Agencies ‘don’t know how to get paid’

While trying to define what makes a modern advertising and media buying agency, a group of leading industry executives told the Mumbrella360 Agency of Now panel session that agencies in Australia: “don’t know how to get paid.”

The panel consisted of Aaron Michie of ZenithOptimedia, Clive Burcham of The Conscience Organisation, Damien Damjanovski of Common Ventures, and Rowena Millward of Johnson & Johnson.

Michie, who is the chief innovation officer at ZenithOptimedia, kicked off the discussion by saying agencies, as a whole, use an outdated and archaic billing system.

“The whole panorama of things we have to do as agencies is quite different now, but we’re still getting paid on a model that was set up in the 1960s, and that’s the real problem.

“Not just because things have become fragmented and complex, but because we don’t know how to get paid for what we do.”

Burcham, TCO’s CEO and founder, said he was inclined to empathise as much with his clients as much as his financial controller.

“Most of our clients have to pay for a lot of different agencies who do a lot of different things, and that’s tough,” Burcham said. “But then on the other side, agencies have to deal with companies like Coles and Woolworths that edge and push clients to donate more money to their marketing funds, and then you have home brands that places furthers pressure. So you have media pressure, you have a renumeration pressure and a sales pressure. I don’t know what the solution is, other than us all being smarter, wiser and faster, and that’s tougher for the individual who has to also try to make time for their family and their own life.”

Michie said one of the main problems was all agencies still billed the same despite the amount of work “based on head hours.”

“The head hours required to make a TVC are very different than to think through and plan a socially-driven mobile application, yet the head hours are the same but the skills are completely different. We’re all still billing for a account service, a planner, a copywriter and art director, which is the basic mix. For media agencies, clients are pushing to go more into digital and there’s a lot more thinking, negotiations with other agencies, which partners and executions to choose and you need to spend  a lot more time with digital and creative agencies. That puts pressure on head hours to go down because it requires a lot more from us so there’s a real imbalance in what clients expect and what they have to pay for and what we can actually deliver based on what we get paid for. That’s a fundamental problem.”

Millward, Johnson & Johnson’s senior director of integrated communications and digital – Consumer for the Asia Pacific region, described it as a conflict between “best practice” and “next practice” with the former being a tried and tested and the latter being an experimental line of thought.

“I think the challenge is to find that balance because there is a big shift happening at the moment. Renumeration models are still all based on ‘best practice’ and so I think what is required is to step back and think about working out both ‘best practice’ and ‘next practice’ and I think that will look different for each client.”

Damjanovski, the founder and strategy director of Common Ventures, said agencies should stop looking at what they they provide as a service and start looking at it as a product.

“We’re being commissioned by a client to provide them with a product that they’ll integrate into their brand or help them do x, y, or z. Now, when you create a product, you assess what the revenue model is for each product, but we’re stuck in this mindset where all we know how to bill is in time and materials, so we just keep on billing that way. We could have thousands of opportunities to produce amazing products, both digitally and traditionally, but change the revenue model. There’s no rule saying you have to rely on a $100,000 commerce solution. There’s nothing stopping an agency doing it for $10,000 but saying they’ll keep the transaction fee on all products instead. We just don’t think that way and that’s for a number of reasons including internal politics at bigger agencies and trying to convince the financial controller to take a risk.”


Get the latest media and marketing industry news (and views) direct to your inbox.

Sign up to the free Mumbrella newsletter now.



Sign up to our free daily update to get the latest in media and marketing.