(Findings and insights from the PM Society survey on virtual meetings and pitches)

You might describe bringing agencies and clients together as being a bit like two worlds colliding. Let’s be direct, despite the acute need for exemplary collaboration, could there be two more different business models? Pharmaceutical, medical device and biotech businesses research, develop and manufacture a tangible deliverable, medicine of one sort or another. Agencies sell their teams’ time – it’s ethereal.

The way these two different business models make a profit is also profoundly different. If you manufacture a deliverable then your profits come about from a volume of sales, even when it is a medicine for a rare disease. If you sell time then profit must be built into an hourly rate.

Culturally, the working environment is very different too. Within an agency you are often very aware that your salary and career, is directly connected to the agency’s revenue. Within a corporate environment your fortunes are subject to business objectives that may not reference profitability at all.

The inability to understand one another’s world and the way resources are deployed is evidenced by PM Society’s’ recent survey. Almost 60% of clients expect an agency to have a team ready and waiting for them when they award a new campaign or project.

Can you imagine that! Salaried team members quietly sitting around waiting for a new piece of work to justify their existence?

Perhaps this demonstrates what a poor job agencies have done of explaining the business environment they are operating in.

Some fast facts: a service-based business, like an agency selling time, needs to achieve a 15%- 20% net profit if it is to continue reinvesting in its own development and capabilities including the ladder of talent that then wins work from clients. Despite this, a quick scan of the numerous benchmarking surveys reveals that globally, agency net profits are down to an average of 9-12%*. Gross income growth has slowed to around 6.4%. The same surveys show that in the natural course of servicing a client, agencies can lose up to 30% of the time they might otherwise charge for and on average a pitch can cost over £20,000*.  All against the backdrop of a talent war, escalating salaries, both of which increase the cost of doing business for agencies.

Imagine, against this backdrop, how much you’d have to charge ongoing current clients, as an agency, to also afford to have salaried team members quietly sitting around waiting for a new piece of work.

The PM Society survey also shows that 82% of clients see great chemistry as the most valuable factor contributing to the best possible outputs and 88% trust their agency to deploy resources successfully.

Contrast this with the 58% who only invest in one onboarding or no onboarding process when commissioning a new agency and the 42% who are only OK or indeed not happy with their new agency. 

Perhaps you might feel that one of the challenges here is that agencies haven’t been transparent enough when explaining their business model to their customers, the clients? Not explaining their side of the contract leads to inevitable disappointment with the service they then receive.

Clients engage agencies for their creativity, for their progressive thinking and their ability to manage resources, mitigating risk. The emphasis is often on what you might call the beauty parade and not on the transparency of the business-to-business aspects of the relationship.

Perhaps this needs to change if we are to avoid two very different business worlds from colliding? After all, the most creative and effective campaigns, the ones that change things for the better are a result of robust, energised, and brave relationships that are determined to go beyond the business objectives itemised within any brief. That means a closer understanding of one another’s business models.

I brings to front of mind the question: how to get the best out of the relationship rather than just getting the partner you deserve. The reality is that when clients and agencies understand one another better they get the best work as well.

So, what can we conclude from our findings?

  • It’s in everyone’s interests that the agency makes a good profit so that the client gets the best staff and the best service. It benefits the client to be the account that everyone in the agency wants to work on.
  • Seeing the world from one another’s perspective makes a huge difference.  The more we understand one another’s world the stronger the partnership and the better the work.  As David Ogilvy said, ‘Clients get the advertising they deserve.’ 

*Moore Kingston Smith, Financial performance of marketing services companie annual survey

Author: Stephen Page, Brand and Strategy Director, Page & Page and member of the PM Society Industry-Agency Relationships Interest Group