A new agency business model for the post-gen AI age: Going upstream

According to a recent survey by the American ANA (Association of National Advertisers), 59% of brands choose their agency partnerships on cost alone. That statistic should terrify every agency leader reading this because gen AI will make price-based competition a race to the bottom.

My previous article about how gen AI will have a profound impact on agency business models sparked quite a few discussions about the opportunities and barriers for agencies moving upstream into higher-value consulting services. I felt it's time to share these insights with the industry—because time is running out.

A quick recap

The gen AI revolution will drive clients to move routine work in-house, leaving agencies with less of the boring but profitable ‘business-as-usual’ work (BAU) and more of the glamorous but unprofitable ‘big-idea’ work (BIW). As most agencies have a mixed-margin model, this shift will devastate agency profitability unless we reinvent our business model and renegotiate how clients pay us.

Within existing skillsets, agencies have two paths: go upstream to become creative marketing consultancies or go downstream to become idea suppliers. Yes, one could also go sideways but it would mean reinventing the business entirely—perhaps as a data analytics firm.

Going upstream is where the real opportunity for most agencies lies.

Going upstream

Let me define what I mean by creative marketing consultancy: an entity that solves business problems through strategic and creative marketing thinking.

Many agencies might already see themselves this way. But do their clients agree and more importantly, do they pay the agency accordingly? That 59% statistic suggests otherwise.

The question isn't whether you're strategic. It's what you're being paid for: the business value you create or the assets you produce?

Value is subjective—until it's not

A sticker that’s signed by Blackpink is fairly worthless to most people but worth a lot to true fans. The potential value becomes clear in the right context: show the eBay bidding war over that sticker and even the ignorant will realise its value. Similarly, if your clients won't pay ‘fair prices’ for your services, they don't see sufficient value to justify the cost.

The solution: tone down talking about creativity and start demonstrating business impact. How well did your creative achieve its objectives? What monetary value was created? How much revenue was generated that business would not have received without the initiative?

These questions seem obvious. In reality, most agencies—and their clients—can't answer them in concrete business terms. That's the problem we have to crack.

Moving from output to outcome

Here's why defining your value contribution matters: it allows you to shift from price lists, hourly rates and FTE models toward outcome-based pricing. If you can prove you generated a 10% sales uplift that otherwise wouldn't have happened, you deserve a share of it.

This approach transforms your role from creative supplier to business consultant—advising CEOs, CMOs, and CFOs on how to succeed through marketing. That's going upstream.

Five challenges to overcome

Moving towards value-based compensation isn't easy especially when existing agreements have to be revised. We have to tackle five critical challenges towards that goal:

1. Expand your belief system

Too many agencies define success as ‘creating great ideas’. Business results are seen as a nice-to-have by-product. Ask yourself: would your agency choose a gold Effie (from the Marketing Effectiveness Awards) over a bronze Cannes Lion? Be honest.

But ask clients, and many will choose the Effie. Why? Because clients they want business results, not just great creative. They care about the ‘hole’ not the ‘drill’ that makes it.

The importance of great creative ideas is not in question as they can multiply the effectiveness of marketing. But great creative is a means to an end, ‘commercial art’ that delivers business results, ideally beyond expectations.

What to do: we need to expand our belief system from ‘creating great ideas’ to ‘creating great results through great ideas’. Start measuring success when results are delivered, not when campaigns launch. Engage with business problems and see creative ideas in their commercial context. Which leads me to my next point.

2. Define your value contribution to business

There's a massive gap between marketing theory and practice in our industry. In theory, marketing has never been more powerful. Thanks to advances in psychology, neuroscience, and data analytics, we can better than ever define our monetary contribution to business. Practitioners like Mark Ritson, Byron Sharp and the like offer substantial guidance on making marketing work better and harder for business.

In practice, many marketers—agency and client alike—make decisions mostly based on gut feel. The belief of needing to be faster and thus having ‘no time’ to think things through or believing one knows ‘what is right’. Internal politics prevent better, novel solutions. Agency-side, many have lost the ability to determine their initiatives' business value as smaller budgets and shrinking margins have eliminated senior strategic talent.

What to do: Be interested in how marketing actually delivers results and how to measure these. Start seeing marketing as a continuous process, not just one campaign after another. Use this knowledge to help your client’s business succeed. Prove that data-driven, objectives-focused decision-making beats gut instinct. Establish test-and-learn approaches with clients to solve business challenges.

3. Go beyond the 'budget holder' to the 'problem owner'

Many agency clients today are communication managers who manage advertising budgets—they are not responsible for solving a business problem. But if your client doesn't own the problem, you can't argue the value of your solution.

True problem-owners understand the cost of business challenges, and thus the value of solutions. To move towards value-based compensation, you must engage problem-owners directly.

What to do: Recognise that engaging the problem-owner is mission-critical to your agency’s survival and likely to be a longer journey. You will have to:

• Identify the problem owner
• Find topics beyond advertising that matter to them (i.e. business-relevant topics)
• Make your budget-holder look good in front of the problem-owner
• Propose solutions to both stakeholders together
• Execute, demonstrate results, optimise, repeat
• Then re-negotiate compensation based on the proven value generated

4. Explore alternative remuneration models

Most agency contracts are based on a list of asset production: four campaigns per year, ten content pieces monthly, etc, translated into hours or FTEs (Full-Time Employee). Yet such agreements force agencies to focus on deliverables while ignoring business results as they have no impact on the agency’s remuneration.

It’s one reason why agencies are seen as ‘creative production houses’ and the existence of gen AI will render them less and less relevant.

What to do: Shift toward value-based remuneration and convince clients this is a much better deal. A partner who shares both your success and failure will fight harder for your business. The challenge is the willingness to change outdated models that no longer reflect business reality. It’s a difficult task especially for smaller, independent agencies.

5. Industry-wide alignment on our value contribution

The advertising business has been brutal recently with shrinking billings, eroding margins, mounting pressure, and less time. The gen AI crisis affects all agencies globally and will intensify these challenges. Most agencies won’t be able to solve this alone.

We need a powerful narrative that helps agencies address these challenges, give them a good reason to engage clients in difficult conversations and re-negotiate remuneration.

What to do: I think it’s time to recognise we face this crisis together and thus we must solve it together. This requires industry-wide support. And someone who brings us together. So here is my proposal: let's ask our (neutral) industry bodies—local and regional agency and marketing associations across APAC­—help us develop new perspectives on our industry's future. Perspectives like:

• A charter defining the agency’s value contribution to client businesses
• Frameworks for making value visible and measurable
• Alternative remuneration models that strengthen client-agency relationships

Not to provide all the answers, but to facilitate the critical conversations our industry desperately needs to facilitate our evolution.

A great example is the collaboration of the American 4As (American Association of Advertising Agencies) and ANA to develop an agency remuneration report exploring how traditional compensation methods don't match modern marketing complexity. They found marketers want agencies to drive value, not just fulfil tasks, and are open to compensation aligned to business value created. We need more of this for APAC.

The time for action is now

The gen AI revolution isn't coming—it's here. While we ponder, clients are moving BAU work in-house. The choice facing every agency today is: evolve into a strategic business partner who demonstrates measurable value or be relegated to a tactical supplier competing solely on price in an increasingly commoditised market.

I suggest we take the five practical steps above to survive the next five years. Those who can shift client conversations from ‘How much does this campaign cost?’ to ‘How much revenue will this solution generate?’ will thrive in the post-gen AI landscape.

The rest will find themselves fighting for scraps in a market that no longer needs what they're selling. Your approach to this transformation—or lack thereof—will define what our industry looks like in future. Let’s make this future a viable, sustainable, bright and fun one—together.

Andreas Moellmann is founder of Future Inc, a brand and marketing strategy consultancy. 

Sources for further reading:

• Gen AI will have a profound impact on agency business models
• Future Trends in Client-Agency Partnerships: What to Expect for 2025?
• Decoding Compensation Models & Implementing the Right Model