It's all about business resultsAlan voices a principle I've espoused at our agency over the past four years. During that time we negotiated global contracts with large clients, merged with a sister company to create the first channel-neutral, through-the-line agency on a single P&L, and packaged our capabilities in dozens of new business pitches, many of them successful.
The proposition we make to clients and prospects is about results, or Return On Ideas. The number of hours we spend developing a campaign means little if the client's business isn't moving forward.
No -- it's all about timesheets
Yet we and almost every other agency agree to labor-based compensation agreements. To put it more bluntly, we charge by the hour, not by the idea or by the result.
Here's my version of how ad agencies got to this point.
(1) For most of the 20th Century, clients paid agencies a 15% commission on the media they placed. The agency P&L could support a high level of client service.
(2) In the 1980s and 1990s, competing agencies accepted lower commissions -- same model, but at drastically reduced prices. The agency P&L didn't allow the same level of service.
(3) Eventually, clients wanted to know what they were paying for and agencies wanted to ensure they made a profit, so the parties agreed to hourly fees that fixed the agency's staffing levels -- and fixed the agency's profit margin.
Agencies got lazy about two things
Throughout the above history, agencies worked hard and created good ideas, but got lazy about two important things.
One is appreciating the value of our ideas. Many advertisers succeed or fail based on what their agencies provide. A really good idea can lead to global or national prominence, #1 market share and a strong balance sheet. Yet many of us show up for work just hoping to get the ads out on time and on budget.
The other is estimating the value of our ideas. It's probably not hard to appreciate the value of our ideas, but what's that worth to a client? Here is why Alan Weiss' tweet this morning is so important. If you drive the client's business forward, shouldn't you be paid more than a fixed hourly rate?
Your results are worth more than your time
If you are compensated in any way based on the results you bring to your client, congratulations. This is a big step toward providing value rather than just providing advertising. Otherwise you may want to rethink your compensation agreement.