Pitching is never a process that should be entered into lightly. Going to market nearly always comes with significant risk and substantial cost to both parties involved – both advertiser and candidate agencies.
Nevertheless, although we always advise seeing pitching as a last resort, there are times when an advertiser is right to decide to go to market to select a new agency.
This is where we find the question of whether or not to pay pitch fees is often raised. And the answer is not quite as simple as many advertisers think.
Before we consider whether an advertiser should indeed pay pitch fees, let’s look at some of the typical challenges pitching involves for the agencies and how paying a pitch fee may or may not help address them.
Pressure on agency human resources
Like most companies, agencies do not have extra people just sitting around waiting to undertake speculative work. And no one will be surprised to hear that agencies don’t, as a rule, pay their people overtime.
This means that, apart from the very few agencies who bring in external specialist resources for a pitch, the head hours invested in a pitch process are largely a theoretical cost to the business, with the majority of the hours quoted for the pitch process being delivered by the agency team without hard additional cost to the agency bottom line. The real ‘cost’ is in the pressure pitching places on agency staff to work above and beyond.
But as an advertiser considering paying a pitch fee, it is worth remembering that the additional money will rarely, if ever, help counterbalance any of this pressure by reaching the people who did the actual work. This may or may not influence your ultimate decision to pay a pitch fee, but it’s worth noting.
Disruption to the agency
The opportunity to participate in a pitch can – at least in theory – be great for agency morale. However, agency managers will always need to balance any potential upsides of chasing new business opportunities with the impact the associated disruption may have on delivery for existing clients. There is, therefore, clear risk here to the business, and this risk is often cited by an agency as a reason to decline a pitch. A pitch fee is unlikely to remove this risk, of course, but it might influence an agency to join your pitch versus another process without a fee attached.
Non-recoverable external costs
Depending on the size of the account, some agencies will invest significantly in external costs such as consumer research, animatics, external artwork and the like to provide a competitive advantage. If the agency is unsuccessful, these are hard costs that will never be recovered, and even if they are successful, it can take many months to get back to breaking even. A pitch fee may go some way to helping here.
Intellectual property rights
The core value an agency provides is the ability to generate ideas. This leads some advertisers to require the agency to assign the rights to these ideas to the advertiser as part of the pitch process. But as an advertiser, if you did not intend to use the idea, then why would you want to own it? And if you did intend to use the idea, why would you not pay for it?
So, when should you pay the pitch fees?
You should sometimes consider compensating the participating agencies for their costs. Our advice is to offer pitch fees:
- if you want to buy the rights to all concepts, not just the winning concept,
- when you require the agencies to prepare materials and incur significant external costs beyond what would be considered standard;
- when you are engaging a large number of agencies (more than 2-3) in the strategy / creative stage of the process.
How much should you pay?
That is open to negotiation with the agency. Too little, and the fee becomes token and potentially insulting. Too much and you are simply wasting money.
But if you are paying out-of-pocket expenses, then $10,000 – $25,000 per agency would be reasonable as a guide.
If you insist on buying the intellectual property rights, the commercial value is easily $100,000 +.
In most cases, running a properly-managed pitch process along clear timelines, with a deliberate focus on the field at every stage, is a far better way to do things than agreeing on a pitch fee. Most agencies price pitch participation into their overheads. Respecting this with your pitch process is always the first step. Pitch fees, however large, will never make up for a poorly managed pitch.
Advertisers and procurement, wondering if, when, and how much you should pay? Then contact us for a confidential conversation or read more about how we can help you properly manage your search and selection process here.
Agencies, have you ever been paid pitch fees? And what was the fee for? And how much were you paid? Then, provide feedback by completing our State of the Pitch research here. Thirty insightful questions that take about ten minutes to complete for each pitch. We do not need to know the companies’ names—just the facts.