Creative Agencies: Winning the Battle but Losing the War

General George Patton said it best quotIf everyone is thinking alike then somebody isn39t thinking Better to fight for something than live for nothingquotWhat39s worth fighting for these daysIf creative agencies really believed in the quality of their creative work and its positive effect on client brands then they39d fight for premium prices which would mean higher billing rates for their people After all this is what the consulting firms have been doing for more than four decades paying their people exceptionally well and marking them up 5X for their billing ratesFor entrylevel consultants salaries are about 83500 on average at toptier firms Performance bonuses are about 15775 on average with a 5000 signing bonus If we ignore the signing bonus this adds up to 99275 in newhire remuneration At a 5x billing multiple the entrylevel consultant is being billed out at 275 per hour at 1800 hours per yearSalaries for entrylevel MBA consultants and consultants with a few years39 experience earn about 149000 on average at toptier firms These consultants can earn a performance bonus of about 37000 on average At a 5x billing multiple the entrylevel MBA consultant is being billed out at 516 per hourCompare this to the current billing rates being paid to creative agencies today amp8212 from 115 to 150 per hour on average in my experience I39ve seen average billing rates as high as 250 per hour but it39s rare A billing rate of 115 per hour supports an average salary of only 88000amp821194000 per year 150 per hour Only 115000amp8211123000 250 per hour 191000amp8211205000 These are average salaries amp8212 hardly the levels that support firstrate organizations that are solving complicated creative and marketing problemsCreative agencies are underpaid and this has an inevitable and negative effect on longterm creative qualityDespite this great strides are being made by creative departments in being able to handle highly diverse scopes of work across all media disciplines amp8212 and to retain strong positive beliefs that their work is adding value in ways that they are proud of I39ve surveyed agencies many times and although they are discouraged by their highstress working conditions they continue to feel positively about their clients and the value of the work they are doing for themThese creative accomplishments are being undermined by the defeatist attitudes of those agency executives who negotiate fee arrangements for either new business or current clientsquotFear of losing the clientprospectquot is their dominant attitude and it leads to a succession of compromises that will only lead to defeatHow can senior agency leaders turn this aroundFirst they must commit to negotiate scopes of work headcounts and fees from a position of strength rather than weakness They must know how much work they are being asked to do this is rare today and how many agency FTEs it will take to do the work These basic disciplines are lacking at most agenciesSecond they must refuse to negotiate rates on the basis of salaries overhead rates and profit margins Yes I know that this is what procurement asks for but agencies can satisfy this demand by putting forward billing rates in lieu of salaries and profit margins Clients are not buying agency salaries paying for overhead or underwriting profit margins They are buying the time of talented individuals and this time has a price hourly billing rates Why should agencies cave in on this basic principleThird agencies must seek as a matter of principle premium billing rates for their people just as Apple American Express Nestlamp233 PampampG and other major advertisers seek premium prices for their products Why has the principle of premium pricing for premium talent been abandoned Out of fear rather than conviction Out of carelessness Out of weaknessIf agencies do not really believe that they are adding much value through their creative efforts then they are right to accept today39s commodity billing ratesWhat39s unacceptable I think is the belief in the inherent quality of their creative efforts and their fearbased acceptance of commodity prices Agencies caught in this trap need to change their leadersIn business as in war fear can only lead to defeatPhoto credit Henry Martin The New Yorker The Cartoon Bank With permission Don39t stop now Stay in the know with critical commentary on the advertising industry from Michael FarmerClick the social buttons to share this story with colleagues and friendsThe opinions expressed here are the author39s views and do not necessarily represent the views of MediaVillagecomMyersBizNet

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Creative Agencies: Winning the Battle but Losing the War

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Michael Farmer

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