Sunday, May 11, 2014

Getting Paid

Eric B. and Rakim were insistent on being 'paid in full'

Advertising is a weird business.

It is extraordinarily difficult to value what ad agencies do.

One campaign may help create a $40 billion brand. Another may disappear without a trace.

Worst of all, successful work may continue to be successful, long after the ad agency has stopped being paid. For example, I still buy a certain chocolate bar based on an ad I saw for it over 20 years ago. The campaign has long since changed (I don't like the new work) so the original ad agency is still succeeding, but not getting any benefit for it.

So, what to do?

Most ad agencies simply charge fees for their time, with perhaps a small bonus or at-risk element that nods to 'payment by results'. 

We all know this model is unsatisfactory, yet very few alternatives have been proposed.

One PR agency offered to charge clients only if it achieved coverage for them. (Note, I can't find any trace of that company's website, so I'm not too sure how it worked out for them...)

An agency in Holland offered clients a pay what you want model.

And last week, Coca Cola announced a scheme to pay agencies a bigger bonus for non-traditional campaigns than for regular work, which is at least innovative.

At the heart of the problem is the age-old conundrum about what advertising agencies actually are. Are we providers of professional services - like lawyers and accountants - in which case a fee structure would be appropriate. Or are we producers of creative works - like songwriters or novelists - in which case a royalty makes more sense.

The truth is we're neither, and a bit of both.

Like I said, weird business.


Anonymous said...

In principle I have no problem with charging for our time. The problem is the way agencies do it.

If a lawyer spends 15 hours on a project, the client is billed 15 hours. This means the lawyer is (rightly) seen as revenue generator.

If a creative spends 15 hours, the cost is put against the fee that the agency has agreed for the project. The creative is viewed (wrongly) as an overhead.

It would be much better the other way around.

Phil said...

Hi Simon.

Please excuse the potential naivety of this comment (and the length of it!), but your Royalties point sparked a thought.

When it comes to music, the more demand the piece of music creates, the more royalties the artist (or label) receives.

So when it comes to advertising, what if the agency received a royalties fee from the client, based on ongoing media spend?

Could a clients ongoing media investment be a reflection on their value of the creative? From my own client-side experience, ads that get results tend to have a far longer shelf life in the market place.

Just a thought.

Anonymous said...

If my understanding is correct then the worse an agency is, the better it is remunerated. Here's my theory...ahem...
If they are paid with a monthly fee then the longer an agency can string out a job the better it is for them. So the more meetings there are, the more tweaks they do to a script or ad, the more they have to keep going back to the client the more money they make.
The trick is to remain just above the level of shitness that would drive a client to another agency (who undoubtedly have the same model).
What I don't understand is that clients often seem to collude in this process by asking for the agency to do ever more stupid, pointless and expensive (for them) tasks.

Anonymous said...

Best blog photo and accompanying image description yet.

Darren said...

To Anonymous (The first one, not the second one) you are incorrect. In that case the creative is considered a non-recovered cost, not an overhead. The two are different.

Perhaps we should run some basic courses on agency remuneration and finance for the creative / agency community so you can talk with the procurement and finance people in their language?

Tom Lewis said...

Scampblog - you hit the nail on the head in highlighting the identity crisis of the advertising industry.

But, it seems, scampblog does not have the answer - in concluding that we are “neither, and a bit of both”, you are essentially filing the issue under “too difficult to solve”.

How an agency should be remunerated is not the question - it’s the answer. The real question is “what business problem is the advertising seeking to address?” Once client and agency are aligned on this, the issue of appropriate remuneration structures falls into place.

You can find my full response to this post on the IPA website - just here:

Scamp said...

Well, yeah. I was definitely filing the issue under 'too difficult to solve'... at least, by me!

But I'm glad to hear that someone rather more qualified - i.e. you, Tom - is on the case.

Will be interested to see what comes out of your work... am sincerely hoping you can crack it!