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Why brands aren’t willing to shell out more in agency fee

Ad agencies, also known as growth partners of brands, are struggling to extract a retainer fee hike from brands. As a result, many are moving to the project work model but the larger question still remains unanswered

Most ad agencies are still working at the same price with brands as they were a decade ago, despite the increasing cost of resources and talent. While some remain stagnated in terms of retainer fees, several players have even reduced their retainer just to ensure that regular client revenues keep flowing in.

Only a handful have been able to stand their ground and get a hike from brands.

While the agencies have started relying more on the project fee business model to increase their top line but is this piecemeal sort of culture sustainable in the long term?

Amit Wadhwa

Amit Wadhwa, CEO at Dentsu Creative, said, “There are many retainer clients for which we do projects also. There is a brand identity that needs to be created which is over and above the regular work that we do. There are clients who just want to do a project and move out. Then there are some who have peculiar needs, it could be brand identity, it could be website creation or a film.”

“I am not a huge fan of project basis work. I feel a regular relationship is what is needed between the agency and the client. I feel when you work on a brand you should be owning the brand and understanding the brand. That happens only when you work on it day in and day out. The project work is good but those are spices that you add to the food.”

Similarly, Rahul Pahwa, Senior Vice-President, Grey Group, said, “As much as agencies do project work but there is a certain kind of comfort that comes with retainer business. The trend that we are seeing is more hybrid. There is a certain part of the scope of work (SOW) that gets covered under the retainer and then you are able to plough a certain number of resources to that client.”

“Clients do not want to put all the eggs in one basket. They get to work with multiple agencies, clients want to put out their briefs or pitches and they also want to have comfortable partnerships for usual work. Agencies can plough the account management team and creative teams on the brand only when one knows there is a committed fee that is coming so one can sort all the expenses. On top of that, there is the project. They can call multiple agencies for big projects,” he added.

While speaking to experts on the topic of salary bias which exists in the advertising industry, an expert had told BestMediaInfo.com that the industry as a whole is shrinking every year with the retainer accounts wanting agencies to work for the same amount, which is perhaps one of the reason for salaries not increasing as much as they should have.

Another industry personnel said that people are moving out and agencies are not able to hold them because there is no financial motivation. The retainer accounts are either not increasing fees or even moving out of the agency culture altogether by setting up their in-house creative teams.

If inflation is to be considered, the cost of resources increases every year resulting in financial pressure on the agencies and this is a big reason why agencies are forced to take up work on a project basis.

Chetan Mane

Speaking on why the retainer fee is standing still, Chetan Mane, President at Idealake said, “That has been the story for quite some time now. For the last decade retainer fee across various types of agencies be it media, creative or tech agencies has seen a sharp fall.”

“Having said that what I have learned, it's not always the reduction that matters, there are always a lot of clients who want to have quality. It's the conversation at the time of negotiation or at the time when the request is moved from a quantity to quality perspective, it helps. No client, in the end, wants low-quality work, everyone wants a product which is of a certain quality. That is the responsibility that agencies always carry. What really works well is to move the conversation towards a more quality-based approach.”

Pahwa said that as far as clients asking for discounts is concerned, this is a very unfair practice. On one hand, clients want agencies to partner with them in their growth journey but not give them any growth in terms of fees.

He said, “I haven’t seen clients rewarding agencies when they grow. I have been a part of brands that have grown 500% in the last 10 years but agency fee has perhaps only gone up by 10%. On the contrary, they will say the marketing budgets are squeezing so please reduce the fees. It is an unfair partnership. Increasingly, we are seeing that the balance of the relationship is always in the favour of the client but now it is tilted even more. There is no balance. So that's why agencies are keen on taking up projects.”

Jaibeer Ahmad

Jaibeer Ahmad, Senior Vice-President at Cheil Worldwide, said, “The pressure of budgets is certainly there. The expectation of clients to do certain quality work is there. What we used to do in an X amount 5 years back, we are doing the same or even more in the same budget now. Cost pressure is there that's why the ad industry is not among the paymasters. A decade back the margin used to be better.”

Wadhwa said that during the pandemic, they also partnered with clients because those were tough times for everyone.

“It is on us, we need to stand true to quality and expect the right amount of money for the sake of our people and even clients,” he concluded.

Info@BestMediaInfo.com

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