By: Andrea Štimac, founder, Collaborative Expertise
Advertisers and agencies have made significant progress in transforming creativity, innovation, and speed of marketing activities. Now is the time for transformation of the main types of agency fees, ie work-based compensation. HURA has recently adopted Guidelines for Determining Agency Fees, designed to encourage advertisers and agencies and help them find their way in determining, assessing, and deciding on agency fees.
The cause of the difficulties encountered by agencies and advertisers in terms of fees is the confusion of costing and pricing. These are two completely different things. One requires thorough study and analysis, and the other requires creativity and innovation. It’s important to know the cost that the advertising agency will bare for the services it performs for its client, but it’s a completely different thing is to know how to determine the cost of its services.
The rationale for price determination is value rather than cost – that is why pricing decisions should include various experts, not just the finance team. We can add to this the fact that pricelists in other fields of providing professional services (ie. in law, accounting, counseling) are usually not divided into cost and profit components.
Division of agency pricing on cost-based components (cost of labor, general expenses and profits) is not effective, efficient, or relevant to clients and agencies. In addition, aggressive price-based negotiations can cause loss of mutual trust and boost unproductive bias.
It is in the best interests of the agency-advertiser relationship that both sides focus on the expected work performance, the deliverables that an agency needs to produce, and the value that both sides attach to agency services.
It is recommended that the agency’s fee and price list reflect the value, complexity and quality of the services provided, and that they are not based on the rationale of cost and profit components.
Guidelines for agency fees are published at HURA / Good Practices.
(Andrea Štimac: I spend most of my time consulting and advising my clients, brands and companies that market them, to improve their strategies, manage change, create and market values. In the little that’s left, I do scientific research and write my Ph.D. about change management and innovation. Please contact me @odit.ch and connect withCollaborative Expertise on Linkedin or at @andrea_stimac.)
