Cart by Richard Zeid and horse by Elijah Meeks via Noun Project.
Of the agencies surveyed in the 2014 RSW/US Agency-Marketer Business Report, 39 percent said that in the past three years the amount of project work has increased and retainer-based work has decreased. Forty-three percent said that more than half of their work is now project-based.
Marketers’ shrinking (and sometimes disappearing) budgets, coupled with immense pressure to deliver quantifiable results, have led to rampant roster trimming and work moving in house. Marketers who want to keep their agencies of record (AOR) are negotiating lower fees and finding efficiencies wherever they can.
On the agency side, all of this moving around causes constant pitching for new business to fill new voids. In that same study, roughly 40 percent of agencies said their costs to pitch have risen and their margins have suffered. It’s harder to manage overhead and more difficult to forecast.
So what should agencies do?
Let that pendulum swing
Image by Adame Dahmani via Noun Project.
I’m hoping this vicious cycle is actually a pendulum. Right now, we’re swinging in the opposite direction of the “norm” we’ve enjoyed for years. After the project trend has run its course, I predict marketers will go back to building longer-term relationships with a few selected agencies.
In the meantime, as they’re currently staffed, most agencies are not equipped to handle this new reality. Other structural issues aside (and there are many), we need to adjust how we organize our teams and hire new talent, because we sink or swim with our people.
Clients need agencies with both immense knowledge and creative power. They need agencies with a strong foothold in the category, plus the ability to adapt quickly and efficiently. They need expertise in all disciplines, not just a few. This is a conundrum that’s being constantly scrutinized and picked at by every agency, marketer, and creative network in the world.
Craft a sustainable hybrid
Image by Matthew Hall via Noun Project.
One of the most talked about solutions (or band-aids) to this issue is for agencies to establish a core staff that knows the business cold (the “AOR”), with support from a flex staff of vetted freelance talent and proven partners in creative and strategy (the “project-based”) that offer much needed bandwidth and situational expertise when the account evolves.
This arrangement could help agencies quickly customize teams for their clients’ needs while cutting costs and helping to balance a bit of the decreased margin that comes with project relationships.
At our agency, we’re starting to invest more in freelance account planners. Since many of our accounts are project-based, it makes little sense to hire a strategist for each account, or to stretch a few planners across our clients. It makes more sense to engage trusted partners per project, who each come with their own strengths and experience.
I’m not saying this is the answer. But, treated with transparency and care for all client commitments and expectations, I think a core staff/flex staff model could be viable.
Make “AOR” a mindset
We’ve seen other agencies ditch the “core team” altogether (apart from senior management) and opt for a total freelance model, with an army of contract talent ready to be plugged into clients’ projects. Not the way we’d go, but these agencies exist.
On the other hand, some are reluctant to explore freelance talent at all, insisting on the all-encompassing expertise of their existing team.
Regardless of arrangement, all agencies need certain qualities in their staff to be successful today. They need teams to be results-driven, have a clear process with an eye for efficiencies, and shared attitudes on partnership with their clients.
Even in a project-based relationship, agencies need to stop protecting their turf and act like agencies of record. Because “agency of record” is really a mindset.
Even in a project-based relationship, agencies need to stop protecting their turf and act like agencies of record.
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Agencies of record learn and grow over time with their clients. They bring long-term value. They offer thinking on other areas of the business without expecting a medal or a cheque.
That’s what “agency of record” really means. It’s not about stability or exclusivity. It’s not about the size of the retainer. It’s about equal time spent with the client in the trenches as on the mountain peaks. Pure sweat equity.
Project-based or not, that’s something we can all appreciate.
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I saw this in action at the last advertising firm I worked with. Smaller businesses would pop in for one off projects instead of holding onto a firm on retainer.
This changed the way we deal wit talent. Often, keeping in-house talent wasn’t financially feasible, especially when we didn’t have a lot of clients from a particular vertical to justify the full-time talent.
Consequently, we ended up hiring a lot of mercenaries – talented freelancers who gave us the flexibiltiy to deal with a wider variety of clients without compromising on the quality of our service.
It’s a win-win for all, really. Clients got great work, we got more flexibiliy, and freelancers got paid well without sacrificing the freedom of their freelancing
For most workers, especially younger ones who have yet to establish a track record that would allow them to command decent rates, this is not a win-win situation. It means less job security, minimal insurance coverage (depending on what country you’re in) and a lack of other full-time benefits that make for a healthy work-life balance and long-term financial stability. In most agencies, this shift toward contract/freelance labour is at best a cost-cutting measure and at worst an accounting trick to keep junior and mid-level salaries off the books (while executive compensation, of course, continues to rise). As a result, agencies are losing their “next generation” to more nimble organizations that understand the importance of nurturing talent. It’s no wonder their clients are starting to notice.
Being an agency is certainly an evolution. We have seen the mindset of the client move with industry trends because it is a dynamic space. Agencies that can’t evolve will certainly feel the pain.
Metrics. Here’s a thought – metrics are the death of the old model. Agencies built on old models, which includes not only retainers, but new business that doesn’t go out to pitch, are probably less likely to be performance based. The Mad Men days are over. When it was novel, fresh and metrics were based on Nielsen and sales, it was easy for a smooth talker to keep the client happy. Now, everything (except tv spend) is measured.
Oh, and in my opinion, the trend to freelance builds disposable organizations. If I’m a brand, and I want to build a long term marketing plan I want committed workers, with visions, that are just as committed to the next five years of growth as I am. Every short term freelancer working on a project detracts slightly from the project reaching its maximum potential. I know that it makes sense in many situations though for all involved. I just think there’s a price to it.
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