The Advertising Talent Crunch Must Be Confronted With Higher Fees

I speak with many large, global advertising agencies frequently in my line of business and one thing is clear. Agencies are hemorrhaging talent. One leader of a NY creative agency called it a "tsunami" of talent exiting the building. The timing could not be worse and agencies will be forced to take uncomfortable action with their clients if they are to survive.

But first, why this tsunami?

There used to be "compensation" in advertising's culture and high-flying experiences.

What I'm hearing is that advertising people aren't only leaving for other agencies. They are leaving for the client side, for higher paying tech jobs, for publishing jobs, among others. They are completely reconsidering their lives, where they live, how they work, and their careers in general.

I ask myself, "How can people be leaving such an incredibly fun and exciting business?" I remember taking less salary than my friends out of college because I wanted to be in advertising so badly. But that was pre-Covid.

There's little doubt 2020 and Covid caused this re-evaluation. Not only because it was a serious, life-or-death, experience that scared the bejesus out of most of us, but also because the wonderful advertising experience we all remember and love--the people, the interactions, the amazing agency spaces, the shoots, hotelling at Shutters, etc.--was reduced to a thousand Zoom calls.

Any "compensation" the industry's people experienced through its culture and experiences had been lost and, worse, the "sexy" business of advertising was utterly commoditized. Now agencies are scrambling to fill in staffing gaps with freelancers or other outside resources.

But there's hope. Agencies are not going to like it, but there's hope.

When clients have a supply chain problem that increases the cost of production, what do they do?

They raise prices, that's what. If lumber costs more, builders don't absorb the incremental cost. Sorry. If a typhoon hits a major chip production plant, consumers pay more for computers. Too bad. If oil suddenly hits the roof, not one energy company will keep prices constant. Deal with it.

The advertising business was hit with a major pandemic that has caused a serious "supply chain" problem that is increasing the costs of doing business and now they need to raise prices accordingly.

Think about it. The advertising product is "supplied" entirely by human resources. Human resources are leaving the business. As such, salaries are going to increase in order to keep people. So, the advertising business has a serious supply chain problem.

Agencies will need to renegotiate contracts with every single client they have in order to pay people enough to stay and weather this talent shortage. Agencies, in my experience, hate approaching their clients for more money, which is why margins had been decreasing even before Covid. Their fear of losing business is always palpable. But these are not normal times. Agencies need to buck up and have these difficult conversations across their portfolios of clients.

And here's an idea. A way to soften the blow.

To reduce the difficulty level of these client conversations, remind clients what they do when their costs increase. They raise prices on their consumers. Simple as that. And now your costs are increasing and you need to raise your fees. Simple as that, too.

Speak the client's language, in other words. Make clear your specific supply chain problem, the cause, what it means to your and their businesses, and then drop the bomb: a fee increase across all clients that is not negotiable and is effective immediately.

The increase will mean you'll be able to fully staff the business, keep the client's favorite account person, and overall run the business more smoothly with fewer dropped balls. Reasonable clients will understand and will support the agency.

Unreasonable clients will become another agency's burden, financially and otherwise.

What's been your experience?

Are you seeing what I'm seeing? Have you had these difficult staffing/fee conversations with your clients already? How did they go? Are you afraid to?

Please feel free to post your thoughts below for all to see. This is one we need to think through together.