The Price of Everything and the Value of… What, Exactly?

The industry has talked about pricing reform for years but the fact it still clings to hourly rates might suggest the system to be an insoluble relic of the past.

That's not to say that there isn't an appetite for change. This was the subject of the annual IPA Business Growth Conference, held in London this week, and came five years after the IPA published its 'Pricing for Success' guide that many hoped would lead to a shift towards outcome-based pricing

Over the past few months, Creative Salon has spoken to leaders across the agency and client landscape – from creative networks to smaller boutiques, from media agencies to digital independents, global marketers to procurement specialists, and the intermediaries in between.

Their message is clear: the current commercial models, based largely on time and resource (or FTE) are too often at odds with the way modern agencies work - and with the kind of value they’re trying to deliver.

What's more, not much has changed since the 2019 report. One agency leader said: "Never mind changing since 'Pricing for Success' came out. Nothing has changed since 1985!"

So why, when most people agree that change is needed, does so little seem to shift?

Let’s start at the beginning.

Time sheets and tedium

Despite the explosion of performance marketing, the rise of platform-based production, and the increasing complexity of omnichannel brand building, the most common agency pricing structures haven’t budged in decades.

Most agencies – whether creative or media – still work on a backbone of FTE-based retainers (Full-Time Equivalents), commission-based media fees, and perhaps a dash of Performance-Related Fees (PRF) as an added incentive.

It’s a model that offers predictability, yes. But one that’s also widely acknowledged to be wildly out of step with what agencies actually do.

“We are selling people, not products,” said one agency leader. “But if those people are using better tools to drive better outcomes, the value shouldn’t just be measured in time.”

That disconnect is particularly evident in media. With clients demanding greater integration, more sophisticated planning, and consultancy-like input on everything from martech to commerce, media agencies say they’re being asked to do more, for less – while still being evaluated on the same legacy structures.

Creative agencies have it no easier. "The industry isn’t stuck in the past — it’s stuck in a spreadsheet," said another leader.

Death by rate card

Many pointed the finger at marketers' procurement departments, whose processes haven’t evolved to match the ambition of modern marketing.

Tina Fegent of Tina Fegent Consulting says: "I think procurement is somewhat stuck in the past. We still rely heavily on spreadsheets with hourly rates, hours worked, number of people, etc. I don’t think we’re being creative enough—whether that’s procurement, agencies, or clients.

"There are other models available, like the ones in the IPA guide, which includes ten options, and more elsewhere. I wouldn’t say we’re stuck in the past exactly, but we are stuck in a procurement spreadsheet mindset. There’s not enough awareness or education about the alternatives available to everyone."

The FTE model is still dominant because it's easy, it's measurable and it ticks procurement boxes and is comparable.

Another consultant adds: “There's no real demand from clients to do things differently - if the buyer isn't asking for it, it won't happen”.

And the report found that even those marketers who claim they want outcome based pricing revert to FTE during the pitch because they know how to compare that - and so, more importantly, does their procurement department.

James Murphy, CEO of Ogilvy Group UK, says: "On the one hand, I think often the presence of procurement in discussions about fees and service is helpful. They are dispassionate, professional, and thorough.

"However, there’s no doubt that it feels like marketers have been demoted in those discussions. Some of them may have happily abdicated that responsibility because they’d much rather discuss strategies and ideas than talk about money."

Almost every respondent acknowledged that outcome-based models – where agency fees are linked to performance, impact or sales – are the most logical evolution. And yet, for all the noise, adoption remains niche.

One media agency leader said that outcome-based pricing has actually gone backwards since 2019, given a lack of bravery on the client side, and the issue of measurement.

That doesn’t mean it’s a lost cause - in fact, change is happening - albeit at the margins.

Agencies with performance heritage – particularly in media and digital – report success when working with sophisticated clients. But even then, outcome-based pricing tends to be capped or additive, rather than wholesale.

"Our PRFs tend to include outcome-based metrics, but they’re generally capped at around 20 per cent" said one media agency leader. In short, it’s not replacing retainers or commissions without more concerted effort.

While the broader picture remains one of slow change, there are flashes of experimentation worth noting. Several agencies have piloted subscription-based models, licence-of-concept approaches, and even equity-based deals with start-up clients.

A list of all the types of alternatives to FTE-models can be found in 'The Price Isn't Right' report.

One standout model came from a media agency offering a “strategic resource pool” – effectively a flexible fund that clients can draw down on, like a consultancy retainer. “It lets them tap into different specialists as needed, rather than paying for fixed headcount they might not always use,” explained the agency chief.

Others talked of bundling tech, tools and talent into a SaaS-like model. “With AI doing more of the executional work, clients are starting to pay for platforms and the people who run them – like software licensing, not labour.”

Still, these remain the exception, not the rule.

Will AI be a tipping point?

No modern conversation is complete without an AI tangent. And here too, pricing rears its head.

Many agencies see AI as an enabler for outcome pricing – using predictive analytics and real-time attribution to finally track value more accurately. Others fear it will simply be used to drive costs down.

“Clients are already asking: if AI makes you more efficient, can we pay you less?” warned one leader

Murphy says: " I think with AI, there’s no doubt it should be able to take some cost out, particularly in terms of functional elements like managing high numbers of assets across performance, market media schedules, adapting and delivering assets, and so on.

"What I’ve yet to see is AI making a difference creatively — like saying, "I tell you what, let’s have a gorilla playing the drums." I’m not sure it’s capable of that yet."

So… what’s to be done?

Everyone agrees that there’s no one model to suit everyone. Indeed many thought FTE could be modernised to include sprint fees and a greater degree of PRF.

But there is appetite, albeit not as much from marketers, for meaningful change. It starts with better education and braver clients.

Fegent says it's incumbent on the entire industry to do a better job of telling clients of the different pricing models on offer away from FTE.

She says: "There are other options. Agencies should feel empowered to say, 'If you’re offering a three-year deal, we could look at different pricing models.' But in pitches, procurement wants to compare apples to apples—and that means Excel spreadsheets," she says "It’s very hard to break away from that."

Procurement needs to evolve from box-tickers to value assessors. Intermediaries must open the aperture for alternative models. Agencies must have the confidence to say no to models that don’t serve them and be more confident in putting forward alternative remuneration models - after all they do exist.

Most of all, we need a shared understanding that price should reflect impact – not just inputs.

You can buy a copy of the full report from the IPA here.