Fifteen years is a long time in business. Especially in the marketing industry. Since 2002, agency professionals have seen their world become increasingly complex, applying their myriad skills to communications and transactions that take place anytime, anywhere, and across multiple devices.
Yet, despite this growing intensity, agency expertise is seemingly less appreciated by the companies that pay for their services. New research from the Marketing Agencies Association, warns of a 10.2% decrease in marketing agency fees since 2002, against a 46% inflation rise over the same period.
The downward trend in fees varies according to agency department. Since 2002, account handling fees have actually increased 8.9%, but planning rates have decreased 7.8%, creative rates have dropped 10.3%, and creative production rates have fallen by a huge 35.6%.
But why should this matter? After all, many companies see controlling the cost base as a sign of strong corporate governance, of advertisers getting maximum bang for their buck from a highly competitive agency market place.
There is a broader business issue here that goes far beyond the marketing sector. That of the downward pressure on smaller suppliers and the need for greater fairness in the corporate world that is reflected in the MAA’s Campaign for Better Business.
But, from the client point of view, fair increases in agency fees will lead to better, more effective ideas for the marketers paying for agency services. Falling creative and planning rates are a particular concern, because they show an apparent willingness to pay less for the big ideas and craft excellence that deliver the best business results.
At the MAA, we’re shocked by the survey results showing that, once again, the impact of financial and procurement practices are damaging the industry. Agencies can’t afford to keep being pushed down on price and brands need reminding of the true value that agencies bring to their business.
The decline in agency fees has happened despite the fact that the UK spends more of its GDP on advertising than any other major markets and that the advertising and marketing sector also created £13.3bn of gross value added (GVA) in 2014 – a 59% increase from £8.35bn in 2008.
So, what about solutions to the problem? The MAA is helping its member agencies to address issues around client remuneration and fee structures through projects such as Agency of the Future. We’re also providing advice on dealing with procurement departments when pitching for business or negotiating new contracts, and pushing for wider industry awareness and understanding of the role of procurement.
Agencies and their clients also need to look at areas such as better collaboration and alternative payment methods that are more flexible than fixed fees. Our 2016 survey results show that just 36% of agencies have alternative payment methods in place. Of these, 77% involve some sort of payment by results for clients. This can be an excellent solution but is not necessarily suitable for all cases.
While I’d like to see a big increase in exploring alternative payment methods, it’s more important that the industry works harder on building longer-term, trusting relationships, between clients and agencies. A great start on this would be the introduction of remuneration that fairly reflects the knowledge and excellence of the majority of marketing agencies.
Scott Knox is managing director of the MAA
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