, wheels, doors, motor, suspension, drive train, cooling system, lighting system, gauges, sensors, ignition system, starting system, switches (you get the idea) …
Is an agency that is twice the expense of an in-house unit (even when accounting for internal overhead) worth the price? Actually, yes. The right kind of agency is actually worth 11 times the price. Here’s why …
I’ve always believed that the greatest benefit of getting paid based on value instead of time isn’t that the agency has the potential to earn more money (although most do). It’s that a focus on results instead of hours has the potential to completely alter the dynamics of the agency-client relationship …
Eavesdrop on management meetings of firms around the world and you’re likely to hear a discussion about how to cut costs in order to increase profits. That’s the wrong discussion to be having …
Some agency executives bristle at the idea that their work is becoming “commoditized” by clients. Admittedly, “commoditized” is a strong word. So “devalued” if you prefer. The simple truth is that clients won’t pay much for what they consider to be widely-available services, and its killing agency profit margins. So instead of changing their business practices, many agencies just keep cutting staff, reducing benefits, etc. as though they’ll be able to save their way to success …
It’s a popular belief among agency executives that the best opportunity for new business is among current clients. Sometimes that can take the form of new projects and assignments, but sometimes it can just mean doing a better job of capturing the income opportunities you already have …
Two advertising professionals, Ken Starling and Julie Brighton, both worked 2,000 hours last year. Of those 2,000 hours, Ken billed 1,765 to client project work. Julie’s billable hours were 1,326. Which of these two executives was most productive?
Based on recent studies, the professional service firm spends over 10% of its time and energy recording, tracking, capturing, estimating, billing, and adjusting it’s time. In other words, feeding the “time machine” …
To understand what’s happened to the perception of agency value, look no further than the invasive involvement of procurement in the agency selection process. Rest assured that procurement does not hire a company’s management consulting firm. How did this happen to agencies?
Despite some recent reports about the small percentage of marketers who currently have a value-based compensation arrangement with their agencies, the move to a value-based approach will very soon become an imperative for agencies rather than an option. Paradigms always take time to shift (germ theory was developed by 1700, yet didn’t take hold until the time of Joseph Lister in 1865) but when they do, entire industries shift with them. In the not-too-distant future, it will be as hard to imagine that agencies sold “time” as it is to imagine the pre-germ-theory world of medicine where surgeons didn’t bother to wash their hands.
Besides being an ineffective way for agencies to capture the tremendous value they create for their clients, the billable time system actually inhibits agencies from internal collaboration, professional development, and innovation. It creates a system where efficiency reigns at the expense of effectiveness. And if marketing isn’t effective, nothing else matters …
The vast majority of agencies are mostly engaged in “costing” instead of pricing. When your production manager walks around asking team members how many hours they expect to spend on a project, that is essentially an exercise in determining your costs. Costs are one thing. Value is quite another …
