Project vs retainer: Which is better to manage burnout, creativity, and profitability?

Retainer contracts, where agencies are signed up to deliver creative and media services in the long term, has steadily given way to short-duration projects as clients seek greater control on their budgets. As clients splinter their marketing needs into smaller fragments (ecommerce, data, consulting, analytics), besides conventional services, business is getting pushed more into short-term projects.

Agency leaders Campaign spoke to said that while this project push was permeating the industry, the Covid pandemic has rapidly hastened this shift. However, as these shops make this move, they are being mindful of the wellness of their employees, worrying about the quality of their creativity and innovation, and dwelling on the profitability of their businesses, which have just emerged from a near three-year battering through the pandemic.

“When it comes to project work, clients theoretically run the risk of resources not always being available—at least not on an ad hoc basis,” says Andreas Krasser, CEO of DDB Group Hong Kong. “In reality, however, agencies will bend over backwards to accommodate project requests, moving people around, and assigning whoever is currently available, adding freelancers… all risking inefficiencies and maybe even a diminished final output.”

Industry executives like him have traditionally preferred the certainty of retainer contracts because they lead to less employee churn and have tended to result in better work. However, market dynamics have upended some of these preferences, as fewer such large contracts are being inked in APAC.

Large agencies that have traditionally preferred retainer contracts are being pushed to sharpen their project game based on customer demand—and even retainer-heavy agencies such as WPP-owned VMLY&R are showing some results in this market. For example, in a product innovation project run out of Singapore for Kraft Heinz China, the shop co-created a product platforms-based consumer research, a proprietary strategic framework and sprint innovation workshops. Elsewhere, for Hindustan Unilever in India, the agency's commerce unit launched ‘Smart Fill’, in-store vending machines for the consumer goods giant’s homecare products business.

The project push

“Covid didn't create this shift, but it certainly accelerated it,” says Jess Davey, SVP, head of clients, APAC at MediaMonks. “Marketing teams are … potentially focusing on growth areas that may be relatively new to them, like ecommerce or general digital transformation, so project-based engagements give clients the opportunity to access a wide range of agencies and specialisms without the commitment and pressure of a retainer.”

According to data from R3, overall year-to-date creative and media pitch revenue is currently tracked at $837 million globally, which is 35.7% lower than the same period in 2021. There is also a 13.5% decrease in total number of assignments, with only 2,543 awarded this year versus 2,941 from 2021.

The same trend is seen in APAC, where overall pitch revenue for January to May 2022 sits at $356 million, 22.8% lower than 2021. Comparatively, there is a smaller percentage decrease of only -0.5% in total number of assignments in APAC, with 1,658 wins awarded this year compared to 1,667 from 2021. R3 has also observed an increase in reviews for specialist agencies that provide niche services such as customer experience, CRM, KOL and POSM and a focus on larger agencies providing bespoke solutions.

Kasper Aakerlund, president at UM APAC, says it may be harder to dislodge long-term media buying and planning contracts and break them down into shorter project remits. Instead, what the agency is seeing is growing demand for projects for its newer services such as technology consulting, gaming, and ecommerce, from both new and established clients.

And rather than established clients, it is newer customers—especially fintech startups—who prefer to work on shorter-term remits. Another source of project work for UM is when retainer clients such as Spotify prefer to hand out fresh tech and consulting needs to the agency rather than pitch afresh for this work.

Workload worries

This shift can unsettle life at agencies. Without the stability and certainty of a retainer agreement, it gets difficult for an agency to predict revenue and workloads, DDB’s Krasser told Campaign. “Which in turn means that balancing resources and cash flow becomes a tough task,” he added. “A heavy shift towards a project-based model means that agencies will be quite conservative in terms of investing in talent and rebuild their organisations with 'leaner structures' to maintain the higher profitability offered by conventional retainer contracts.

Shufen Goh, co-founder and principal R3, thinks the shift to project work may have unwanted repercussions for the industry. “R3 rarely sees project-based contracts driving business impact for agencies and clients on a sustainable basis,” she contends. “More project work can tactically help agencies in the short term to plug gaps in revenue, but it poses high risk of burning out talent, as project-based work tends to be loaded on to existing talent to max out bottom line.”

As their clients farm out projects to specialists in fields such as ecommerce, analytics and even Web3 and the metaverse, they will need to pay a premium for talent—who often depart quickly. Simultaneously, talent within these agencies are worried about workload, because projects tend to 'burn us out hard and fast', as one planner at a large media agency in India said. Burnout from having to pitch more often is also a concern.

Not everyone believes that a shift to projects is detrimental to employee welfare. Davey of MediaMonks instead says the growth of short-term work helped agencies weather the Covid storm better, because as clients reduced spend, resources could be reallocated until spending resumed.

“Project-based can also give our people a lot of opportunities to work across (the business) … it lets people lean into their passion points or curiosity and at a business level, it gives us a lot of flexibility across resourcing and being selective in the opportunities we take,” she says.

Aakerlund of UM says working on more projects allows agencies to staff their teams differently, based on specific requirements. They could use fixed-term contractors or freelancers for specific tech or consulting requirements and keep costs down this way.

Questions about creativity and finances

Are creativity and innovation affected as agencies rush to meet shorter-term goals on projects?

“A flash-in-the-pan spark of creativity can come from any commercial model, but to effect business impact, clients need consistent clutter cut-through for dollar spent, and that comes from ways of working and culture that is deliberately nurtured,” contends Goh of R3.

Hari Ramanathan, chief executive officer VMLY&R South and Southeast Asia and Japan, argues that you can be creative with all types of business—just the measurement would vary. In a short-term project, creativity is more tactical, which is fine if it is acknowledged and measured as such. “With a long-term view you can be more strategic in nature,” he adds. “Both are creative and can produce results, it’s more a question of how you want to harness that creativity and innovation.”

Davey of MediaMonks, in fact, believes creative output could be better in these short time frames. "A tight timeline often sharpens thinking and helps prioritise,” she says. “It is critical to ensure there is time for the idea to be crafted and executed.”

Davey adds that business that use the project model may have to forecast their financial needs more precisely and keep a lid on costs.

“We have a consistent vision for our business and what we want to achieve, so it is critical for us to make sure that we are focused on the long-term horizons rather than being reactive day-to-day to smaller shifts,” she says.

Project sceptics such as Ramanathan of VMLY&R contend that with a long-term, retainer contract, the agency can deep dive into a business and understand what the client and their consumers need, see how it evolves over time and cater its solutions towards that evolution, rather than a short-term view. VMLY&R therefore is focused on growing its project-based businesses into retainer-led ones, rather than trying to retool its shop to purely cater to this shift.

Another factor that would affect both an agency’s people and profitability is the cost of pitching that could stretch to six or eight months, says UM’s Aakerlund. “Small agencies who prefer to work on projects may not be able to absorb the costs of these repeated pitches,” he contends.

Not every industry executive thinks a shift or switch to projects is a must. For instance, Ramanathan says his shop is sticking to retainer-centric business.

“In short-term or project-based business, you have less control over quality, more hesitation in committing resources and no long-term view, not necessarily because you don’t want to get there but because you’re working on a siloed project that’s part of a whole picture which you can’t see,” he says.

VMLY&R holding a longer-term view makes sense because the agency focuses on marketing transformation, he adds. This works better when the agency can engage in a long-term partnership, where it can think about a client’s business and can strategise accordingly.

“A retainer allows us to give equal value to projects which are of strategic and monetary importance to a client, rather than taking each individual project at its monetary value alone which, ultimately makes us a better partner,” he argues.