2 commercial pinch points agencies are experiencing right now

Since several factors are coming together to affect agencies’ commercial performance, I wanted to share a couple of places where I see this manifesting itself.

Charging for time

The idea that AI enables you to “do more with less” is a flat out lie. Compare your costs from a few years ago to now and let me know how much higher they are.

AI might enable you to do more with fewer people, but the people you do have are costing you more (and if you’re not bearing increased costs it’s because they are bearing them for you - lucky you). Most agencies I speak to are spending more on R&D than ever before, since AI doesn’t solve their more complex problems out of the box (and the simpler problems are being solved by clients now anyway).

For the overwhelming majority of agencies, AI is squeezing more than it’s helping…and it’s not the only thing squeezing them either.

So, if you’re honest, you’d really like to increase your rates far more aggressively than you have…

…but clients (or, at the very least, LinkedInfluencers) are reminding you that the amount of time it takes to do the thing you’re charging for is ever decreasing, so the chances of increasing your rates much further are getting slimmer.

I’m not saying time and materials based pricing is no longer viable. I’m simply saying that it’s less viable now than it was last year…and next year it will be less viable still.

Until recently, I told agencies that they can charge in three ways:

1. Inputs (time and materials)
2. Outputs (campaigns and documents)
3. Outcomes (results)

I now tell them they should charge in two ways (and they should ideally have some of each).

Fixed fee retainers

Just like charging for time, charging a fixed fee retainer is not impossible (and it’s still not even uncommon). There’s lots of good reasons for fixed fee retainers, even from the client’s side: they know they’re always going to be supported; they know they aren’t going to go over budget; they can plan more easily, and so on.

There are two major problems with this model:

1. Clients (sweeping statement) aren’t certain that they know now what they need to be doing in 6 or 12 months, due to the pace of change; and
2. Trump has jumped the shark with the Iran war: the world of “preparing for lockdown restrictions being lifted” is over; it’s now “preparing for the next crisis”. The new normal is uncertainty, which means larger clients are less willing to commit spend to contracts that they can’t get out of.

Paraphrasing Jeff Bezos (and throwing up a little in my mouth as I do it), “what’s not going to change is actually the more important question.”

If you want your business to have more retainers than projects then you’ll need to be providing a service where the general consensus is that it’s not going to change that much…or you’ll need to look like you are going to be well ahead of those changes.

But hey, projects aren’t all bad if your agency is equipped to deal with them (is that a different article?) and you should be giving your clients the option to work with you on either basis. "Retainers vs. projects" is one of the five fundamental questions I alluded to in a previous article (so now you know two of them).

As with charging for time, retainers aren’t dead…they’re just less alive than they were a year ago and will probably be slightly closer to the grave next year.