Average non-billed pitching hours cost Australian agencies $1m in 2021: Ouch Factor
Australian agencies are spending an equivalent of $1 million on non-billed pitch hours in 2021. In return, the average agency won just over $3 million in new revenue.
The figure was released in the second annual Ouch Factor Survey, initiated by growth consultancy, New Business Methodology.
The survey questioned 94 CEOs, MDs and leaders from creative, media, digital, PR and integrated agencies, and 14 CMOs and procurement leads, differentiating between independent agencies and holding companies, agency size and agency discipline (creative, media, PR, digital/tech, full-service and consultancy).
While the average Australian agency pitched 19 times in 2021, up 70% year on year (YoY) from 2020 and won 9 pitches (up 30% YoY), it also spent 4,314 cumulative hours a year pitching, up 126% YoY form 1,913 hours in 2020.
Before winning a single pitch, an agency has to invest the equivalent of $115,000 (up 24% YoY from $92,000 in 2020) in unbilled pitch hours.
The average pitch-win value of $350,000 in 2021 dropped by 34% YoY from the $530,000 of 2020.
It took an average time of 24 months for an agency to reach profitability on clients won in a pitch, 74% longer YoY from 14 months in 2020. For some, this rose as high as 111 months (9.2 years).
The respondents’ pitch-win rate in 2021 of 50.3% was marginally higher (5% YoY) than the previous year’s 48% and the pitch-revenue win-rate of 45.9% was 4% less than the 47.6% in last year’s survey.
With all the resources spent, however, 29% of pitches had a potential value of less than $100,000, while 46% were worth between $100,000 and $500,000 – indicating that 75% of pitches are likely to be projects and won’t last the 2 years needed to achieve profitability.
Even more challengingly for agencies, as they have an average of 17% Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), they need to earn $5.8 million in annual revenue to recoup all the non-billed pitching time.
Julia Vargiu
Julia Vargiu, director Australia, SI Partners and founder & managing director of New Business Methodology, said: “Instead of improving, the hidden cost of pitching in Australia is getting worse.
“Agencies must work smarter, not harder. They can stop relying on pitching like an agency and start winning business like a ‘creative management consultancy’ – starting with flipping the pitch.
“By ‘flip the pitch’, we mean start with the financial negotiations with potential clients first. Agree on revenue terms and if you can’t, say ‘no’ to the pitch. Only proceed if the numbers add up, and the account can be a long-term profitable client for the agency.
“Agencies rarely calculate the revenue needed to recover their annual non-billed pitch efforts, often ignoring that their wins must also pay for the time they spent losing.”
The survey this year was backed by the following industry associations, which invited their members to participate: Advertising Council Australia (ACA), Australian Association of National Advertisers (AANA), Media Federation of Australia (MFA), Independent Media Agencies of Australia (IMAA) and the Public Relations Institute of Australia (PRIA).
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Darcy Song was a reporter at Mumbrella, covering media owners, adtech and social platforms. She left in October 2023.
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