Death of the Agency Commission
When it all started a long long time ago, ad agencies were pretty much design agencies, never really getting their hands dirty with actually buying the media, that was always left to the client. Then Mccann Erickson came along, started buying recruitment advertising on behalf of their clients and bang, an industry was born. There have been 4 major mile stones in agency commission history, and don’t expect me to know when they were or who made them, but it goes something like this; Mile Stone 1: “I’ll give you 10% commission on purchase price Mr agency for acting as a central point.” Mile Stone 2: “Why do we only get the same commission as them? We spend more than they do!” Mile Stone 3: “I’ll give you extra commission if you get your clients to spend with us instead of them.” Mile Stone 4: “Hi Mr client, we get 20% commission from this media, which we’ll give back to you if you book your advertising through us.” That pretty much leads us to where we are today. In trouble.
Agencies play an integral part in elevating the recruitment advertising industry and for me, they safeguard SOME of the bigger companies against themselves. However, the model appears to be broken.
The concept of agency commission was always floored, in that people will always argue (apparently when a pitch doesn’t go there way) that this model leads to bias. And lets honest, how much of said commission do agencies honestly keep? We may as well call it what it is; discount for the client, because for the most part, its all going back to them anyway. And this way of winning new business has lead to some disastrous consequences in the past. Many years ago an agency pitched for a huge client, offering all the agency commission back and offering to do the creative for free, as this agency had a rebate contract with the Guardian and this client was a huge spender in the Guardian, meaning a nice fat kick back at the end of the year for the agency. The agency won the client only to be told by the Guardian that they wouldn’t pay commission on this client. This lead to 4 years of working for nothing.
But hey, the media are just as bad, this is not an agency witch hunt by any means. In the past media have been known to offer up to 85% agency commission in order to grow new business. A figure that’s just unsustainable, certainly in this market. The media are in no position to start to criticising the system when they invented the system. I find it hard to swallow some of the media fat cats start to pull away from the ad agencies in favour of the direct model when the agencies have been the one fattening them up for years!
The recent crash of the recruitment market has lead to agencies and media looking inside themselves and questioning if the commission route is the best route to take, and a lot of people, and I’m one of the them, think it may not be. Don’t get me wrong, I still work off agency commission deals as that’s what the market dictates at the moment, but I can certainly see a future where the model changes drastically. Certain agencies have already began moving to a pure fee based model, where all time is accounted for. What a wonderful world that would be. How many times have your clients called and asked you to put together an in-depth proposal that has took 3 days, only to be told they are going in a different direction? Stinks right? And this is the main reasons the industry is in such a state right now, because only a few folk ever had the brass ones to turn round in a client pitch to say “We’re going to charge you for planning campaigns and buying media.” And why not? Why do we give it away for free like some cheap Croydon slapper on 2 4 1 night at Chico’s? What you guys do is a skill. Its took years to perfect and you’re damn good at it. Don’t cheapen what you do by not putting a pound value against it.
So for me the future is fee based agencies, not only charging for creative time but for ALL time. It would finally end the argument of favorable media decisions, it would mean skill and work are financially compensated and it would add some stability to our industry and increase the perceived and actual value of it.
Hey, maybe the media should charge for the time spent on proposals? One step at a time I guess.