I'm referring to "agency prices for strategy, creative and production work," not "price per hour." Are agency prices too low?
How can we know?
"Price" is simply "income divided by workload." Income is easy enough to know, but what about workload? It's a complete unknown in the industry. When agencies complain to clients that "workloads are up," they use timesheet hours as the source of data, not measures of strategic work, creative work or production work.
No wonder agencies are seen as being in the business of selling hours rather than their creative work.
Farmer & Company has objective workload metrics. They show that client workloads have been growing and that client fees have been flat to declining. Ergo, income divided by workload has been falling for more than a decade, and agency prices are headed further south under the relentless pressure from Procurement.
Yes, agency prices are too low. They do not support the number of agency people required to do the work to a high level of quality. Today's prices are more than 15% too low.
Procurement is not the only problem, of course. Agencies do not defend their operations very successfully. They do not document, track or negotiate workloads. They are at the mercy of their clients, who have a much greater desire to cut price than agencies do to defend price. The contest is unequal by design.
For a live Webinar on how agencies can effectively respond to growing workloads, register at http://www.thoughtlegion.com/webinars/how-agencies-can-effectively-respond-to-growing-workloads/ for our September 18 broadcast.