How to Survive in a Project-Based Agency Landscape

Project-based work is the topic du jour; it’s come up more often than any other in early 2020 (aside from The Super Bowl). Though not a new element on the agency new business landscape, there are new insights and concerns around where the project work is leading and what it means for agencies.

If you believe in the power of three, here are three signs that agencies are feeling the effects of a project-based landscape:

1. Gerry Graf blamed a series of events that included a move from AOR assignments to projects as contributing factors in Barton F. Graf’s closure.
2. In an internal memo from Ogilvy Worldwide CEO John Seifert, “the dynamics of a project-based business model” was cited as a key factor when it cut 80 staffers recently.
3. Oliver McAteer at Campaign US included “projects are the future” in his on-point list of predicted trends for 2020. 

Context

Amid ever-shrinking marketing budgets and client/agency relationships characterized by a lack of trust and commitment phobia, clients continue to demand more work for less money while actively exploring alternatives to agency partners. AOR relationships are declining in every respect. As they decline, project-based work increases.

Avi Dan has estimated that project-based work today represents roughly 50% of revenue for small and midsize shops, and upwards of 20-30% of revenue for larger shops (Adweek).

The potential of project-based work 

The shift to project-based work, while several steps down from the budget and status of AOR, was greeted with optimism. In 2017, Arvind Krishnan of BBH India wrote an article about how “liberating” project work could be for agencies (The Drum). One of the benefits Krishnan identified is that project work is an equalizing format that allows agencies of any size to compete for the same business. Project work has created new opportunities for smaller agencies. Many have been able to build their businesses around it.

I’ve been hopeful about the potential of project-based work as well. I’ve championed it as a smart alternate route to becoming AOR when compared to the traditional RFP/Pitch process. The idea of a paid trial relationship with a client and the opportunity to show them what your agency can do instead of telling them about it (while shelling out hundreds of thousands of dollars to compete in a pitch) is compelling. Not surprisingly, McAteer has observed that “many smaller, more nimble shops are ignoring the big reviews and opting to slide in for project execution and build out an AOR relationship from there.” Clever, right?

But what if the project-based path doesn’t lead to an AOR relationship at all? Is it still as clever then? 

The less-rosy reality of project-based work 

With a headline likening clients to “boyfriends who never commit,” Digiday has exposed a new trend called “serial project assignments,” where the agency is engaged in project after project with a client. However, instead of growing into a more rewarding and reliable AOR relationship, the client never intends to “put a ring on it.” Despite benefiting from the agency’s familiarity with their business, the client avoids the extra costs of having the agency on retainer. 

Expect to see more of this directionless dating from clients in 2020. Matt Kasindorf (of the 4A’s) told Digiday that the serial project assignment “trend has started to catch on with mid-sized brands over the past six to 12 months…[and] creative agencies are the most likely to see this arrangement.”

Are serial project assignments so bad? For agencies set up to thrive in a project-based environment, serial projects are probably great. But for agencies built for AOR relationships, who are hoping project work might lead to an AOR opportunity, serial projects are likely to be a source of frustration.

Here are some drawbacks of project-based work for agencies:

• Difficult to do financial forecasts when work is not promised and budgets aren’t confirmed
• Staffing is a challenge without a budget or financial forecasting
• There is some risk associated with using freelancers to scale up or down 
• More time spent on invoicing (compared to AOR relationships)
• Revenue is inconsistent
• Payment terms may delay incoming cash flow for several months
• Tight margins with less padding on budget (compared to AOR)
• No certainty
• Relationship is not conducive to true partnership; transitory, not long-term or big-picture
• Often no incentive or reward for going above and beyond; it is smarter to give less

Agency sustainability in the project age

The writing is on the wall. If you look around, it’s already happening. The shift to a project-based environment is putting agencies with legacy models out of business. Agencies running on old business models are endangered. 

As Digiday’s editors bluntly wrote: “...for pure creative agencies who are unwilling or unable to make significant and drastic shifts in their models, it seems like the end is nigh.”

What needs to change, and what does it take to survive? I’ll offer some suggestions later in this post. Briefly, it’s about simplifying, reducing fat, reducing layers of bureaucracy, maximizing speed and efficiency, the ability to scale staff up or down, be profitable on smaller budgets, and offer modern, flexible payment models that depart from the usual labor-based standard.

Why your agency’s business and billing models are everything

The conversation about project-based work always comes around to agency business and billing models. As marketers’ budgets shrink and with distrust still a factor, there is no reason to think conditions will become more favorable for agencies. Clients will still want more for less. Less budget, and less commitment. Most agencies will still see upwards of 50% of their roster consist of project-based work. Meanwhile, AOR status is so rare it's been described as “mythical.” 

The onus is on agencies to make changes that will allow them to thrive and be profitable within the current conditions. AdWeek spoke with three agencies who’ve been able to create profitable models built to succeed in a project-based environment: Falkon, Erich & Kallman, and MediaMonks. It’s worth a read to study what they have done to break free of the legacy agency model.

The agency-client relationship...and what about the work?

Project work or otherwise, any working model is going to be colored by the underlying relationship between the two parties. In the case of agencies and clients (generally), there is a lack of trust, sometimes a lack of respect, and a sense by both parties that they have been financially wronged by the other. That’s the foundation that many client-agency relationships are built on. Through that lens, any business or payment model is unlikely to realize its positive potential.

Are project-based work assignments worse than others for client-agency relationships? Clients who only engage agencies on a project basis may be setting themselves up for disappointment because a project-based relationship doesn’t signal partnership. The reduced scope of work isn’t conducive to ownership. Broader challenges and brand consistency fall on the client, not the agency, and yet it's possible that agencies may still be blamed if results fall short. 

A creative director in Digiday’s Confessions series describes the dissatisfaction of project-based work: “Project-based work feels like you get hired to push a rock up a hill, you go away, and it rolls back down again. It’s like what’s the point? Why even bother?”

Additionally, project work may mean agencies have less incentive to push back, and more to lose if they do. With no guarantees on the relationship, instead of first focusing on creating something meaningful, agency staff may be more worried about keeping the client happy (Digiday). How long will a client be satisfied with a “yes” person?

Other considerations that might affect work quality in a project-based relationship:

• Without a retainer, the quality of the creative team may suffer, because the best talent gravitates towards opportunities where they are treated as partners and involved in problem-solving.
• Project work may yield a high volume of creative content but still lack a clear and consistent big-picture strategy. 
• Project work changes the way an agency works on a piece of business. On retainers, there is greater flexibility for people to work on something until it's done, regardless of hours. With project work, agencies are paid for a deliverable, so there is greater emphasis on getting it done efficiently and effectively while managing your hours (and your profit margins).

There are important trade-offs that both clients and agencies should be aware of going into project-based work arrangements. With clear, upfront communication and proactive management, disappointments and misunderstandings can be minimized, and the client/agency relationship strengthened.

Tips to succeed in a project-based work environment

A shifting landscape could mean the death of your agency, but it doesn’t have to. Agencies that have the following qualities seem better poised to survive and thrive in project work conditions: smaller, newer, non-traditional, independent, agile, low-fat/low-overhead, and scalable. 

John Limotte of Mustache (an agency that has nurtured many project-based relationships over nearly a decade) advises that the move to a project-based environment is an opportunity for agencies to innovate, redefine relationships, and reach new levels of success (MediaPost). His tips for agencies include (paraphrased): 

• Take a positive attitude towards project-based work
• Think of project work as “a gateway to a thriving pipeline”
• Don’t discount your rates or your worth; short-term need not mean less profitable
• Think twice about taking work that doesn’t have new business value (Limotte describes this as the “case study test”)
• Be flexible and think creatively about making project-based work for you

Additionally, consider incorporating “mini post-mortems” at regular intervals throughout the life of your project to improve efficiency and identify potential problems early on. Hubspot has a how-to on running productive project post-mortems here.

Do you have an opinion about project-based work? How is your agency faring with it?

A version of this article was published on The Agency New Business Blog on January 30, 2020.

Image credits: path to AOR? Adobe Stock/endostock; endangered agency model ? Adobe Stock/CaptureAndCompose; project-based work environment ? Adobe Stock / 1STunningART

Mark Duval is the Founder and President of The Duval Partnership, a full-service sales organization working exclusively with agencies. The Duval Partnership helps agencies acquire new business through the creation and implementation of customized, strategic sales solutions.