Marketing Wisdom Bites

Agency fees halved while workloads doubled over 35 years, driving a 75% fall in the real price of agency services after inflation.

Across 35 years of agency client data, fees halved while workloads doubled, which means the real price of agency services has fallen by 75% once inflation is stripped out.

The price per Scope Metric Unit at Ogilvy UK fell from $435,000 in 1992 to about $110,000 today, well below Farmer's $175,000 estimate of its true worth.

Price per scope metric unit has fallen from $435,000 at Ogilvy UK in 1992 to about $110,000 today. Farmer estimates the work is worth roughly $175,000.

Since 2009, 40 of the top 60 advertisers have grown at about 2% a year - roughly half the nominal GDP growth rate of 4.7%.

Since 2009, 40 of the top 60 advertisers have grown at about 2% a year against a nominal GDP benchmark of roughly 4.7% (2.3% Western productivity plus 2.4% inflation) - half the economy's rate, sustained for fifteen years.

Agency pricing eroded by about -2% in fees and +2.3% in workload every year for 35 years - too small in any single year to trigger alarm.

The collapse in agency pricing happened at roughly -2% on fees and +2.3% on workload per year for 35 years. Each individual year was absorbable, which is exactly why nobody stopped it.

A comparably staffed Ogilvy creative department went from producing 360 ads a year in 1992 to about 15,000 ads today.

Ogilvy UK in 1992: 52 creatives producing 360 ads a year. A comparable Ogilvy office recently: about 50 creatives producing 15,000 ads - 2,000 originations and 13,000 adaptations.

By 2004 the surplus agency resources inherited from the 15% commission era were gone, yet holding companies kept cutting for another twenty years. As Farmer told the holdco CEOs: up to 2004 you were cutting fat, today you are cutting muscle.

Private label has opened price gaps of 25-40% against big advertisers, whose own reported growth is mostly price increases, not volume.

Much of the growth big advertisers do report comes from price increases rather than volume, while private label has opened price gaps of 25-40% and taken better shelf position.

The scope metric unit (SMU) makes agency work comparable: one original TV 30 with two creative teams and two reworks equals one unit, and every other deliverable is scaled to it. It turns a Facebook post and a TV ad into the same currency, effectively a price per kilo of creative work.

Adaptations eat 40% of agency hours and fees - exactly the work AI can automate - yet automating half of it and cutting fees 20% would put the office out of business.

Adaptations consume 40% of agency man hours and therefore 40% of fees - and adaptation is precisely the work AI can do. Asked whether it could survive a 20% fee cut from automating half of it, the office said it would be out of business.

Farmer names four culprits rather than one: holding companies milking agencies, procurement with a single fee-cutting KPI, CMOs inflating scopes of work without solving growth, and agency CEOs judged on their numbers instead of on client growth.