Credit: Jon Tyson via Unsplash
Fees for creative agencies have dropped by 4% per year for the last 33 years, a creeping slide which has meant a 75% reduction in real prices, according to calculations by consultant Michael Farmer.
Farmer, who in 2017 wrote of a book, Madison Avenue Manslaughter: An Inside View of Fee-Cutting Clients, Profit-Hungry Owners and Declining Ad Agencies, blames the agencies themselves.
“The fact that agencies do not document or measure their workloads for fee-negotiation purposes is the ‘original sin’ that creates this problem,” he said in a Substack post first reported by the Wall Street Journal.
“Agencies accept fee levels that are completely unrelated to the amount of work they are doing.”
In his decades of corporate and advertising agency consulting, he has encountered only one industry that did not know the quantity and nature of its outputs -- the ad agency industry.
“Historically, creative agencies have been paid roughly 2.2x the cost of the people assigned to client accounts,” he said.
“Today, the situation is even worse. Some holding companies are ‘giving away the creative’ in order to do principal media trading.
“They value the creative outputs at zero. (Unfortunately, this valuation might be right!)”
Management consulting firms, by contrast, have traditionally been paid five to six times the cost of their more expensive people.
Farmer says agencies need to reposition themselves.
Agencies need to be more “creative” in solving these problems. Cranking out videos that “go viral” is not the solution. Pursuing awards is not the solution. Spending money on Superbowl ads is not the solution.
Agencies need to be smarter about the nature of media and creative scopes of work, recommending SOWs “that work” rather than merely accepting what the client wants done.
Consultants often “push back” on client briefs. Agencies need to do the same thing.
He sees little leadership among the big agencies.
Omnicom has doubled its cost cutting to $US1.5 billion which Farmer says will increase its understaffing problem and put more pressure on creatives.
“And WPP? It’s taking big write-offs and doing some opaque reorganising,” he said.
Farmer's calculations on creative agency fees:
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.