Billing for buzz

13 Jun

The thing about the Campbell’s Soup example from my last blog post, which excites me so much is the notion that ideas really are what ad agencies should be valued for. 

We’ve been saying it for years, but it seems we really don’t believe it. We retreat to traditional ways of disseminating, measuring and charging for our ideas.

If the T-CAAN conference this past week convinced me of one thing, it’s that ad agencies have been too darn stubborn, and despite all the evidence pointing to the need for new models for media, fees and agency services, we still cling to them like lifelines because everything else in the landscape is changing so fast. They have been the anchors of our industry and it seems clear we feel we have invested too much in them to give them up without a fight.

They look set to become the dodo bird eggs of advertising though.

The most successful agencies are moving towards some form of engagement strategies with their customers, in a growing understanding that the amount of time a consumer spends – or engages – with a brand, is a more valuable and relevant measuring stick than how many people we expose it to (impressions, views, readership).

So how do we assess value to it? How do we charge for engaging consumers and creating these conversations around our brands? Our guest speaker Tim Williams prodded us on this question. (And if you haven’t heard of Tim, or his book Take a Stand For Your Brand, or his Agency 2.5 presentation, do yourself a favour and click here.)

It’s easy to assess using old models. A television commercial takes X amount of hours to concept, script, produce, and then the media is bought accordingly. The end result is a fee based nominally on costs to the agency, rather than value to the client.

But how do we bill for buzz? By the hour? A smart idea from an ad agency can generate invaluable engagement (like Campbell’s Soup). It may arrive in 5 minutes. Is it then only worth 5 minutes of our hourly rate?

Tim shared with us some case studies of agencies that are moving towards models of performance-based renumeration. When their clients win, they win. Not unlike the ROI strategy Copeland tried, without traction, to take to the market in 2008.

Rather puts our money where our mouths have been, doesn’t it? Without the security of the hourly-rate estimate. Personally, I like it.

If you’re in advertising, or even if you’re not, and the question interests you, let us know what you think.

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3 Responses to “Billing for buzz”

  1. Shane June 14, 2010 at 10:34 am #

    I think many clients would be interested in exploring a payment-by-results agreement, which would seem to work best within a longer-term client-agency relationship based on trust and partnership. Yet, we’ve noticed clients are less interested in having AOR relationships with agencies. They want the flexibility to shop around, to engage an agency for work, pay them, and move on.

    Do you think these two opposing forces can be reconciled?

    PS – if all agencies went to payment-by-results and a client wanted to shop around, then I think the quality of the idea would become the determining factor in agency selection, instead of who had the cheapest hourly rate or most awards on their shelf. Wouldn’t that be great?!

  2. dougbrowncreative June 14, 2010 at 2:52 pm #

    It would be great as long as the clients aren’t asking for the idea upfront and then choosing their agency based on their favourite idea. Irrespective of how long it took for the agency to come up with the solution, articulating the problem was no doubt the result of a deep dig by the agency and client together.

    To your other point, the demise of AOR relationships is not, at least in my mind, the biggest barrier to performance-based renumeration. It’s marketing managers on the client side who don’t see what’s in it for them to go outside the traditional fee structure. They know they will have to sell it up the chain and its a lot of extra work, not to mention a labour of intense commitment and faith. Agencies have to make it easy for their clients.

  3. Mario Parise June 15, 2010 at 6:56 am #

    The issue of fee structures is something we’re struggling with too. I think every agency is.

    We typically go by the hour, but provide a fixed estimate. It’s not great, because we assume all the risk and our only profit incentive is to do it faster. (Naturally, we prefer to spend more time to do the job right, but from an economical stand point the motivator is clear: spend less time, earn more money.)

    The approach I would love to take is to bill every hour – regardless of the estimate – but on a cost recovery basis. Profitability would come from the pay-by-performance model. This shares the risk between client and agency, and provides a clear motivator for the agency to be results-oriented.

    But “by performance” is a tricky issue. I would define performance as sales, meaning the agency would get a commission on every sale. (We are, after all, sales people on a mass scale.) But clients don’t like to hear the idea of anyone getting a scalable cut of their profits.

    All of which is to say: I don’t know what the solution is.

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