My friend Neil Christie at Wieden+Kennedy London has been shedding some light on the question of agency finances in his excellent (grrr!) Welcome To Optimism blog.
Neil’s musing were prompted by the decision by smoothies firm Innocent to review agencies yet again, a process he describes as expensive (and unpaid) and not that likely to lead to results as the chances of winning are one in about four to six (I suspect W+K’s chances are a bit better than that).
He reckons the average fee for the creative agency is about ten per cent of media billings (ie £300,000) for Innocent. For this there needs to be a creative team, creative director, suits, planner, techies, hairdressers and..well, you get the picture.
So often the only way to make money on an account is to under-service it.
Compare this to what used to obtain when agencies handled media in-house. Then 15 per cent commission would be earned on ad spend, giving a total of £450,000 on an account like Innocent, 50 per cent more.
But agencies today don’t carry the expense of media staff and all the various technical aids they seem to need these days. In the old days, though, media people were definitely below the salt and didn’t cost that much.
But how would things stack up with a really big account? Last year W+K London won Tesco, variously described as being worth from £110m to £140m. I doubt the creative fee is £11m-£14m. And W+K is sharing the account with production house Tag, which is doing the heavy lifting. Do you need 40 times as many people on Tesco as Innocent? Maybe you do, but they won’t all be earning top creative team money.
On big accounts it looks as though about three to five per cent of the old 15 per cent has gone back to the client and agencies, including media agencies who’ll be lucky to earn three per cent on a whopper account under the new regime, are doing a lot more, as Neil says, like online, point of sale etc.
Should we shed a tear for agencies this Christmas? Send them a food parcel and maybe a bottle of Thunderbird?
‘Course not, but making money is much tougher than it was.
I should stress that the numbers I quoted in my post were of my own invention and nothing to do with Innocent. I am a great admirer of their pineapple and coconut smoothie.
At a previous agency I once had to explain to a member of staff that when Campaign runs a headline like “Smee’s wins £20 million Widget account” it doesn’t actually mean that Widget will be paying Smee’s £20 million. They were genuinely surprised by this. I wondered what on earth they thought agencies could be doing with the money if fees were really that high.