Agency Pricing & Fees -- Benchmarks Revealed

Money makes everybody crazy. Money makes agency executives especially crazy because they are under constant pressure to close business at double digit margins in a marketplace that undervalues agency services. The magic that agencies make is often considered and bought as a commodity.

In a world where clients  buy marketing, advertising and PR services using the same criteria and the same purchasing professionals as they do for buying raw materials and office supplies, setting prices and extracting fees that have any relationship to value delivered is a source of continuing anxiety. Managing competitive pricing while simultaneously managing doubts about the perceived value of agency brands, agency negotiating skills and agency lead generation and selling skills is the target for the newly released Fees & Pricing Benchmark Report produced by RainToday and the Wellesley Hills Group.

This 80+ page book incorporates survey data from 343 professional services firms in the marketing, advertising, and PR industry mixed with analysis from RainToday, a leading sales consultant to professional services companies. It is loaded with data on rates, pricing, fee formulas and selling tactics.

The data shows that the truths agencies tell their clients are equally true for them. Brand awareness and perception drive demand. Brand leaders can charge more, discount less, earn better margins and more frequently manipulate the pricing/billing models. But accomplishing these things isn't easy even for firms with household names. The report documents an industry-wide insecurity about what clients will pay for services, what is the genuine business value agencies deliver to clients and the worry that agencies leave too much money on the table because they aren't good salesman or negotiators.

As you might imagine, the topics on everyone's mind -- those cobbler's son issues that agency executives whine about at the 4As and other venues -- get thorough coverage in this report. Here are some of the key take-aways:

• Almost everybody pays attention to the "going rates." Clients always give away competitive prices during pitches. Many firms actively scout and watch their competitors
• Fixed Fees are very popular because it gives clients predictability and to a certain extent finesses  client's questions and arguments about time/rate/skill/margin mix.
• Everybody discounts. The average variance from the rate card is 25%. Brand leaders discount less frequently and fewer dollars. Bigger firms discount more because they can.
• There is significant experimentation with value-based pricing. But there isn't common definitions of how to do it and no consensus on how clients measure the business value delivered from agency services. Only a third of firms use contingency or success fees in their billing formulas.

Amid the countless charts and verbatim quotes, the emergent prescription for agencies is:

1. Invest in business development. Get serious about lead generation and pipeline management. Aggressively target clients who you know will be right for your firm.

2. Invest in your brand. Make it different and distinctive to attract new business and substantiate better prices and margins.

3. Learn how to sell and negotiate. Get over yourselves. Stop bellyaching about the encroachment of consulting firms and others. Know when to walk away from a global brand with an inadequate budget. Don't let the bean counters push you around.