Measure work, fix pricing, grow agency revenue
Agencies are producing far more deliverables for far less money, a structural shift quantified by Michael Farmer’s scope metric unit that exposes underpriced work and overstretched teams. Procurement-led fees, project churn, and adaptation-heavy scopes have gutted margins and seniority, while AI is poised to erase a quarter of billable hours unless pricing shifts from time to outputs. The strategic escape hatch: measure the work, rebase pricing on deliverables, and reinvest AI efficiencies into brand-growth strategy within long-term relationships.
Points clés
- Michael Farmer, founder, chairman, and CEO of Farmer & Company, authored Madison Avenue Manslaughter and Madison Avenue Makeover and has consulted hundreds of agencies since 1990.
- In an early Ogilvy engagement post-WPP acquisition, 50 creatives produced ~360 TV/radio/print ads; resourcing bloat (52 creatives needed 36; 75 account staff) was invisible until work was quantified, prompting leadership change.
- Average creative output jumped from about 7 deliverables per year (1992) to roughly 300 per year (2020), driven by digital and social.
- To measure mixed-media workloads, Farmer built a database of ~3,000 deliverable types and created the scope metric unit (SMU), with an original TV spot ≈ 1 SMU; an office of 50 creatives produced 15,000 deliverables, 13,000 of them adaptations.
- Pricing collapsed: the price per SMU fell from ~$430,000 (in today’s dollars) in the commission era to ~$100,000 now—a roughly 75% decline.
- Client pricing disparity is extreme: best accounts paid ~$277,000 per SMU while worst paid ~$72,000 per SMU; reported “good margins” often mask dangerous understaffing.
- Creative productivity should target 5 SMUs per creative per year; underpaid clients frequently force 7–12 SMUs, fueling burnout and weakening output.
- Procurement dominates fee setting as agencies mark up talent ~2x costs versus 5–6x at firms like Bain and BCG, driving systemic underpricing and downsizing.
- AI threatens 25–30% of agency man-hours, especially the ~40% spent on social/digital adaptations; unless pricing ties to outputs, not time, fees will be cut further.
- Market underperformance is vast: 20 of the top 50 advertisers grew ~1% per year; moving to GDP-level growth can lift share-price growth from ~5% to ~17%, underscoring the value of strategic, long-term agency partnerships.
À retenir
Three moves, minimal drama, maximum sanity:
- count what you make: catalogue every deliverable and standardize it (yes, like adults), then price by outputs instead of vibes.
- set a creative workload guardrail: aim for 5 SMUs per creative per year; if someone’s at 12, that’s not “hustle,” it’s a resignation letter in slow motion.
- sort your clients: keep the winners, fix the underpriced ones, and if necessary, Marie Kondo the truly hopeless—politely, because overhead is a thing.
- make AI your ally: bank the efficiency, but keep the fee by reinvesting savings into actual brand-growth strategy (you know, the part the C-suite remembers).
- choose relationships over roulette: long-term AORs build trust, results, and pricing power; project-only life is great for awards, less so for payroll.
Do these and you might just get paid for what you deliver. Radical, we know.
Sources
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