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Marketing

Large advertisers are moving away from paying agencies for hours worked

2 min read

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A billing model based on billable hours is now used by less than one fifth of the surveyed global advertisers. Artificial intelligence is expected to provide another push for change.

Today, 17 percent of surveyed large advertisers pay agencies mainly for the time worked by their teams. This is according to research by the World Federation of Advertisers (WFA, an international organization of advertisers) and Agency Mania Solutions, presented on 29 September at the WFA Forum Connect in New York. In 2011, 54 percent of companies used this model, and in 2022, 33 percent.

The figures differ depending on the source. Wirtualne Media, citing Marketing-Interactive, reports 17 percent, while WFA states 19 percent on its website. Since 2011, the share of models based on a fixed fee or specific outputs has risen from 20 percent to 35 percent (according to WFA, to 33 percent). The share of models combining payment for work with a performance bonus rose from 9 percent to 23 percent (according to WFA, to 21 percent).

The study covered 69 international companies from six industries, whose combined global marketing spending amounts to USD 147 billion. Performance bonuses are most often used where the effect is easy to measure: in media planning (41 percent of respondents), media buying (34 percent), and paid social, meaning paid campaigns on social media (30 percent). Still, at 64-80 percent of companies, depending on the discipline, they account for less than one fifth of agency compensation.

Artificial intelligence (AI) is expected to accelerate the change. Already 20 percent of the surveyed companies have adapted their billing models to it, and another 61 percent intend to do so. Laura Forcetti of WFA explains that AI tools allow agencies to complete many tasks faster, so the number of hours increasingly reflects the value of the work less accurately.

Regional differences are also visible. In the US and Canada, the model based on labor input is still the most popular (38 percent). Billing based on a fixed fee or results is used by 44 percent of companies in the Asia-Pacific region, 32 percent in Europe, and 29 percent in the US and Canada.

According to the study, 89 percent of the surveyed marketers believe that working with agencies is worth the price. However, only 45 percent say they have sufficient transparency into agency costs and profitability. More than financial incentives, the assessment of cooperation is influenced by the quality of the brief, mutual trust and respect, and reliable feedback. For marketing departments negotiating contracts, as well as for agencies and freelancers, this means that in pricing discussions a clearly defined scope of work and measurable outcome are becoming increasingly important, while the number of hours is becoming less so.

Key takeaways

  • Mainly paying for teams’ working time is used by 17-19 percent of large advertisers, compared with 54 percent in 2011 and 33 percent in 2022.
  • The share of billing based on a fixed fee or outputs has risen since 2011 from 20 percent to 33-35 percent, and the share of models with performance bonuses from 9 percent to 21-23 percent.
  • Already 20 percent of companies have adapted billing models to AI, and another 61 percent plan to change them, because automation weakens the link between the number of hours and the value of the work.
  • Eighty-nine percent of marketers consider working with agencies worth the price, but only 45 percent report sufficient transparency into agency costs and profitability.

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