“Agencies get paid like we're doing our clients' laundry”—Lee Clow

In a three-minute video that is now posted all over the web, TBWA\Worldwide Chairman and Global Director of Media Arts, Lee Clow is seen speaking his mind on the present agency compensation system. Advertising agencies, he believes, are woefully underpaid for the value they provide to brands.

Rightly so, he puts the blame squarely on ad agencies for allowing it to happen. "Unfortunately, in our business, we get paid like we're doing our clients' laundry. Somehow we've managed to commoditize what we do.”

As he sees it, every other creative art form (photographers, filmmakers, directors, musicians, performers etc.) has “managed to figure out how to get paid for the value of what they create. Get paid, get residuals, allowed to own what creative idea they have delivered to the world.”

What strikes home for me more than anything in Lee’s message is his viewpoint about ideas: “Many of the ideas we create for brands could be listed on the balance sheet of our clients as an asset with millions and millions of dollars in value." For example:  It was TBWA that came up with the Control Wheel device on the iPod (or so the story goes). That’s IP.

It’s no secret that it takes brilliant creative people working in a highly-creative agency to create brilliant ideas. For Apple, that agency was TBWA. One such campaign idea was ‘Think Different’, created when Steve Jobs returned to Apple.  Job’s wanted a spot that reflected his philosophy—a philosophy he thought would reinforce his then struggling company. The breakthrough TV spot ‘1984’—the most famous Apple ad ever, and probably the most famous commercial ever, introduced the Apple Macintosh personal computer for the first time, symbolizing the idea of empowerment, with the Mac as a tool for combating conformity and asserting originality.

These were ideas of the highest caliber. And no doubt TBWA was paid well for their effort—but how much could they have made if their fees were tied to sales? Just imagine.

Most ad agencies don’t consider their ideas as Intellectual Property (IP), and I think, in some cases, they should be doing just that.

I’m not sure what the outcome of the “Agency Thought Leader Compensation Summit” will be or whether it will have any effect at all on the future of agency compensation.

Personally. I’ve always believed that agency compensation should be tied to sales.

The formula we’ve use in my agency Mantra Partners, has been:

1. An agreed upfront fee to cover the agency’s costs of doing business, and
2. We get paid based on sales (derived from the success of our advertising work). This also includes initiating brand building ideas by providing a combination of entrepreneurial counsel and advice on product design and development, technology support, service improvements, distribution, and packaging.

When we have the opportunity to create Intellectual Property that adds value to the client’s bottom line,  we are further compensated based on sales. In some cases—for smaller clients and some technology clients—we have taken a small percentage of their business, becoming a ‘real’ partner.   We have been able do this because one of the principals in our agency is a successful high-tech entrepreneur with software and hardware experience. His abilities provide our high-tech clients with ideas and solutions that go beyond the usual “digital” offerings.

When you consider that the whole idea of what advertising is about—to drive sales and brand awareness—it seems odd to me that most ad agencies aren’t willing to tie their services to sales. They don’t do this because they don't want to take the risk. In the present model, the client is the one who takes most all the risk. Surely, if agencies want clients to take a risk on creative, shouldn’t they do the same?  And if an agency wants no risk, then fees for service is entirely fair. You just can’t have it both ways.

To get another view on this subject, I spoke with a friend and ex-client of mine who runs a brand across Asia. “It's all about risk and reward, “ he said. “If you take more risk you should be entitled to more reward. However, I think Lee Clow’s comment about “ideas being worth millions on companies' balance sheets”, while true, smacks of greed. If agencies want to share in the reward, then they must shoulder some of the risk too. To look at the result of vastly improved sales and attribute it to the value of the advertising campaign and then start whining that they didn't get paid enough when they took no risk is over the top”.

Under their traditional (and outdated) regime, most agencies continue to give their ideas away for a set fee.  And, if creative ideas are the cornerstone of the advertising and design business, why do agencies insist on charging service fees for account management and other esoteric services rather than charging a fee or royalty-based payment for their ideas?

Agency service fees and media commissions have been our industry’s traditional sources of revenue. But these can become minor forms of remuneration if ad agencies seek higher compensation for their IP.

Perhaps now is the time for ad agencies to stop bitching about how they are underpaid for their services, and create a compensation system with their clients that exploit the success of their advertising ideas and campaigns. Agencies can be remunerated through a licensing of their IP and royalties can be linked to the success of the campaign, or on climbing brand sales. Under such a scheme, clients would not have to pay as much as they do now for dud campaigns.

“We're supposed to be a creative business,” Mr. Clow says, “but I think we have been probably the least creative industry in the history of the world in terms of figuring out how to get paid.”

No doubt ad agencies have lost their way when it comes to being fairly compensated, and like so many things today, there is no simple answer to help us find our way back. Lee’s comments call attention to this fact and they should motivate us to give this issue the consideration it deserves.

I like this one... In her recent article about Lee Clow’s video, Rupal Parekh of AdAge noted that the going rate for laundry service in New York City is 95 cents per pound for wash and fold, and a 8% gratuity is expected if you want it delivered”.

But wait. There‘s more! There’s a cheaper way to do your laundry in New York.

Their are coin Laundromats that charge only US $2.25 for a small machine and US $4.25 for a medium one. And 25 cents for 6 minutes of drying. Some use “Professional Series Washers” which they claim are the “Best in the World”! And they stay open late. They're “fast, more efficient and provide the brightest and cleanest wash ever!”

Or so they claim.

Commodity advertising. Commodity laundry services. Much the same I suppose.

Here’s where you can view Lee Clow’s video: http://www.viddler.com/v/13ebb19a

Mike Fromowitz

OCTANE