How to tell clients you’re raising agency fees
Each week, we ask agency experts from across the world and across the ad business for their take on a tough question facing the industry, from topical concerns to perennial pain points. This week we address how agencies can raise their prices as inflation threatens to bite into margins.
How should agencies broach the topic of a price hike? / The Drum
Costs are going up for businesses on all fronts, from petrol to personnel. Some agencies are likely considering raising their fees in order to cope. But putting the price up is never going to be an easy chat with existing or potential advertisers.
There are all sorts of necessary reasons to raise prices – you might be trying to target a different caliber of client, match rising inflation or just widen that profit margin – but putting prices up will risk existing relationships when contracts come up for renewal and potentially give rivals a window to undercut.
So, how do agencies manage it?
How do you solve a problem like... raising agency fees?
Dominique Bergantino, co-president and managing director, Havas CX Helia
Two words: transparency and trust. If the relationship is good and the work is good, this conversation needn’t be uncomfortable and both sides should embrace it together. Clients, just like us, are facing multiple pressures right now, including wage inflation, and they won’t want to pass more costs on to their own customers. But they will understand where we’re coming from. So, how do we solve the problem together?
Part has to be a rate conversation, because ultimately clients want the best talent on their business. Part must be driving efficiencies, turning any rate increase into a win-win by reducing excess and eliminating ‘re-work’. Part demands being brutally honest – with yourself and with your clients. Are there any services that (be honest) are not adding value to their business and should therefore be removed from scopes? Ultimately, this should be happening regardless – it will do your business, your people and your clients good.
Tim Greatrex, chief executive officer, Passion Digital
One size does not fit all for clients. We have found that a flexible approach to fees and SLAs, coupled with investment in smarter management and processes, allows our clients to get what they want and need, no compromises.
We are not planning to decrease our margins to absorb inflationary pressures – they are real for all of us. Our plan is to meet the challenge head on and innovate in all that we do. Clearly, there will be some honest and tough contract conversations ahead, but this is where strong client relationships matter and priorities are shaped.
Keith Noble, director, Forepoint
The creative industry has always been driven by hourly rates, day rates or retainers, and while that’s seen by clients as a way to calculate budgets or compare agencies, it has never felt right.
If an idea takes 30 seconds to arrive, you don’t charge 30 seconds of time for creating it because it has an intrinsic value – an ‘x-factor’. It’s the product of years of experience and knowledge. Remember the anecdote of the engineer ‘Knowing where to hit the machine with the hammer’? That.
So the conversation shouldn’t be about price, it should always be about value – inflation or no inflation.
Scott Gardner, chief executive officer, Liquid Agency
As I look around me, inflation is impacting the prices on almost everything we consume and our clients are raising their prices as well. So the natural logic is to raise our prices. And in some cases we have, and with trusted client partnerships they understand. Is this the only solution though? I say no. For many clients that still prefer project rates, we can offer an alternative to price increases by offering discounts off rates in return for stronger ongoing contractual commitment. Reduced bench time also lowers our cost and in these cases pricing discounts are possible.
Caroline Hsu, chief global officer and APAC managing director, The Hoffman Agency
The decision to raise fees comes down to a sense of fairness and confidence in your offering. Procurement departments tend to look at agencies as an expense. But if the work an agency delivers solves business problems for clients, they should look at the fees as an operating cost – an investment that is necessary and helps build a stronger business.
Agencies can always undercut their competitors, but in doing so they show a lack of confidence and shoot themselves in the foot. If you are proud of the service that you provide, you should not be afraid to charge its true market value.
Maggie Cadigan, managing director of growth, The Many
While in theory the simple answer to higher costs is to raise fees, in actuality clients are facing tremendous downward pricing pressure – agencies are already expected to do more for less and clients are expected to do more with less. This means agencies have to raise their value.
We can’t just ’make ads’ any more, we have to work with clients as business consultants from the start and determine their needs holistically to provide a strategic business solution. That way, as an invested business partner, we make an impact on their bottom line. Otherwise, the dollars for higher fees just aren’t there.
James Jenkins, chief operating officer, B-Reel
Each year we review our fees through the lens of internal (salaries, admin costs) and external factors (market, client expectations), but for the most part our clients know how much money they are willing to invest in order to deliver the work they need. So we focus more on our ability to solve the problem in hand. We know how much income each person in the team needs to generate in order to hit our own profitability targets, so we keep our eyes on that prize. Can we solve the client’s problem more effectively than our competitors? If the answer is yes, everyone wins.
Hannah Jones-Walters, business director, 20Something
Before the cost of living crisis, we’d long been experiencing shrinking marketing budgets with more expected of them. With the costs increasing and budgets shrinking further, being able to put as much of a client’s budget into production will be crucial to maintaining the standard of creativity and finish we all aspire to. Increasing agency fees will only further impact the quality of work we aim to produce. Instead, new systems are needed. By working on a project-by-project basis with tight teams, streamlined processes and a senior team who don’t mind rolling their sleeves up, we know it is possible to offer the same level of service without raising fees.
Jonathan Leech, commercial director, The Kite Factory
Honesty is always the best policy when it comes to a tough conversation on fees. As with any negotiation, a principled and honest approach tends to yield better outcomes. It’s important to work with the type of clients that understand the importance of having the right balance between the best talent and a competitive price.
There has been a huge talent squeeze in the industry over the last 24 months. Providing the methodology supports the argument, clients are becoming more willing to pay a premium for the right team to maximize the potential of their media investments.
Cliff Ettridge, director, The Team
We constantly keep note of our rates and peg them to market data. It means that we do not need to have uncomfortable conversations at uncomfortable times. Fees should also be negotiated in light of results. If you are effective, then clients see your value. It makes regular conversations, rather than reactive ones, far easier to have.
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