So if creative thinking has that potential power, how come it has become so difficult for creative businesses to get their clients to value it Why have margins steadily eroded over the past decade And what can creative businesses do about it to ensure theyre properly remunerated for the ideas they originate
“We live in times where everything is negotiated – ISBA, Institute of British Advertisers
The real change in the past few years has been the greater influence of procurement on the purchase of creative thinking. Marketing teams have taken a step back and let their commercial cousins lead on the negotiations.
The reasons are understandable. Like all businesses, they are under pressure to drive cost effectiveness. But the challenge for the creative industry is that the discussion moves from being about the output, to instead being about the input. Contracts are being negotiated based on units of time, not on the potential value of the creative thinking that creative businesses generate for clients.
Fortunately, there are some steps your creative business can take to ensure they realise the value of the thinking they are selling to clients:
1. Insist on an expert being part of the negotiation
Its not always the case but, in the main, procurement teams are generalists who are used to purchasing services and products from a wide range of sectors. So when your creative business is negotiating the best price for its creative thinking, you should insist on a specialist being involved in the process. Someone who really understands what it is your creative business does, and what potential value it can add to the potential clients business.
Most of the time, it will likely be the marketing person in their business who has requested the services of your creative business in the first place. Also, any good procurement team (there are lots of them out there) will be happy to work in partnership with a specialist counterpart to ensure they are buying your creative service in the right way.
If procurement teams arent open to that then you need to question whether this is the type of company you want to be doing business with in the first place.
2. Know how their creative ideas contribute to a businesss bottom line
There are many companies who sell creative ideas on the basis that it will generate value. However, when pressed, they can’t actually articulate what results their thinking will return.
Before your creative business or agency proceeds on any negotiation with a potential new client, you must be sure to know exactly what you are meant to be delivering and be prepared to demonstrate how your work has the potential to create incremental value to the clients business.
You can ask to see current results and targets to be clear on the benchmark. Likewise, you must ensure you’re clear on what your creative service has the power to influence if sales as a result of your activity are driven by a sales team you can’t influence then dont you shouldnt sign up to sales. Instead sign up to generating leads. So the job of your creative business is driving the interest and the sales teams job is driving conversion of interest to sale.
3. If you dont value it they won’t
If youve done your work up front to understand what results your ideas will be generating then you’re in a strong position to ensure you dont enter into a time-based only negotiation.
Consider the output and approach how to price that in a couple of ways. Firstly the easier sell is to ask for fixed price for the idea your creative business has generated. Rather than units of time to create it you set on a one-off menu price for the thinking. A consultancy model that ensures the focus is on what you produce, not on the input. Meaning you have the ability, if you control your costs, to make a healthier margin.
The second route takes more time and an element of risk on your part, but the financial return could be far greater. Performance related pay. Where you put forward a percentage of your fee based on the ROI (Return on Investment) your ideas should deliver. Build in an upside should your ideas exceed targets. But also be prepared that if you dont hit target you won’t make 100% of your fee.
Overall you need to understand the power of your creative business. Go into any negotiation armed with evidence of your experience in delivering results. Know what job you are there to do and what results you need to deliver. And ultimately be confident in the value of your business ideas. If you’re not, then dont expect clients to pay a good price for it.
By Liz Barnsdale, Managing Director of ais London, a digital agency.