WPP is evolving its pricing model away from traditional time-and-materials billing, with performance-linked fees now accounting for 20% to 25% of net sales.
CFO Joanne Wilson said the shift was accelerating across both new business and existing client relationships.
"We are seeing an evolution away from purely time and materials to more output-based pricing, more performance-based pricing, and we're seeing that come into pitches and with existing clients more regularly," Wilson said.
In a briefing on March quarter results, analyst Julien Roch of Barclays Bank’s research division, asked about contracts with an element of performance compensation.
Wilson said the company is seeing performance based compensation more in media than in other part of the business.
“I think that's important because we are used to structuring performance-related pay in a way that works for both our clients and ourselves,” she said.
“And what we are seeing is an evolution away, a little bit away from purely time and materials to more output-based pricing, more performance-based pricing, and we're seeing that come into pitches and with existing clients more regularly.
“And we're building up the muscle to be able to do that.
“But as well as performance and output-based fees, we are introducing more tech fees and … (AI system) WPP Open Pro is a good example of that.
“But the way to think about this is an evolution of our tech fees.”
The company did not provide a timeline for how quickly it expects performance and tech fees to grow as a proportion of revenue.
WPP’s move mirrors a broader industry shift away from the traditional agency billing model, with holding company rivals also reporting increased client demand for outcome-based and fixed-fee structures.
Paying agencies a monthly subscription, rather than by the number of hours worked, is another way of billing, one which smooths out the agency boom and bust of winning and losing pitches.
Martin Sorrell’s S4 Capital is pushing hard to move away from time-and-materials billing to fixed-fee subscriptions and asset-based pricing, a "talent and machine" model.
Under the model, clients pay a fixed monthly fee for a defined output volume — perhaps 50 assets a month.
As AI improves efficiency and that rises to 70, the client's cost doesn't increase. S4 argues this creates aligned incentives and increasingly looks like ARR (annual recurring revenue) rather than project work.
In practice the transition is slow. One major client won last year is fully on the subscription model, three more are in discussion.
Existing clients are harder to shift because of current contracts and procurement teams who want apples-to-apples comparisons.
The new model is now S4's default offer in all new business pitches.
An industry report published in March, Redesigning The Agency Value Model by VoxComm, a network of regional bodies representing agencies, puts hard numbers on the pressure to change.
Agency profit margins have fallen to an average of 10% from a golden age high of around 30%, while the average creative is churning out nearly five times the output for the same or less compensation than a decade ago.
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