Show me the model: Why the commercial advertising agency model must be reimagined

Last year, the World Federation of Advertisers surveyed more than 70 multinational companies representing $50bn in ad spend. Just 11% of respondents agreed that their current agency model would fit their future needs and 24% said that it was unfit for purpose.

So, to paraphrase Jerry Maguire, is it now time for clients to ask agencies to ‘Show me the model?’ One that reimagines their commercial structures in preparation for a new breed of relationship?

‘Hold on,’ I hear you say, ‘there are two problems with that question.’ I agree. Let’s deal with the most obvious one first. Clients aren’t waiting for agencies to fix their own problems. If anything, clients are voting with their briefs and making up their own minds about what a compelling future looks like. Last week, Richard Robinson and the team at the newly minted Ingenuity+ published a report, Redefining the Pitch: A New Era in Agency-Brand Relationships. The research concluded that 98% of senior marketers planned to initiate a pitch in the next year. Most tellingly, they observed that “the surge in planned pitches signals a demand for … agencies to respond more swiftly to meet the expectations of brands.”

The second problem with the ‘Show me the model’ question is more fundamental. For decades now, the overwhelming majority of agencies, regardless of discipline, have been built on a broadly similar commercial model. One that combines People x Rates x Hours in order to generate a fee. Look at most big agency set-ups and you’ll still see this model. And while there will be ancillary structures surrounding it – such as soft KPI incentives, payment-by-results and volume rebates – the underlying structure will be the same. And to some degree, you might well argue that it still works. The client and the agency agree on the scope of work with the implicit understanding that the more complex the task and the greater the number of deliverables, the more time is needed. More People x more Rates x more Hours.

So, if it all kind of works, why change? Many have tried, of course, arguing that selling time is not a fair representation of the business-building value that best-in-class creativity can deliver. Value-based pricing and productization (among other things) remain worthy causes for an industry that needs to continue to champion its importance to UK PLC.

But I’d argue that agencies need to consider far greater change. Last month, I wrote in this column that ‘AI is the answer. What’s the question?’ That same AI shake-up will call into question the very foundations of agency-client relationships. The future (for those finalizing their 2025 annual plans) can’t just be more people doing more things for more hours. Technology will deliver many of those functions in the near future. Not exclusively, of course. The power of original thought to surprise, separate and seduce remains distinctly human. However, what comes after that – the production, deployment and delivery of marketing materials – will inevitably be forever changed by technology and by AI in particular.

For many, this shift will be a daunting prospect. What does it mean for the agencies that are still selling time? What does it mean for their talent? It demands an answer. Of course it does. And here’s the thing: ‘Show me the model’ is not really a question for clients to ask agencies. It’s actually a question for agencies to ask themselves. If we don’t define it for ourselves, our futures will be defined for us. Change is the only constant. Getting ahead of it is long overdue.