What will happen to the client-agency relationship in a post-retainer world?
The traditional agency model has been built around long-term client relationships, supported by the stability of agency income from retainers – so what happens to headcounts, agency models and conflicted clients when project work takes over? Dan Beaumont explores the new world order.
In a world where we are all increasingly reluctant to commit (no lock-in contracts), it shouldn’t come as a surprise that project work has become the new normal in client-agency relationships.
Brands are no longer locking in agencies for work
Our experience is that a growing portion of clients are shifting their agency remuneration model to project-by-project work and away from contracted retainers. Of course, this isn’t anything new. Agencies have worked project by project for decades, but now it’s becoming the norm rather than an anomaly. From conversations I’m having with other agency principals around the world, this is a universal trend and it’s impacting agency business significantly.
The traditional agency model has been built around long-term client relationships, supported by the stability of agency income from retainers – it’s this guaranteed income that allows agencies to maintain a steady headcount and grow as more clients join the portfolio.
But there are legitimate reasons for clients’ growing attraction to a user-pays project model, the most pressing of which are shrinking marketing budgets and the pressure to deliver on short-term objectives. I won’t get started on my frustrations with ‘short-termism’ again here. This is where to go to read my rant about this negative paradigm. However, there’s no doubt that marketers (and procurement departments) are preferring to work ad hoc with agencies, effectively keeping them at arm’s length.
Like most business decisions, there are pros and cons for both a project approach and the retainer model, although these vary depending on which side of the fence you sit.
The case for clients
I understand the appeal of project work for clients. Not being locked into a retainer means they only pay for what they get. No wastage – a critical consideration when they have less money to spare and every dollar counts.
Project work also stops agencies from sitting on a big retainer and going through the motions. It makes them hungry to deliver the best possible work and prove themselves so they can increase their chances of being briefed on the next opportunity.
On the flip-side, when a client abandons retainers for project work, they risk shedding the all-important knowledge base and IP that comes from a dedicated agency team with years of experience on their business. They sacrifice the full attention they expect when an agency team is dedicated to their business, and this can hamper the creation of the best possible response to a brief.
I’m not suggesting that an agency working on a project for a non-retainer client won’t work incredibly hard – because they will (and should) – but project clients could miss an opportunity that develops from a full-time relationship. Important market and business understanding and knowledge built over a long period of time is lost, or never understood in the first place.
A retainer, locking in a percentage of agency people’s capacity, can potentially lead to average work and diminished SLAs as agencies manage the account efficiently with junior talent in a bid to maximise the margin, a natural by-product of smaller budgets and the increasing pressure in agencies to maintain profitability, particularly by multinational holding groups.
Similarly, the type of loyalty that naturally develops when a client and agency have worked together for a while will be compromised, too. Project work doesn’t automatically breed loyalty.
The case for agencies
At face value, the cons for agencies are greater than those for clients – at least, the impact on our revenue and cash flow is more immediate.
As the stability of retainers disappears, it becomes harder for agencies to predict workloads (and income), so managing resources and cash flow becomes a risky balancing act. The end of the financial year is a scary time as clients put projects on hold or cancel them all together – which is something we’ll have to build into our projections if project work becomes the new norm.
Uncertain workloads can lead to increased conservatism among agencies when it comes to cost investments, such as beefing up capabilities, and it will certainly lead to leaner agencies, which will have to be way more efficient to maintain margins.
In a retainer model, agencies can tolerate staff costs at 60% to 65% of revenue, but that wouldn’t be tenable if projects made the bulk of our income. As a consequence, it would mean we’d have to wean ourselves off the reliance on headcount as a success measure for agencies. After all, in a project-by-project scenario, an agency of 100 people is much more difficult to manage on a month-by-month basis without consistent and reliable income levels.
On the plus side, project-based remuneration provides an opportunity for value-based costing, which is better than a resources x head hour rate. It gives agencies the chance to charge properly for IP and value add services. And who likes timesheets anyway?
Finally, the exclusivity of agencies comes into question under a project system. Agencies should be free to work with multiple brands within industries if a contract doesn’t exist. If a client can’t guarantee volume, it would be unfair for them to expect the agency to remain exclusive. In this case, we could see more agencies specialise in certain industries and categories.
A new world order
So can agencies survive without retainers, and what will happen to relationships if the project model becomes more prevalent?
I suspect we will see the agency landscape fragment further, in both the number of agencies (more) and their general size (smaller). While the barriers to entry will remain low for startups, their ability to grow large might be hindered – project work will make it tougher to get established, build capability and maintain growth.
Importantly, this new way of working will favour smaller agencies with lower overheads and more passion. Agencies will have to eat what they kill – which means the big multinationals can’t rely on global business as much.
Perhaps in a few years’ time, the most recognised agencies will have less than a dozen people, all working closely with the client to deliver creatively potent work, and out-sourcing the majority of production to the gig economy.
In a project-by-project world, the quality of the work and delivering on objectives is all that matters. So it should be a good thing for all of us.
As for the relationship – the intangible asset that so many of us in the agency world rely on and covet for future business – it will likely become more ad hoc also. Project work reduces the necessity for the client and agency to have a bond beyond the day to day, and so the relationship becomes more transactional. Of course, people need to work well together and collaboratively, but it’s all for the sake of project outcomes, not because there’s millions of dollars of contract work at stake.
As we all know, everything works in cycles. In the future we may start to trend back to long-term, contract-based arrangements as businesses recognise the long-term benefits of brand building, market knowledge and experience, and we rely less on tactical solutions to drive growth.
Dan Beaumont is managing partner of The Royals
Fantastic article.
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Welcome to the real world….
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Good article. I think we’ll see more ‘collectives’ – i.e. freelancer networks organised under an agency banner, and a healthier market for freelancing in general. There’s always going to be large retained work – just less of it and quite specific in nature, i.e. customer acquistion, engagement/CRM, CRO – anything that needs to be run efficiently and is CLV/ROI driven.
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Can’t wait for media agencies to disappear. Hopefully some of the arrogant little staffers will be pulled into line when they are forced to go client side.
No more free publisher lunches!
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Good piece but I don’t know if the parallel between retainer/relationship/marriage and long term brand building is particularly relevant. Or project work and tactical outcomes.
The retainer does feel like a redundant concept now. Hope it’s not relied upon by many.
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nice article Dan
a greater move towards a project model could actually drive ‘per hour’ costs up for clients too. fewer retainers = fewer full time employees = more contractors who’ll have to charge higher daily/weekly/monthly rates to offset the variance/lack of security in their employment prospects
I also believe it’ll diminish our industry’s ability to retain our best talent. The contract/project/freelance life is not a choice for most people working in our industry…both because of the lack of security and also because the best people favour the opportunity to build long term enduring case histories as a platform from which to build their careers. Forcing them to work on project could drive more of them to other industries with greater security and longer term opportunities
Well said Dan
Collaborative partnerships with talented complementary companies and individuals will help us all create better opportunities for our businesses. As long as we can leave our egos at the door and we rid our agencies of the us vs them mentality.
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Drive them client side, particularly to start-ups and challenger brands that are eager to be creative, but don’t have the budgets for swollen agency fees from the big-four groups.
A strong in-house creative and strategic team (offering the perks and culture that are rapidly diminishing agency side), supported by a per-project team of talented freelancers seems like a pretty likely future for a lot of brands.
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Nice article…but not sure of the relevance of your comment on this one except to highlight that you have an unhealthy hatred of media agencies.
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Why does project work equal instability?
You can have 2-3 year projects with committed resourcing attached. Just means that the contracts are far more specific in their KPIs than traditional retainers.
No bad thing in my view.
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Waaaaaaa
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I this “new world” of project orientation we all need to recognise that pricing is our single biggest lever for ongoing success.
We can’t continue to price solely on headhours and rates when being asked to do project work, it’s simply not sustainable.
Procurement can’t have their cake and eat it too. Something has to give and it should be making sure we price on value delivered not cost.
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God forbid a media buyer on $45k who works 10 hour days getting rammed by clients all day gets a free lunch. I’d love to know where you’re from, you clearly have some sort of uninformed gripe with agencies.
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“…the most pressing of which are shrinking marketing budgets and the pressure to deliver on short-term objectives. I won’t get started on my frustrations with ‘short-termism’ again here.”
Too true, Dan. These short-term ‘goals’ – which actually should be results, will impact companies over the long-run more than we all realise.
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You left the ‘n’ out of Sneer.
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1. No young talented creative person is going to work in-house for a pharma brand. This is why you need agencies. Not every brand is Adidas.
2. To say agency fees are “swollen” just proves you have no insider experience. The big 4 are working on 2-5% fees for most of their big clients while also trying to pay their staff, rent, and overheads. Hell, some agencies work on clients for a loss. That’s the whole reason this article was written, because clients take advantage of retainers and squeeze agencies as hard as they can for 3 years and then pitch and go to someone else who is willing to do the same for less money. So they’re being forced to resort to project work where everything is tracked and accounted for so their can be no pisstaking.
3. As someone who has worked countless nights, weekends, and even over Christmas, comments like this just makes me sad, because there are clearly clients with this perception. Spend a day shadowing your media buyer or client director, maybe you’ll get an idea of how far they’re stretched when they leave work at 10pm because they’re working on that a client request that came through at 5pm and is needed first thing in the morning.
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“unhealthy hatred” is a bit of an exaggeration.
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Agencies need to push back on insane client demands and turn around times, instead of passing it onto all the other 3rd parties involved. So much suffering because a client hasn’t been told they are not God’s gift.
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Well they should act like they are $45k juniors and in need of a free lunch… the level of entitlement among some these kids is downright disgusting!
Time to pull a few NGEN cards and get them out in to a real office – let’s see if they pick up the phone then!
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What a wonderful relief that someone has eloquently enunciated the ‘mature valuecost view’ that enhances effective performance for both parties. Having dealt with this [understandable] dilemma for many years I hope this most sensible evaluation is positively, seriously considered and implemented by all. We all gain and in particular by cooperatively building and maintaining brands’ integrity. Well done.
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agreed AD.
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Isn’t a 2-3 year project with committed resourcing effectively a retainer though?
I think Dan’s talking about smaller projects that are 3-6 months long and don’t allow agencies to commit resources and hence rely on a freelance model. It’s only unstable insofar as it’s hard to forecast and therefore hard to plan and resource for.
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Are we still talking about this shit? FFS.
I have worked and managed in both ‘Tech & Design Project only Land’ and ‘Agency (Retainer) land’. Let me tell you the truth, the retainer model is better for EVERYONE, why?
Less management on ALL fronts. Project land does not protect spend, you simply bloat spend cause you know 10-20% blowout happens most time.
Run a business project only (with a team of ‘gig; types) and you will see the overhead on ensuring every dollar (from accounts to project teams, resourcing, reporting, etc) grows exponentially.
With the retainer, in most cases, the client wins because they get 10-20% more on their spend in service and design, as the agency can run faster and be far more nimble (You know what is coming in the door and give the favours when needed as well).
You can have transparency through the retainer, through daily collaboration (burn reports/usage etc) and in good times, take the hours across to the next month. Shit, run Confluence and give them automated updates.
This article smacks of fucking buzzword bullshit in regards to managing projects, people and budgets. When you have a small team and specialists joining that team, try managing the blowout from a guy doing animation whilst travelling Bali cause that is all you could get at the time.
I lost a major pitch to ‘Coopers’ because I based it for/on them saving by using this exact model.
What did they want? Redundancy in the roles…
They wanted to know if some of the team fell over, it could be absorbed easy… When you have the plug and play model it is MUCH harder to show this type of stability.
This article content has been argued for 10 years and nothing has fucking changed cause big business wants a big team… They have the budget, don’t fuck it up they want results.
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