• by Sean Hargrave , Staff Writer, July 9, 2014

Can an agency really expect to not charge for the service it provides by simply totaling up the people hours it has put in to a campaign?

It's a really interesting idea, and one that's being talked about a lot in marketing circles since Martin Riley, CMO at Pernod Ricard and the Chairman of the World Federation of Advertisers brought it up at the IPA's Performance Adaptathon in London this week. In fact, it was a theme of several brand marketers and agencies. Spending more time innovating and focusing less on the time sheet and expenses is pretty much the gist of the argument. 

Charging by the hour was referred to as a "legacy" and instead agencies and brands should partner together under new remuneration terms. Quite what these should be has yet to be decided and both the IPA (Institute of Practitioners in Advertising) and its brand equivalent the ISBA (which dubs itself the 'voice' of advertisers) are working on guidelines that could form the basis of different ways that brands and agencies engage.

It's always pretty easy to run down a system that you have, but an altogether harder proposition to come up with the solution. Even Adam Smith had to lament that the market economies he supported were not great, but at least capitalism is a system in which -- as he put it -- greed can do the least harm.

So it's always good to question what we have, and the digital age makes us all very quick to label anything we started out with 'legacy' but I do wonder how the alternative would work?

Agencies are under no illusion that they need to show an ROI, but I wonder how they can make this part of their remuneration. It's surely just too complicated to say your campaign led to an rise of x when it could have been down to display, SEO, PPC, outdoor or whatever other channel contributed to a purchase. Sure -- digital channels can give you a very good idea of clicks and purchases, but it can't tell you what part less measurable channels played in the decision. Digital can also lead you to wrongly attribute a disproportionate amount of attribution to the last click which can often be a "goal hanging" affiliate looking to fill in the 'have you got a code' box customers have stumbled upon at the check out for a purchase they were about to make anyway.

Performance-led marketing is all well and good but we've had this debate with publishers and CPM. Sure, you can buy CPC campaigns but arguably the majority of quality inventory remains on a CPM basis because why should a quality publisher take the risk that your content and creative will solicit clicks?

It's the same for an agency. They can do the work but if nobody actually wants, say, a fizzy drink which isn't full sugar and isn't low sugar but fits in the middle. Is it their fault? Is it fair they take on that risk? Likewise, if the world flocked to such a drink because it's fabulous and gets great word of mouth recommendations, would it be fair for the agency to expect a top up fee further down the road?

Agencies have to recruit top talent and pay that talent well. They then know what those people cost them and they can put a mark up on that hourly rate and charge those people out for a profit. 

If the work is disappointing, they'll soon be found out. If it's effective, they'll have great case studies and possibly awards to show what great work they've done.

Attribution is tricky enough now, but imagine how many people would be chasing the victory of a sale if multiple agencies were working on a performance-led remuneration package. Equally, how many would be quick to distance themselves from a disappointing performance, citing another channel's poor performance?

It's great for agencies and brands to think together more strategically and many agencies specialise in just such an arrangement -- which, of course, they charge for by the level of people hours put in.

Agencies are not like consultants who take on a project and can control the processes they are putting right. There are far too many factors beyond their control.

Like Adam Smith said, what we have now isn't perfect, but I'd be very surprised if there's a system where greed -- and competition for attribution -- could do any less harm.