4A's Study Finds Agency Reviews Cost over $1 Million on Average
Marketers spend $408,500 on average to conduct an agency search and account review when an incumbent agency is not involved and spend slightly less when an incumbent agency participates.
At the same time, incumbent agencies spend $406,092 on average defending an account that goes into review, an expenditure that likely contributes to 25% of incumbents declining participation in the review.
This is according to a new study, entitled The Cost of the Pitch, released today by the 4A’s, ANA, and Advertiser Perceptions, which also revealed that when pitching new business, agencies spend an average of $204,461 per pitch. The total cost therefore per review for a marketer and agencies, assuming three agencies participating, is more than $1M when an incumbent agency is not involved as indicated in the table below. The average cost increases to $1.2MM when an incumbent agency is included in the review.
On average, the agency review pitch process takes at least two months when an incumbent agency is involved. Selecting new agencies, however, ran longer at more than three months on average. This process leads to declines in productivity for both agencies and brands, as 1 in 3 marketer respondents reported disruptions to their daily tasks and 1 in 4 indicated delays in launching a new campaign or product due to their involvement in the review.
“Agency reviews are an expensive, time-consuming process, on average taking up an entire business quarter,” said Matt Kasindorf, SVP, business intelligence and insight, 4A’s. “Given the cost implications for both clients and agencies, the work disruptions and delays caused by an agency review, and the potential to damage the existing client/agency relationship, it is critical to assess whether the need is really there, or whether there are other options. These could include initiating a client/agency Relationship Management Program, or engaging a client/agency relationship consultant. Given that the majority of clients retain their current agency after a review, these other options represent a viable alternative approach. While there certainly may be times when an agency review is appropriate, it should really be considered a last resort.”
"Considering the substantial hard and soft costs that clients and agencies incur during a pitch, it would behoove most clients and agencies to identify the gaps to repair their relationships versus expending budget and time unnecessarily,” said Greg Wright, SVP, Brand & Media, ANA. "By leaning into an agency relationship management program, clients and agencies can bridge those gaps and deliver better business results."
Based on 300+ interviews with U.S. brand marketer and agency executives in March 2023, The Cost of the Pitch also found that:
● Reputational considerations: Forty-five percent of procurement respondents and 35% of brand marketers say an agency’s reputation plays a critical role in the selection of the winning agency at the end of the pitch process.
● Short-term vs. long-term: Half of marketers said that motivation of the incumbent agency is the main short-term benefit of an account review while 44% identified a new direction in strategy as the main long-term benefit.
● Importance of relationships: Agencies (38%) and brand marketers (33%) emphasize a commitment to developing long-term relationships as the most important factor for reducing the need for an account/agency review. Thirty-three percent of marketers also cite a focus on aligning the right people that best complement client/agency counterparts.
● Performance impact: Half of brand marketers said that the performance of the incumbent agency was the key factor that contributed to the decision to ultimately put the account up for review. However, only 1 in 3 procurement respondents agreed that performance was the key deciding factor to putting an account up for review. Rather, 2 in 3 said that performance was just one of the contributing factors.
● The role of consultants: 46% of marketers use external consultants for reviewing existing agencies while 39% of agencies use consultants to defend account reviews.
“Overall, between all marketer costs and the average of three agencies pitching, the total price tag adds up to more than $1 million per review,” said John Bishop, VP market intelligence at Advertiser Perceptions. “So it comes as no surprise that 1 in 4 agency respondents said their agency declined to participate in a review of an existing account over the past two years, while 1 in 3 had declined requests to participate in a new business pitch. Though the cost for incumbents is high, they actually have a good shot of retaining the business with two-thirds of brand marketers saying they kept their current agency following their most recent review.”
