A man went to a fruit market in search of the best quality fruit at a good price. He looked at the fruit on display and compared prices. Realising there wasn’t much difference in the prices, he eventually stopped at a shop and decided to negotiate. He wanted nine bananas for the price of six, 15 oranges for the price of 12 and half a pineapple for half the price of one. The seller politely told him that the prices were non-negotiable and he didn’t sell pineapples in halves as it spoiled the other half and no one would buy it. The man left the shop and went to a few others, only to hear the same thing. As he still had to buy fruit, he decided to buy it on the sellers’ terms.
This is what the advertising business in Pakistan used to be like. Every agency had a certain quality of fruit to offer and generally did not sell pineapples in halves. Then something happened. I don’t know what, or maybe I don’t want to say it, but whatever happened changed the industry for the worse.
I have heard all about why our industry is in such a state – from industry gurus to interns. We blame our clients for the poor quality of advertising we produce, for the lack of intellectual stimulation of our creative teams, for not respecting our profession and pushing us to the limit. Yet, the truth is that when someone comes to buy fruit, we bend over backwards in ways our predecessors would never have imagined possible. We sold our soul for peanuts and now complain about profitability and productivity.
Yes, agency profitability is under unprecedented pressure, especially among the creative agencies, but the reality is that we helped create a client who pays peanuts, but wants William Shakespeare to work on his account. You know the infinite monkey theorem, right? (Never heard of it? It states that ‘given an infinite amount of time, a monkey hitting a keyboard at random will almost eventually type out every book found in France’s Bibliothèque Nationale’. Or to adapt it for English speakers, the monkey will eventually type out the collected works of William Shakespeare.)
"The truth is that when someone comes to buy fruit, we bend over backwards in ways our predecessors would never have imagined possible. We sold our soul for peanuts and now complain about profitability and productivity."
There is no one-click solution that will undo this damage. Agency heads need to join hands and hammer out a solution. It will take time, and going by the way things are, it will take much longer than it will take most agencies to cave in. Furthermore, this is only one of the demons we are fighting. The pace of change is another. For every agency able to navigate change in technology, media and agency roles, there are even more which didn’t. Due to the velocity of change, creative agencies everywhere in the world are facing the continuous erosion of their operational health. For some, this erosion hides older, more visible menaces such as lack of leadership and high attrition rates. As for those agencies that seem to be doing well, the damage is not visible yet – primarily because profits seem good. Profits could be better yet!
Look at the business through a new lens
To sustain themselves, mid to large sized creative agencies need to derive at least 60% of their revenue from their annual retainer fees. The trouble is most agencies can only dream of such favourable conditions; in reality, clients do not want to pay for most jobs (the other fruit seller will happily do it for free). This said, irrespective of whether agencies earn more from an annual fee or from a project/rate-card model, the fact is that time is their currency. They become profitable when a fair amount of hours are estimated and a fair and accurate amount of time is used and billed. However, time is also a problem because there is no definite measure of the time it takes to complete a creative job (no two jobs are ever the same). Time sheets are a basic way to determine agency revenue earnings – yet, is filling timesheets a billable task? I am not arguing against the importance of financial, administrative and managerial information in measuring productivity, I am just saying it is not enough. We analyse the profitability of client relationships through the lens of time instead of the quality of the time and the problem is that we need to change the lens.
Redefine (or in some cases, just define) productivity for each client
Agencies need to look beyond income, staff-cost ratios, hourly and overhead rates, multiples and margins – not that these are unimportant, but productivity is not merely about client income. Here are two important ratios to help measure agency health.
First, there is the billable versus the non-billable deliverables ratio in the total scope of the work. One needs to look at the complexity of the work done for each client, instead of the total number of deliverables only. If, for some clients, the non-billable tasks weigh in heavier, then agencies must strengthen their client service and planning team because these clients require better project planning and management, regardless of the reason why there are more non-billable jobs. However, if an agency is lucky and it is the other way round, they should not think all is well. They need to keep supplementing the creative team with fresh, entry level resources to prevent the team from burning out.
Second is ‘deliverables per million,’ and this can only be calculated if the billable versus the non-billable deliverables ratio has been measured. For every one million PKR of agency income, agencies deliver 25 to 40 creative executions (this number is as honest as the agency heads I spoke to were). The number of deliverables is increasing every year, and the types of deliverables per medium are also growing (classified by clients under the dreadful category of ‘adaptations’). Ideally, the number should be less than 50. If the number goes above, agencies need to check whether their client service teams are slackening or if the client is taking advantage of the agency’s urge to retain the account. This is a critical metric for both retainer and rate-card relationships, as it helps channel agencies’ efforts in more profitable directions. It also helps in internal performance evaluation and team/employee appraisals.
"The dogma in our industry is that account retention is supreme and this has become our collective conceptual prison."
Being ready for change is not the same as being ready to fulfil every single client demand. If you want your client to respect you, respect yourself. Remember, a principle isn’t a principle until it costs you money, and trust me when I say it will cost you more than money if you don’t have principles. The dogma in our industry is that account retention is supreme and this has become our collective conceptual prison. The strange thing is that despite the state of our business, we love our prison cell because we made it with our own hands, and because it gives us a false sense of security that things will go back to how they were – when the money was good and the clients respectful. This needs to change; agency heads need to replace their shallow hunger for revenues and growth with the drive for ideas and creativity that brought them to this business to begin with.
Umair Saeed is COO, Blitz Advertising.