Stop paying agencies for their time and start paying for their output

They say nostalgia’s not what it was, but I disagree. It’s a joy to look back and see how far we’ve come. Bum bags and white denim, anyone?

And remember when we were all legally obliged to mime air quotes whenever we said ‘working from home’? Ah, crazy days. That was in March.

Now we’re debating post-pandemic change, it’s clear that we can be productive away from the office. No-one’s saying it’s easy – hashtag: homeschool – but it’s totally doable.

That’s created a healthier, more trusting version of accountability. If the output’s great, then it doesn’t matter where we are or, crucially, whether it took five minutes or five hours.

In which case, given that marketers and agencies expend so much energy on ratecards and timesheets, might there be real value in refocusing from inputs to outputs?

The limitations of time

Everyone agrees that lawyers suck. Even their mums. Not least because they sell time. And although that puts a ceiling on their revenues – agencies, take note – it also means that their clients bear all the risk.

In short, lawyering takes as long as lawyering takes. As I say, they suck.

Marketers often feel the same frustration when buying agencies on a time-and-materials basis. As the former RBS CMO David Wheldon neatly put it to me, “you’re paying agencies to get it wrong, when it would cost you less if they got it right”.

Having said that, many agencies lack the lawyer’s backbone. By regularly over-servicing and failing to re-scope, they’re effectively giving you a fixed price, so the risk flips back to them.

This is most common on short-term projects, but the risk shifts again within retained relationships. Overruns often resurface later on, when the agency waves their timesheets at you, arguing for a fee increase.

Agencies know that their work is like art – it’s the deliverable, not the time spent.

You might be relaxed about both of these scenarios. After all, de facto fixed fees are the agency’s problem, whilst deferred pleas for more money can be dismissed with a ‘talk to the hand that feeds’.

So why bother refocusing on buying outputs? Because modern marketing requires unprecedented scale, breadth and urgency of communications. You need speed, volume and quality – not a futile struggle to measure the hours spent doing it.

Handling content production or programmatic media in-house might help, but external thinking from great agencies is still essential.

So if they’re struggling to make enough money – regardless of whose fault that is – then you have a problem. And the more you squeeze their ratecards, the more you’re chasing them to the bottom when you need their brains more than ever.

A culture of innovation

Agencies know that their work is like art – it’s the deliverable, not the time spent. They’ve all scrawled game-changing ideas on the back of a napkin. And yet many struggle to track time, defend rates and monetise thinking.

But it doesn’t have to be like that. MediaMonks, part of Sir Martin Sorrell’s S4 Capital, doesn’t use timesheets, so they couldn’t sell time even if they wanted to. Founder Wesley ter Haar talks about embracing ‘scar tissue’ – they accept the risk of pricing based on outputs, knowing that if they get it wrong, they’ll apply the learnings next time.

Think about the cultural difference that creates. From risk-averse covering of costs, to embracing risk and powering innovation.

The latter requires confidence, as well as a different commercial model, pricing stack and mindset. Agencies don’t find this transformation easy – especially when they’re under ratecard pressure. But it’s a quicker route to margin growth than competing with management consultancies for technology infrastructure projects.

And more to the point, marketers would really value the innovation.

Help agencies to help you

For agencies to evolve in this way, change needs to be systemic – from how they market, sell and price, to how brands choose, pay and evaluate. Clearly everyone on the client side needs to contribute.

As Adidas’s global senior director of marketing procurement Barry Byrne told me: “To truly maximise value, the answer is to align marketing, procurement and agencies behind a unified set of KPIs. This ensures all parties work together to deliver the required outputs.”

So it’s timely that the World Federation of Advertisers’ Global Sourcing Board recently launched Project Spring, its call for a “revolution” whereby procurement becomes a “trusted partner of brand investment strategy”, not least by pursuing KPIs beyond savings. Encouragingly, they’ve embraced ‘partners’ – aka agencies – as part of that journey too.

Turning to marketers, David Wheldon – who’s involved with Project Spring – believes that you have a big role to play: “There are relatively few marketing procurement people that understand both disciplines, so good marketers can educate them on what agencies do and the value they bring.”

So if you embrace procurement and help all parties align around business value, then great progress can be made.

Embedding positive change

Being stuck at home during this awful pandemic has made us more mindful of our mental health and productivity. At the same time, we’ve still delivered, despite no-one peering over our shoulders.

Building trust, confidence and accountability, this is a hugely positive shift of perspective. Switching the client/agency conversation from inputs to outputs can help make that change stick.

To be clear, this is about fixed fees for agreed outputs. Talking about outcomes and payment by results is a different conversation. So let’s leave metrics, attribution and ‘skin in the game’ for another day.

Moving away from rates and time spent creates an environment where agencies can thrive. With strong propositions – and clarity on where their expertise begins and ends – they can work smarter, improve margins and attract the best talent.

At the same time, you and your procurement colleagues would get breakthrough thinking faster, as well as certainty of price and deliverables – and who doesn’t need a little less uncertainty right now?

With any luck, perhaps before long we’ll look back on billable hours with a wry smile, wondering what planet we were on. A bit like with bum bags.

Robin Bonn is the founder of agency management consultancy, Co:definery.