Nick Hand is a commercially savvy, hands-on Finance Director and a CPA with over two decades of experience managing the finances of media, creative, PR agencies and more. He returns to Managing Marketing to discuss the impact artificial intelligence technology has on advertising agencies of all types and the effect it will have on agency fees.
While much of the industry discussion about AI has been focused on the opportunities and impact on employment, it is equally essential to ensure that agencies’ financial sustainability and viability are maintained, as this technology impacts almost all areas of advertising operations.
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The technology in my mind just makes the menial tasks that much quicker, that much easier but there still needs to be oversight to ensure that the output is actually relevant for the client situation.
Transcription:
Darren:
Hi, I’m Darren Woolley, founder and CEO of TrinityP3 Marketing Management Consultancy, and welcome to Managing Marketing, a weekly podcast where we discuss the issues and opportunities facing marketing, media and advertising with industry thought leaders and practitioners.
This year’s marketing word of the year is “artificial intelligence.” Since the release of Chat GPT and the focus on generative AI, the industry has been abuzz with opinions and discussions on its impact on marketing, media, and advertising. But one area that has been overlooked is how AI will potentially change how agencies will be paid for their services.
Considering agencies have relied on a cost-based model based on resource hours, overhead and profit margins, the rise of AI automation and generative AI may have a huge impact on these fees.
Who better to discuss the potential impact on agency fees than TrinityP3’s own financial expert, the commercially savvy, hands-on finance director with more than two decades of experience managing the finances of media, creative, PR agencies and more; Nick Hand. Welcome, Nick.
Nick:
Thank you, Darren. Good to see you again.
Darren:
Now, look, I have to confirm for everyone that’s listening to this, that you are actually a human being, but I’m not having a conversation with a chatbot. Is that correct?
Nick:
It absolutely is correct. Disappointing that you probably had to make that caveat, but they’re the times we live in.
Darren:
And could you please also confirm that I’m also a human being?
Nick:
Yes, I can confirm flesh and blood.
Darren:
Now, look, it is interesting because it feels like everyone’s talking about AI. In fact, in a recent pitch that I was partly managing, every single agency, media, creative and everything in between, was talking about AI, AI, AI. It really has become sort of synonymous with the industry, isn’t it?
Nick:
It has, and interestingly, because the industry does get a bad rep for not adopting technology to the extent that other industries do. So, the fact that various agencies have taken this and really run with it shows that it’s definitely the flavour of the month.
Darren:
Well, I think we have to be careful though because a lot of this could just be chat, couldn’t it?
Nick:
Generated from Chat GPT, possibly. I think it’s still early days, isn’t it? Agencies have shown where they could use it, and where they have been using it. Are those results and the output that’s being generated going to be that much better than what’s been done previously? I still think it’s too early to tell.
I think what is really interesting for me is how it might not necessarily help come up with a great idea, but the grunt work, the admin work, the boring, repetitive stuff behind the scenes, how that will get done and improve the agency’s productivity. That’s what I want to discuss.
Darren:
And Nick, I think it’s interesting because we have to distinguish between what’s called generative AI, which is the one that’s generating text and images and video, deep fakes, and things like that — compared to what’s been around for years, which is machine learning and the ability to automate quite mundane tasks.
And I think this is probably the area that agencies could be held to criticism of not embracing technology because it has been around a while, hasn’t it?
Nick:
I think so, yes. I think you’re exactly right that the generative stuff (and I’m sure we’ll talk about that in a little bit more detail shortly), it’s the ability to improve productivity in those back-office functions, the menial jobs that usually get farmed out to junior staff.
How agencies will do that work and how they get paid for that work, which is still valid and important work; analyzing data, reporting, all that sort of thing still needs to be done. How that machine learning will impact what agencies are doing in that space.
Darren:
So, let’s start with perhaps media because media is one of those areas, there are huge amounts of data coming in from the various platforms — from Meta, Alphabet or Google.
The media agencies are now dealing with more data than ever before. Yet, we’re still seeing a lot of media agencies using up quite a lot of human resources, just collating that data into things like campaign reports or updated reports.
You’d think that in a world of technology, that would be automated in most cases, and yet most of the companies I know that are promoting these automated systems find it really hard to get the agencies to embrace that.
Nick:
There’s probably two issues at play, and one, which is the main reason we’re sitting down today is, well, how as the agency do I then get paid for that work? Previously, I’ve been able to most often charge the people that are working on it by the hour or whatever the arrangement is, to deliver that work.
Now, I don’t have those people doing that work. And so, how am I going to maintain my top line income if I can’t find another way to charge for, as I said, what is necessary and valuable information that’s put into those reports.
So, I think that’s a big issue there. And possibly, agencies haven’t embraced the technology as quickly as some other industries because they’re not sure under those old models how they can actually get paid for that work.
Darren:
Well, I know a media agency CEO that was complaining on a very large client. They had four FTEs doing nothing but collating information data into reports. And I said, “Well, is that analyzing the data?” And they said, “No, literally, just getting all of the sources and actually putting it into a single report” was taking four FTEs.
Now, when you think about the traditional fee model, you take four FTEs salary cost full time, multiply it by your overhead factor and your profit margin, and that’s a fairly good income stream, isn’t it?
Nick:
It’s a significant amount of money that needs to be replaced, and that’s what agencies are grappling with. I mean interestingly, those four FTEs, I wonder at what point they’ve produced these reports, no doubt handed them to the client for their review. But more time could be spent if these reports are generated using technology to actually analyze the data.
Darren:
And get some insights and lessons.
Nick:
Get some deeper insights into what the data’s telling them, rather than actually just spending the time putting it together.
So, I think that’s the first way the agencies can replace that income, is let’s have the technology do the heavy lifting. But the real value in agencies, as we know, is the thinking and the intellectual property of the senior practitioners in the business, analyzing those sorts of reports and coming up with insights and ideas as to how they can make the next campaign better.
Darren:
Except that you often see, and particularly in media agencies, a vast number of relatively junior staff doing these quite mundane activities. They’re the ones that are paid relatively low amounts, and getting billed out. I mean, it does go to the problem of the world has changed fundamentally because of technology and having a labor-based fee system doesn’t actually stack up anymore, does it?
Nick:
No, it doesn’t. There will still need to be, as I just said, people, analyzing what that report says and trying to come up with some insights from it. But the labour-based system still doesn’t necessarily adequately remunerate for that part of the work.
So, ideally, we want to start moving away from the doing and start thinking about, or how can agencies get paid better from what they actually produce rather than the number of people or the work that’s gone into whatever it is that the output is.
Darren:
So, that opens up, if we’re going to take the mundane away that allows us to then get people doing the analysis, there’s also a level of artificial intelligence that is able to actually identify those insights. So, it actually potentially replaces those people or at least, helps speed up that process as well.
Nick:
It’ll speed it up. It potentially will provide deeper insights, but I don’t think it replaces that analysis because as I understand AI, and I think there is some significant confusion as to what these systems can do, is that they are not critical thinkers. Simply, a whole bunch of information’s loaded into these platforms and the technology is looking for patterns from what’s gone before to try and then predict an output based on the new information that’s come in.
Now, that’s not necessarily going to make it right. So, there still needs to be someone, a human with experience overseeing that process to ensure that the information that’s then disseminated to the client, the insights that have been derived from this data isn’t just rubbish.
So, the technology in my mind just makes the menial tasks that much quicker, that much easier but there still needs to be oversight to ensure that the output is actually relevant for the client situation.
Darren:
The other area beyond media obviously, is creative, and we’ve seen in the last 20 years the amount of work being produced.
You would obviously see it with the analysis you do based on scopes of work and not that you were working on it back in the early two thousands, but we were typically seeing around 200 pieces of work for each brand, now it can be many thousands of pieces of work.
And yet, budgets have actually not kept up with the explosion of demand in that scope of work. Production and the automation of production must be an area that AI is having a huge impact as well.
Nick:
Absolutely. And I think a positive impact, as you say, the proliferation of the channels that need to be targeted, the proliferation of the number of bits of content that need to be made. Automation can certainly help with that.
I think in this instance though, again, you are not going to get the technology to come up with the big brand idea that a client is going to need in the first place. That still needs to come from humans. And I don’t think you’re going to get … in most instances, quality outputs of individual creative assets for all channels.
I think SMS messaging, email marketing, those sorts of things I think could probably benefit from AI. But I don’t necessarily see that a big piece of video content is actually going to be generated any more effectively or productively using AI. I’m happy to be proven wrong as its early stages.
But from what I’m seeing, there still needs to be humans, creative directors, writers, art directors working on that. And again, overseeing anything that the technology spits out to ensure that it’s not gibberish.
Darren:
Well, one of the things, and it wasn’t that long ago, a bank that we were working with moved to an output-based model. And it was interesting because the agency that they were using for their digital display ads was charging quite a significant amount of money for producing the various sizes that were needed, there was seven standard sizes.
And when we asked them why, they said they were still doing them manually with designers operating on max and making up the sizes. And we said, well, it’s now been automated. And they said, “Well, that’s fine, but if we are not doing it, we can’t get the client to pay for the technology that will do it without that.”
Going back to the earlier issue, how do agencies negotiate from a labour-based model to actually still getting paid if something’s being done by a piece of technology?
Nick:
It is interesting just because there’s no human doing, it doesn’t necessarily mean the cost to the agency’s going to be any less because you can say someone’s got to pay for the technology, whether you buy it or whether you license it from a third party. Generally, there’s still a cost involved.
It’s probably not as significantly as expensive as a human being doing it, but if you markup that cost in the traditional manner, overhead, profit margin, the income to the agency’s going to be less.
So, it really does open the question on, well, what are the other models that we could potentially use, and how best to negotiate that into the existing arrangement, bearing in mind that there’s still going to be people involved.
Or how do we negotiate something completely new, start with a whole new model, start from scratch to make sure that the agency’s still getting fairly remunerated for the work that they’re doing, regardless of where the inputs are coming from, whether it’s a human doing it or whether it’s a technology that’s doing it.
Darren:
I think it’d be best, wouldn’t it, if the agency was proactive in that conversation rather than waiting for the client to come forward with a suggestion because in most cases, the client’s looking for the lowest possible cost.
What would you do as a finance director if you were confronted with an opportunity to automate something? How do you open the conversation with the client of moving from a labour-based system to perhaps a fee-based system?
Nick:
I think like any negotiation, there’s going to be the position that you want, and there’s going to be the position that the other party want, and generally, you meet somewhere in the middle.
Now, I think agencies are reticent to do it because invariably, there is going to be a reduction in their fee if all of a sudden, you’re taking out some of those … usually, it’s a junior-level workforce doing that grunt work and replacing that with technology. Even if there is a cost associated with the technology, you’re potentially not going to be able to get as much money as you were under the old system.
So, the agencies are reticent to do it because they don’t want to reduce their income. But at the same time, as you just said, the clients are always going to be interested in, “Well, can I get something at less cost?”
So, I think as an agency, you need to be then steering the conversation towards, what is the value of everything that we’re doing versus the amount of money that’s being paid to the agency for those services? Because at the moment, under the labor-based model, everything’s of the same value.
You’ve got different people doing different roles and they get charged out at different rates, but ultimately, what I would call low value behind-the-scenes work, preparing the reports, crunching the numbers — that is low value work to a client. What’s of high value to a client in those instances is the insights.
Darren:
The creative concepts and ideas.
Nick:
What can be done with those ideas, that’s the high-value work. So, potentially, you’re giving up money over here, but possibly, being able to charge a little bit more for the high-value work.
And that’s the way that I would approach the conversation. Yes, you may need to, as the agency, accept you aren’t going to get as much money, but as I said, that’s how a negotiation works. Anytime you want to negotiate, you have to give up a little bit, they have to give up a little bit.
Darren:
It’s interesting listening to you, Nick, because I’m hearing an inherent bias that’s common in the industry, and that is agencies equate income with profit. The more money we get paid, the more profit we make, which is a legacy of the cost-based system, because here’s our cost, we multiply it out.
But in actual fact, technology and this type of automation opens up the possibility, yes, we may get paid less, but we could actually make more profit, that the two are not inextricably linked as they have been for as long as there’s been a labour-based system in place. That’s right, isn’t it?
Nick:
I think that’s true, and a lot of that comes down to how agencies are measured, and a lot of them aren’t necessarily concerned with profit.
It’s the term the revenue growth; how much we charge, how much are we invoicing, as you say, how much are we billing, what’s our revenue growth? We’ve added three clients and we’ve improved our top line by $5 million. But in actual fact, that $5 million isn’t profitable.
Darren:
It’s bizarre though, isn’t it?
Nick:
The maths that I did in high school said that that’s not what you should be trying to do. You want to add $3 million in revenue and add two and a half million in profit if you can, not maintain the same profit for more income, it just doesn’t make sense.
Darren:
But it is inherent, isn’t it, in the traditional way that agencies think about money. It’s great to add an extra millions and millions of dollars in income because that should naturally equate to profit.
But in actual fact, that’s because they have a preferred overhead and profit multiple on their cost. But if you turn it around and say, “Okay, well, what if we disconnect profit from revenue and look for ways of increasing profit while decreasing revenue?”
Nick:
I don’t want to generalize here, but I’ve worked in independent agencies, I’ve worked in multinationals, and that line of thinking that I want to disconnect the income from the profit and make sure that anytime I’m adding income to the top line, it is going to be profitable, tends to be more of a focus in the independently owned.
And working in the multinationals, again, I don’t want to generalize and tar them all with the same brush because it’s not the case, I’m sure. But my experience is that you get tasked with top line growth; you must grow 10% in this financial year, regardless of whether you’re coming from a high base or a low base.
And so, you end up, “Yep, I’ll put on 10% worth of revenue.” But you do so at margins that don’t add anything to your profit simply because you’ve met that criteria from your head office to increase the top line, even if it’s the expense of the profit. You don’t want to go backwards in profit, but you certainly aren’t necessarily rewarded for improving it.
Darren:
And that’s why we’ve seen bizarre behavior where agencies have been negotiating fees that can’t possibly cover their costs because it still adds to the top line. In fact, I remember having one agency CFO telling me, “Look, it doesn’t matter that we won’t make any money, just the overhead recovery is enough. The profit’s irrelevant, we’re covering our costs.”
And it’s like, “How can that be good business?” And you’ve just made the point — because they’re measured on top line growth, not profitability. It’s almost this belief that if we’ve got the money, if we’ve got the share of market, that’s enough. I mean, it’s counterintuitive to business, isn’t it? Because there wouldn’t be many other businesses that think like that.
Nick:
Well, and let’s be fair, most businesses, except some of the older service firms, and I’ll put advertising in that group, still cling to the cost recovery model, rather than necessarily thinking about, well, what is the … you don’t buy a car on the basis of it’s been marked up a certain amount just so the manufacturer can recover their costs.
Now, the price is based on what they believe they can position and sell the car for in the particular marketplace that they’re in. So, agencies really grapple with that problem. There’s many out there that want to do it, but they’re not quite sure how to go about doing that while still checking all the boxes that they need to with their head office to ensure that those metrics that they’re being measured on them are still met.
Darren:
Now, you made a good point earlier, which is about this idea of, its share of revenue or wanting to maximize revenue.
Agencies have also, particularly creative agencies or non-media agencies — have traditionally, actually generated more revenue out of the doing than they have out of what we could call the thinking.
You said the point before, where the value could be in the strategic insights, the creative idea, and how that can be amplified. But in actual fact, when you look at the analysis of where it goes and what it covers, a lot of the fees is actually for the doing, isn’t it?
Nick:
When I started in the industry all those years ago, production was king. So, quite often we gave away the strategic thinking and much of the idea that came off of that, because we knew that we would make that up in the service fees that were charged on third party production, plus the revenue from the producer, plus the revenue from the artists, the Mac artists, that’s where the money was made.
And that sort of legacy model has come back to bite many agencies because the conversation we’re having now, but even before the prevalence of AI, advertisers were uncoupling the production from the creative, from the strategy. And so, agencies were left trying to backfill a lot of that income that they were making from the doing and the implementation.
And still haven’t quite figured out how best to do that yet. I think some are certainly emphasizing, and this was what I was trying to do over my career. You can emphasize the idea and the thinking more, although it’s generally still an hourly rate that you are charging, but to try and have the client understand that that is why you’ve been engaged by them to come up with thinking and the idea, not the doing, but previously the model was all, as you say, focused on the doing and it’s really hard to separate those things.
Darren:
Well, because it’s so much easier justifying the number of hours to do something. But I was a copywriter, well, how long does it take to come up with an idea?
Nick:
How much budget have you got?
Darren:
As long as possible if I’m getting billed by the hour. It could take months. And that’s one of the problems, isn’t it? And yet other industries, architecture is a good example. The builders certainly, there’s a big cost in building something, but architects try and hold that up. Hold up the value of the design in the first place as proof of concept, but again, it’s tangible. You get a building designed for it.
The metaphor I used, and this is over a decade ago, was the automotive industry. The car companies spend an absolute fortune designing and building a prototype, but then they spend a lot of time making sure the production line that then implements that design is made as efficient as possible to produce the highest quality or the suitable quality vehicle as quickly as possible, and at the lowest possible cost because that’s where they make their margins. But they invest heavily in the actual prototype in the first place.
Nick:
And agencies still struggle with managing to demonstrate how that adds value to the client’s business. And that’s what the conversation eventually boils down to. What’s the value inherent in the work that’s being done. And the high value stuff isn’t being valued as highly as it could.
Darren:
Well, I think the great fear now with AI is that yes, the production line can be automated and a lot of those production only companies that have stolen that volume from the agencies are doing that. But the other fear is generative AI, what’s to stop clients getting an AI to do it, and to your point, well, that depends on what they’re doing, isn’t it?
Nick:
It does. I think the sweet spot for agencies, creative agencies, and I’m sure we’ll get onto media in a moment. Sweet spot for creative agencies is the thinking and the idea. And how that idea is manifested in different channels, well, that will depend on what the idea is to a certain extent, but also, how best to bring that to life.
And sometimes it will be technology, generative AI to develop that idea into the suitable executions to go into market. A lot of times it will still be having teams of producers, teams of designers coming up with the iteration for that particular channel.
Now, there’s no reason the agencies can’t continue to play a part in that, but as I said at the outset, the sweet spot for me is, well, let’s charge properly for the thinking and the coming up with the idea, because the execution part, the implementation part might not involve us at all, or we might have only limited involvement, so we can’t rely on that as being our primary source of income anymore.
It’s got to be leveraging the people that we have and their intellectual property to all the stuff that advertisers generally hire a creative agency for. They don’t hire them for the production (you need to have that absolutely in whatever form it takes), but agencies get hired based on their thinking and the process to come up with the idea.
Darren:
Well, you’d have to say, based on the pitch process, it seems to be mostly around the quality and the caliber of the people and their ability to solve that by coming up with strategic and creative solutions, and yet so much of the negotiation and the time seems to be focused on the downstream.
So, to your point, let’s get the conversation. I think, well, isn’t that why we need to get agencies and clients to move away from the amount of time it takes and start putting value or output-based pricing in place?
Nick:
It’s a tough one because you asked me, what would I do as the agency CFO to push that conversation? Ultimately, I think it’s the client that’s going to end up deciding to go down that route.
Now, the agency needs to be able to articulate all the things that we’ve just said. So, you need to pay us properly for the high-value stuff that is going to be valuable to your business. It’s up to the agency to explain how that works.
But the advertiser also needs to be able to understand how that “high-value work” is going to contribute to their business in order to be able to accept that, yes, for that level of thinking, I need to pay a little bit more knowing that I’m going to be paying less for the implementation, particularly if it’s done via technology.
So, it’s a bit of a two-way street here. The agencies, I think, need to instigate the conversation. But there also needs to be some onus on the marketing team, the client’s advertising team, to understand the implications of what the agencies are trying to do.
Now, it’s possibly up to the agencies to be educator in that instance, but I find also there’s a big lack of understanding of what the value is to the advertiser’s business from the client team that the agency is doing for their business. So, I’m not quite sure exactly how you bridge that.
Darren:
So, you are saying the buyer is actually in the box seat to actually make the decision, but the seller has the opportunity and I’ve just seen that. Overseas, there are agencies that go, “Well, we don’t work on retainers anymore or any labour-based. We are an output-based pricing model.”
And you define the outputs: the thinking, the size, the value that they represent, we’ll put a price on it, and then we’ll negotiate on that price, but it’s very defined around what it is. It seems to me that there’s issues and questions for both sides in that.
Nick:
In many instances, the client team may not understand exactly what that value is. How do I explain that to my procurement department? How do I explain that to my CEO? You put a price against those outputs, well, that was more than I was paying last time for similar services. How can I justify that?
Darren:
Now, there’s another area which is that AI is increasingly being used to analyze data, and large amounts of data. We’ve seen the local Australian company Nutanix with their growth OS platform is now getting to the point of being able to predict results based on the inputs. Doesn’t that also open up the opportunity of performance-based fees for agencies? Because one of the big obstacles to this was actually attributing what component of an agency’s work was actually impacting the results.
Nick:
Absolutely, that’s the biggest reason that those conversations often get shut down. If there’s bonuses to be paid, it’s reasonable for the advertiser to expect that the value of their business has been pushed forward by the contribution from the agency.
The agencies say, “Well, there’s so many factors outside of our control, how do we find some common ground?” The sort of thing that you’ve decided takes away some of those barriers, mitigate some of that risk. If the technology is robust enough to be able to say, “If you do this, then your business should do this.”
And so, you can then better apportion the agency’s contribution, and therefore, any bonus that might be due from the services they provided. So, I think that’s an excellent way to reopen that conversation that often gets shut down.
Darren:
Everything from media channel selection to creative execution would all have an impact on that, to actually have an attribution model that gives some robustness. And the robustness appears to come from the huge amount of data sets that an AI can then process and make those predictions in performance seems to be opening up an opportunity for advertisers.
Nick:
And I think that’s another conversation, if there is technology employed that allows for that more robust attribution, then that’s another conversation opener for the agency to discuss with the advertiser, how might we better get paid for the work that we’re doing, rather than just continue to focus on the head hours as we’ve already pointed out.
Darren:
It is quite different to the conversation in the past, which a lot of agencies started playing with. And you mentioned IP earlier. A lot of agencies started saying, “Well, we’re creating IP that we’ll license that to you, and you’ll pay a license fee.” Which never really cut it, did it?
Nick:
No, it didn’t really work for me. I tried at various times in my career. I can see it from the client’s point of view, the analogy I like to use is (and maybe someone will come up with this) when I buy a toaster, I don’t expect to have to pay Black & Decker 5 cents every time I toast a piece of bread. So, I’ve bought that the intellectual property is inherent in the toaster that I’ve bought, so I should be able to exploit that.
And I can understand the advertisers thinking, well, I’ve bought that idea and the intellectual property inherent in it, so I should be able to exploit it however I want. I’m sure there’s contractual reasons.
But I think that being able to develop those attribution models, talk about outputs and the varying value that an advertiser will place on different outputs and remunerating in the agency accordingly are much better solutions than trying to get paid for intellectual property. I think that that ship has sailed.
Darren:
And it gets raised every so often, but to extend your toaster metaphor or perhaps modify it, it’s the difference between buying a book. Imagine having to then pay for it every time you read it.
But then from a publisher’s point of view, of course they’d love a model where they license it to people, and pay the author who created the IP in the first place, a licensing fee, which is what they often do. They’ll pay a percentage of sales in some circumstances.
Nick:
Isn’t that how Spotify is supposed to work? The artists will get a portion of-
Darren:
It’s a very small portion, but nevertheless, a portion. But it is interesting because I’ve had this discussion with quite a few advertisers, and from their perspective, it’s not like an author or a musician who’s created this of their own volition.
The client actually goes to an agency with a particular problem or opportunity and is commissioning them to create that. So, if you go to a gallery to buy a painting, the cost of that painting has nothing to do with the cost of materials or time. It is whatever the value is that you see as the purchaser.
But if you went to commission it, then you could negotiate a price based on you commissioning a particular work of art at a fixed price. We’ve got off the conversation of AI into the world of value, but I think it’s an important one.
Nick:
I think so, because ultimately, that’s where the conversation needs to go when AI is the catalyst for that conversation because there is going to come a time where the input head hours model is just going to be completely unrepresentative of what the agency’s doing or at least, the outputs that they’re going to be producing, and there needs to be another way for the agency to get paid for head hours that aren’t being performed.
Darren:
And it’s not just advertising we’re seeing in Hollywood, disputes and negotiations around how screenwriters and actors are going to be paid in this new AI world where content can be generated from existing content, and what does that actually mean in the value proposition for the original content creator.
So, it’ll be an interesting one to watch this unfold, but I think advertising’s already starting well back from that because at the moment, it is a cost-based model largely. For all the talk about value and performance based the vast majority … or is it fair to say the vast majority of agreements are still cost-based?
Nick:
The vast majority is still cost-based. For all reasons we’ve spoken about previously on this podcast, it’s simple to understand from both clients and agencies. It’s easily comparable and it’s relatively easy to implement, that’s important as well.
We talk about output-based pricing, there needs to be a bit of a runway to identify what the outputs are, and then negotiate the value for those outputs. Whereas, if you have an hourly rate card and you’ve got an agency of five people or a team of five people, you know exactly what your fee’s going to be very quickly and very easily.
So, that’s the reason that it’s still hung on for as long as it has. But you said that agencies have been slow in adopting other methods. I think that this is going to accelerate them trying to … and I know agencies do try and get other methods into their contracts. I think this is just going to accelerate those conversations. It’ll need to accelerate those conversations because otherwise, agencies won’t be able to put anything on the top line.
Darren:
And to your point, it’s going to be up to the clients to be open to having those conversations and understanding how that shifts the cost and value model away from the old model.
Nick:
Yeah.
Darren:
Nick, it’s been great having this conversation. Time’s got away from us, but I really appreciate you coming in and having a chat about the implications that AI’s going to have on agency fees.
Nick:
Thanks for asking me.
Darren:
Just one issue will be; if agencies truly embrace AI in their operations, does that mean one day we could see a chatbot replacing the finance director because after all, all it has to say is no?
