Are Agencies Profiting By Performances?

Clients of advertising agencies should stop demanding “value for money” unless they are also prepared to pay good money for good value, according to Bob Willott, Partner, Willott Kingston Smith, accountants who specialise in the marketing services sector.

Speaking at the ISBA conference yesterday, Willott said: “The value for money argument is getting over-worked as clients persistently prune back core remuneration and demand greater value.. Less than 1% of all agency income has been earned from the perfomance-related element so far and the net effect is a serious cut in agency income.”

Willott concluded his speech by saying: “There is a danger that too much of clients’ money is being spent on rewarding media buying houses whilst creative agencies suffer from poor margins and poor morale. As a result, advertising effectiveness will deteriorate.”

The question was then passed over to Mike Sommers, Managing Director, MGM Cinemas Ltd, who said: “The agencies are not profiting because they haven’t adapted to their clients; and because agencies are missing the trick by neglecting large areas of their traditional performance delivery.”

In trying to answer the question he, in turn, asked whether agency profits can be performance related. He finished off by saying “I’ve argued that this is only possible if agencies recognise that there’s more than one way to skin a cat. Twenty years ago there were agencies like Geers Gross who exploited the old standard commission system to make a terrfic return on capital. Within the context of today’s more difficult reality there are similar opportunities to exploit as long as we suit the customer. We must find a viable niche to survive in evolution.”