The danger of making token pitch payments to agencies
February 3, 2013
This post is by Darren Woolley, Founder of TrinityP3. With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.
This week I was talking with Stephan Argent, President of Argedia Group and a colleague in the Marketing FIRST Forum. Stephan manages agency selection in Toronto, Canada and has written guest posts here on the TrinityP3 blog, specifically about the impact of digital technology on the advertising industry.
But this time he was telling me about a pitch he was running where the client had offered a pitch fee to each of the unsuccessful agencies. One of the agencies vigorously objected to the fee, threatening to withdraw from the pitch, saying it was an insult. The client asked them to recommend a ‘fair’ fee, which the agency responded with a fee three times higher.
I have written about pitch fees about a year ago as the issue appears to be a contentious one. As I wrote at the time, the times to consider paying pitch fees are when:
- You want to buy the rights to all concepts, not just the winning concept,
- You require the agencies to prepare materials and incur external costs beyond what would be considered standard
- You are engaging a large number of agencies in the strategy / creative stage of the process.
The key word here is “token”.
While some may feel that the payment of pitch fees to the agencies is a sign of goodwill, it can also appear as a token payment for the many hours and out of pocket expenses that are involved in participating in the pitch process.
Lets look at some guidelines for the three reasons you would pay pitch fees and some recommendations on what you should consider paying.
1. You want to buy the rights to all concepts, not just the winning concept
If you are buying the copyright, then you should be looking at paying for the copyright at a commercially realistic fee. One way of determining this is to look at the commercial cost associated with developing the concept you are buying. In other words, what would you normally pay for the concept you are buying. In most cases, depending on the concept, this could be $100,000+ for each concept you are buying.
2. You require the agencies to prepare materials and incur external costs beyond what would be considered standard
So what is a reasonable expectation for you to have of the agencies? Depending on the scope of the selection process, it should ideally reflect the way you work with your agencies on a daily basis – eg. Storyboards versus animatics, layouts versus comprehensive computer mock ups.
But ultimately, you want to have the agency produce enough work to be able to assess the concept. We usually limit this to no more than 10 pieces of work. That could be one concept with ten pieces, or two concepts with five pieces etc. If you want more than that then we recommend paying out of pocket expenses of $10,000 – $25,000 per agency.
3. You are engaging a large number of agencies in the strategy / creative stage of the process
Often if there are a large number of agencies invited to undertake a creative pitch, you may be required to pay pitch fees to attract the agencies to the process. But if you are paying the agency to participate in the pitch, then you should consider if they are really committed to winning your business. Rather than paying pitch fees, a better strategy is to reduce the number of agencies involved in the pitch process. We work on:
- 6 – 8 agencies maximum invited to provide credentials or RFI response and then chemistry sessions
- 3 – 4 agencies short listed to participate in the full day strategic workshops
- 2 – 3 agencies to prepare creative recommendations based on the strategic workshop
Stephan told me that the agency that demanded the increase in pitch fee was later unsuccessful, but refused the fee they had earlier demanded. The marketer then asked them to nominate their favourite charity and donated the pitch to the charity on the agencies behalf.
So have you paid pitch fees? Or received pitch fees? What do you think about pitch fees? Leave a comment and let me know.