The true costs for agencies of pitching for business they probably aren’t going to win

Welcome to Tuesdata, our weekly analysis for Unmade’s paying members.

Below, we examine the real cost of pitching for creative agencies, and investigate the economics of chasing new business in a landscape where the size of accounts continues to shrink.

We also take a look at a dour start to the week on the Unmade Index.

Everyone else hits the paywall further down. Subscribe today to get all of our Tuesdata posts and access our full publishing archive, which goes behind the paywall after two months.

Unmade members get discounted tickets to our events, including humAIn, our conference focusing on the impact of AI on media and marketing, and Re:Made, our focus on retail media. The coupon code for the discount appears at the end of this post, below the paywall.

Until the end of this week, we’re offering the chance to become a paying member for just $358, a 45% saving on our usual $650 price.

Has pitching become an exercise in futility?

Seja Al Zaidi writes:

Most creative agencies are pitching for projects that will never see profitability – that’s the headline finding from a study into the new business landscape in Australia.

“The ‘Ouch Factor Report: Revealing The Hidden Costs of Pitching” was conduced by agency growth consultancy New Business Methodology. It spoke to 94 CEOs, CFOs and MDs from across a range of agency services on their pitch performance, investigating factors including pitches won versus lost, win rates and the number of hours invested in pitching.

The agencies surveyed said they pitched 1,533 times for a total of $518m of pitch revenue. In total, agencies spent 177,000 hours pitching, or the equivalent of $41.4m value in non-billed hours. The surveyed group won roughly half of the pitches they were involved in.

However, winning the business does not automatically mean that the time invested in doing so was worth it, particularly in the short term.

Julia Vargiu, founder and managing director of New Business Methodology, said the economics of pitching make even less sense now that the tenure of accounts is shorter.

“The whole dynamic of pitching is flawed in its structure and how it works right now,” Vargiu says.

“The reason agencies have to pitch is because they have surrendered their growth to the hope strategy. They hope to meet a couple of clients, share their credentials, be remembered, be invited to pitch, and they’re happy with a one in four win rate. They’re completely dependent. They grow by chance. They grow by where the phone rings. They don’t grow by design.

“The other thing I found that was really disturbing was that there’s a lot of agencies pitching for work while they don’t even know the value of it. They don’t ask how much it’s worth. Any good agency CEO should be making money off of the time of their staff, right? If you were sitting here working for free, it’s not going to be a viable business. We need to move into pitching profitably.”

“What this showed is that all of this pitching, it’s unsustainable. You’re not gonna make the margins.”

“Know the dollar value of a pitch. Negotiate upfront. A $50,000 pitch, or project, you don’t pitch for it. Do you really want to work with a client who’s pitching out $50,000?”

Media vs creative agencies

Creative agencies spent 32% more than average in the dollar value of non-billed hours to win 31% less than the average pitch revenue.

Media agencies had the best win rates – they were most restrained in pitching and invested the minimum time per pitch but won most often, and the 200+ sized agencies (typically network) pitched the most often and invested almost double the amount of time per pitch than anyone else.

However, another factor makes pitching a less clearcut calculation: Many of the hours spend on pitches amount to unpaid overtime on the part of staff who have been conditioned to see it as part of the role.

TrinityP3 CEO Darren Woolley argues that it’s an “ethical quagmire” to have staff working unpaid overtime to produce work for a pitch, but challenges the premise that time spent on a pitch automatically limits an agency’s profit margins.

“There’s a big flaw in this report, which is that most agencies do not use staff’s paid hours for pitching,” says Woolley. “Most staff are doing unpaid overtime to participate in a pitch. When the report says it’s $40-50,000 of unbilled hours, they would never bill it anyway because they never bill overtime,” Woolley says.

“It’s not like the staff are getting paid for doing those extra hours. It’s not like the agencies are really out of pocket by that amount of money.”

The cost of pitching is a more subtle one in the impact on staff and agency culture, says Woolley. “From 9am-5pm everyone’s working on their existing clients. If I can get you to work unpaid overtime and bill it to the client, that’s extra profit – pure profit. So then should clients have to compensate the creative agencies for pitching? Well, I personally don’t think that that’s the right solution.”

In 2020, across the whole year, the average agency respondent spent the equivalent of $475,000 in non-billable hours dedicated to pitching to gain $2.5m in pitch revenue, according to the report. In 2021, they spent $1m to gain $3m. If those were hours that could be reclaimed, this suggests that in 2020, the average agency respondent sacrificed the equivalent of 19% of the new business value won from pitching. In 2021, this almost doubled to 33%.

Then there’s also the matter of successful pitches resulting in paltry rewards.

29% of pitches were worth under $100k, while 75% were worth less than $500k, and likely to be projects that may not last the 24 months required to reach profitability.

“I’m more interested in how can we get clients to stop doing long, boring, onerous pitches that cost everyone time and money for very small amounts of money, for very small rewards,” Woolley adds.

“If you’ve got a really big project, like a billion dollar contract globally, then sure, you could run a much more comprehensive and time consuming process because it’s actually worth it.”

“The creative pitch is incredibly time consuming because they’re basically doing all the work of coming up with a creative idea, and presenting it in a way that the client can understand,” Woolley says.

“A media pitch is a lot less of that speculative work. The biggest cost impact for media agencies is doing a media buying exercise. It’s nowhere near as time consuming as the traditional creative pitch.”

When agencies are accustomed to ‘winning by chance’

While ‘ditch the pitch’ might be catchy and en vogue, it’s not entirely feasible. Most creative agencies can’t resist the temptation of pitching.

However, when the revenue from accounts becomes increasingly diminutive, it might be worthwhile to reassess how much effort and resources goes into each pitch, and how much information the agency is armed with before actually undertaking a pitch process.

“What we need are some guidelines so that clients will start to learn how to measure the proportion of effort for the pitch – the reward. If you’ve got a small project, don’t put the agencies for a pitch. Go and meet with three agencies and pick one to do it as a project,” Woolley says.

Addressing the commercial realities of pitching is also of critical importance, according to Vargiu.

“Procurement reports to the CFOs. So, if you want to be seen as valuable to your client’s business, you need to have a relationship with the CFO that isn’t stepping on the toes of the marketer because we want the marketer to be seen as driving value for the business as well.”

Unmade Index continues to slip

The Unmade Index, which measures the performance of ASX-listed media and marketing stocks, had a dour day, slipping 0.68% to land at 615.1 points on Monday. The last time the index was this low was at the beginning of January.

Nine fell by 1.04%, while Ooh Media dropped by 0.87%.

ARN Media took a 1.03% tumble, while the company it raided last week, Southern Cross Media, saw its fortunes improve slightly with a 0.62% lift in its share price yesterday.

Domain saw a 0.29% rise, while out of home minnow Motio climbed 6.06%.

That’s all for today. Thank you for supporting us through your membership.

We’ll be back with a midweek edition of Unmade tomorrow.

Your coupon code for humAIn and RE:Made

Unmade members get $135 off tickets for humAIn – human creativity X AI

And they get $108 off earlybird tickets for RE:Made – Retail Media Unmade

Your coupon code for both is:

Unmade_Member

Go to humain.au and remade.net.au and enter the coupon code to access your discounted tickets.