The high cost of doing (review) business

Agency executives have long complained about the costs—both financial and emotional—that come with any agency review, but new research conducted by Advertiser Perceptions on behalf of the ANA and 4As shows they can also be a costly exercise for clients.

While the “Cost of the Pitch” study confirms the long-held belief that reviews are a time-consuming, resource-intensive, and even disruptive process for agencies, it found that the same is true for clients. “The cost implications, potential for disruptions in daily work, and delays in campaign and product launches, as well as the evident impact on partner relationships, should not be taken lightly,” it said.

The study found that clients spend an average of US$408,500 to conduct a review, with more than one-quarter of that cost ($115,106) stemming from staff time, followed by $48,234 for the use of outside consultants, and more than $27,000 on travel costs. The average industry cost (including both client and agency) was $1.02 million, assuming that three agencies pitched for the business.

The findings are based on interviews with more than 300 U.S. marketing and agency executives, including 111 brand marketers responsible for agency RFPs/review processes, and 58 in procurement roles involved in financial decision-making around agency reviews. And while the study was based on American respondents, there’s little doubt the flaws in the process look very similar in Canada.

The Canadian Perspective

ICA president and CEO Scott Knox said the report confirms the organization’s belief that pitching new business is similarly onerous for both clients and agencies. “This report shines a spotlight on the wasted dollars for this archaic process,” he said.

The high cost of pitching is why the ICA created the Qualification Based Selection (QBS) process four years ago. It removes cost as a determinant in awarding new business and places an emphasis on competency, qualifications and experience. The process, said Knox, will help clients “save valuable dollars and help clients find agency partners based on their qualification, not the ‘jazz hands show’ of free ideas created in a vacuum.”

Stephan Argent, founder and CEO of Toronto pitch consultancy Listenmore, said that the $408,000 figure cited in the ANA and 4As report is likely reflective of the larger accounts being reviewed in the U.S., and that the average client cost in Canada might be closer to $150,000. However, the difference is one of degree, and the problems and challenges of the process are similar in both countries.

A portion of Listenmore’s briefing process asks clients to think about the costs of a review, which can range from  travel, spec fees, legal costs, etc. In his experience, only about 60% of clients are prepared for the associated costs of a review. “[T]he other 40% need to go back to ensure they’re budget prepared,” he said.

It’s also important to note that the bulk of the expenses for clients are “soft ” costs, determined by the amount of resources devoted to any given review. “If you pull 25 people off the business and have them focused on a search, that’s going to be a huge number,” he said. “Clients need to create small pitch teams in order to keep that cost low or lower.”

What can’t be avoided, he said, is the disruption to business a review causes. He likened it to having your house painted—no matter how well the event is planned, there’s inevitably going to be an interruption. “You’ve got it all figured out, but you’ve still got to move the furniture around and get out of the way. That is the true cost.”

Diamond’s chief strategy officer Lori Davison, whose career has spanned both agency and client, said that seeing the costs of a review stated in black and white should give clients pause.

An agency review requires a significant time commitment from clients, from developing the brief and gaining internal alignment on requirements, coupled with time spent interviewing and engaging with multiple agency teams in conversations and presentations. “It really is an ordeal and a distraction for a client team,” she said.

The long and short of it

But as costly, and sometimes painful, as the process can be, clients obviously believe they have good reasons for undertaking an agency review. Asked to identify the short-term benefits of a review, half of clients (50%) surveyed by Advertiser Perceptions cited the fact that a new agency partner would be “motivated to deliver” as the leading reason, ahead of cost-savings/better pricing (42%), increasing the motivation of the incumbent agency (37%) and a new creative direction (36%).

When asked about long-term benefits, the leading response was improved sales/revenue (46%), which slightly nudged out improved brand perception (45%) and a new direction in strategy (44%). Cost-savings/better pricing ranked fourth among the responses, which the report said was “surprising” given its high ranking as a short-term benefit. “This could be an indication that some clients are sacrificing long-term growth for short-term financial gains,” the report concluded.

But like Argent, Davison said that changing agencies can also come at a cost beyond the financial implications of conducting a review; investing in conversation and “mitigation” with the incumbent can often be a better way forward, she said. “With a change in partnership there is the upside of a fresh approach and fresh thinking, but also a lot to lose in terms of traction, institutional knowledge and continuity for the brand.”

The ANA and 4As report found that the average cost of a review for clients goes down to $373,470—a total savings of about $35,030—when the incumbent agency is involved.

The corollary is that the cost balloons for incumbent agencies, who spend an average of $406,092 to defend the account, versus $204,461 for agencies that had no prior relationship with the client. According to the report, the discrepancy is because incumbent agencies typically enlist more senior level staff, as well as the partners and other C-suite staff, when defending an account.

The researchers concluded that when an incumbent agency is defending their business, the average cost of staff time is more than 10 times that of when responding to a pitch in which they are not the incumbent.

Perhaps most galling for clients’ finance department is that incumbent agencies are retained in two-thirds of reviews, meaning they are often a needless expense with the added impact of potentially damaging the existing client-agency relationship.

One-quarter of incumbent agencies indicated that they declined to participate in a pitch to retain business put up for review, with 54% of agency respondents saying that the client’s decision had a “major to moderate” impact on their decision to resign the account.

The report also seems to highlight what appears to be a fundamental difference between the U.S. and Canada. According to Argent, incumbents here seldom retain the business, except in the case of mandated reviews related to government business, etc. “I can’t think of a search that I’ve done [he pegs it at nearly 100 over 13 years] where the incumbent has retained the business,” he said.

Argent said that whenever a client informs them that they’d like to invite the incumbent to pitch, he advises them to try to fix the problem instead of embarking on a potentially costly review. “You need to take the incumbent out or fix the problem; don’t do both— it’s just a waste of everyone’s time.”

But there are alternatives

There is a possible solve for both clients and agency before getting to the review process, said Argent, and it involves doing some homework—both on themselves and the market.

A client, for example, should ask what has led to the search, and consider if it’s an issue with the agency or with themselves. “If you can truly understand your role in the agency relationship, you’re less likely to duplicate the same problems with your next agency,” he said.

Clients should also try to limit the scope of the agency search, he said. “Nobody needs to invite 20 agencies—or more in some cases—to pitch,” he said.

They should also be “thoughtful” in their ask and cognizant of the work it requires. “If you send out a huge RFP with 100+ questions, chances are you’ll get 100+ page response,” he said. “Multiply that by 12 agencies and your team will then have 1,200+ pages to review, which could take weeks.”

For now though, the ritual of what Knox called the “jazz hands show” shows no sign of abating. Listenmore’s most recent “Canadian Agency Pitch Report” tracked 124 Canadian pitches in 2022, and at the halfway mark, this year is tracking at a similar rate.

Chris Powell