Catrióna Campbell gives her take on advertising agency pricing
It is with a level of trepidation, battle worn from surviving a pandemic, that industry leaders are gearing themselves up to face the gauntlet of a recession. The ‘r’ word has gone from pre-meeting chit chat to the main agenda item. Clients are openly talking about the impact on their businesses. We’re seeing tell-tale signs of an adland that continues to sell itself short.
Einstein said madness is doing the same thing repeatedly and expecting different results.
But the race to the bottom is back. It was here in 2010. And it is here again. I’m not an advocate for price fixing (it is illegal, after all) but a blended rate of anything shy of €100 is maths that doesn’t add up with current operating costs. Particularly in a climate of rising salary costs as we fight off the double threat of the great resignation and the tech brain drain.
I have two recent examples where my agency was told our proposal was significantly ‘cost prohibitive’ compared to the winning agency. We’re an independent agency that prides itself on having ‘no chandelier overheads’, no expensive legacy systems, or a P&L with a reporting line to Paris or New York. At The Public House, we’re well capable of pricing competitively, aligned with industry benchmarks and on adding value for our clients.
Nonsensical
The first example was a joint media & creative proposal for the Irish outpost of a global conglomerate. The delivery was a radio ad, print campaign and suite of digital assets. We were charging just €15k of agency fees, €8k of production fees and the rest of the budget was allocated to the media spend, but we were dismissed for being three times more expensive than the other two participating agencies. Three times more expensive. How any agency can deliver an idea, a radio ad, a print campaign and a suite of digital assets for €5k of fees is nonsensical. Getting the news via an email was an added blow.
The second example is a recent government tender – details excluded to protect the agencies involved – and we pitched a very competitive rate a tad above the benchmark itemised above based on the volume of hours required in the scope of work. We lost the tender by 700 marks, of which 657 marks were cost-related. What rate the winning agency pitched we won’t know. But as someone who lives beside the new Children’s Hospital, there has long been a need for Government procurement to recognise that cheapest cost may not equate to best value.
Competitive pricing is some agencies’ competitive advantage – with a clear strategy to ‘earn it back’ – get the client in at a lower rate, and then up the hours as the project rolls on, win back margin by charging for extra rounds of feedback or being stringent on scoping. That’s all well and good, but if the starting block is €50 an hour (or less), then it’s a long journey back to profitability. Part of me is bewildered that this pricing strategy isn’t called out at the outset.
Bigger
But for me, there’s a bigger issue. I’ve had informal conversations with agency leaders who have confided to me profit margins of less than five per cent. Our clients are unapologetic about their profit margins – and we wax lyrical about the value our clients’ brands bring to the world – so why can’t we wax lyrical about ourselves?
Making a profit isn’t embarrassing.
It shows the value we add to our clients. As business owners, it’s usually our working capital/cash-flow, keeping the lights on, enabling us to invest in our people, to invest in our IP and to build sticky cultures at a time when the tech companies are stealing our talent. Making a profit is responsible and profitability isn’t something that should be treated recklessly.
The old adage ‘turnover is vanity, and profit is sanity’ speaks volumes.
If we’re not being paid fairly for our work, that’s when the issue of commercial transparency – which I’ve been on record about before – comes into play. And the bad practice of illicit mark ups, rebates and kickbacks. Your business shouldn’t be based on what you can syphon off, but where you can add value. That’s something for which we should be fairly paid.
Catrióna Campbell is managing partner at The Public House independent advertising agency
