Now is the time they can deliver on the promise of Working Differently
Tipping point noun 1. the point at which a series of small changes or incidents becomes significant enough to cause a larger, more important change.
In 2014, I was invited to write a blog for Brainleaf, a cloud-based client management system, about a topic I’m passionate about. At that time, as a founder, builder and leader of healthcare communications companies for many years, I was both frustrated and excited. I was frustrated about the shortcomings that I saw in the traditional agency model. I was excited by many of the changes I was seeing starting to take place, and the innovative solutions that entrepreneurs and technology solutions providers were creating to transform the agency model for the better.
There were promising signs that a lot of agency entrepreneurs were looking at new ways to provide better jobs and working environments for employees, while offering clients a different approach to partnering with a strategic communications agency. I had spent years in leadership positions at international communications consultancies, and had just successfully exited a healthcare communications company in New Jersey, USA, that I owned with a partner for 10 years. I felt that as an industry, there were business challenges that were begging for change. I also sensed that technological, social and business forces were aligning that would enable the massive change needed – and that a tipping point was approaching.
Virtual business models have been around for a long time, but as I wrote in my 2014 blog, cloud technology platforms and collaboration tools had evolved to the point that they were now really changing the landscape for business, making it easier than ever before for companies to start, scale, recruit, hire and manage. By 2013, according to Microsoft, more than half of US businesses were using cloud computing. That sounds rather tame by today’s standards, where almost every company now uses cloud-based solutions. But even back then, it was clear that the proliferation of cloud technology and collaboration tools was triggering a fundamental change in the way businesses could operate. At the time, I argued that this was particularly good news for communications consultancies, because intensely talent-focused businesses like ours would gain enormous advantages in this newly-emerging landscape. And how right I was.
Virtual Agencies Are Coming of Age
Fast forward to 2019 and the technology, employment and social environment has made working differently, particularly in the communications consulting industry, a better option for employers, professionals and clients than ever before. The age of the virtual agency has well and truly arrived. In fact, in 2018, recognising that the virtual agency model was a new model shaking up the industry, the Public Relations and Communications Association (PRCA) created its Virtual PR Agencies Group with 11 virtual agencies as founding members of the group. This was a major statement from the PR industry trade group that not only was there a new agency model, but that it was here to stay.
For those of us who are members of a virtual agency, we understand how uniquely positioned they are to offer innovative approaches to some of the most persistent challenges that traditional “bricks and mortar” agencies face, including client management, staffing and recruitment, billing and project management, and range of services. This year, I was proud to join The Difference Collective, a high-growth virtual agency dedicated to addressing many of the shortcomings of traditional agency business models by offering employees a new approach to working, while providing healthcare and life science companies worldwide a full range of strategic communications services and a unique approach to partnering with their communications agency. So what are some of the biggest challenges that agencies face, and how can virtual agencies offer solutions to these challenges? Let’s take a look.
Now You See Us, Now You Don’t
Anybody who has been in this business for longer than a week has heard clients complain about the age-old tactic of “bait and switch.” Impressive, senior-level strategists and agency leaders are brought in to the pitch to demonstrate the serious muscle that the big global agency has at their disposal. The client, impressed by the brilliance on display, awards them the business. After signing the contracts, the client finds that they now have agency team of juniors working on their account, and the senior-level people they saw at the pitch are rarely seen or heard from again, aside from hours that mysteriously appear on monthly invoices. If the client complains, those senior consultants will miraculously reappear for a few strategically scheduled conference calls before vanishing once again.
My goal here is not to denigrate younger professionals. I’ve had the good fortune throughout my career to work with some of the most brilliant, creative young people in our industry, and they are a welcome and needed addition to any team. But there is no substitute for experience, and seasoned client services leaders, especially in highly sophisticated or heavily regulated industries like healthcare, energy, finance or technology. My point here is that the old agency “bait and switch” routine has been around for way too long. It is just bad client service. Clients hate it. And bad client service is bad for business.
So why do traditional agencies do it? They do it because they have high fixed costs in the form of expensive offices all over the world, high salaries, leases and other big expenses. They adhere to hourly billing practices that assign different billing rates to consultants based on their title and levels of experience, which means that it is very expensive for senior-level people to work on the business for any length of time. This billing model also means that profitability can be maximised by having the lowest cost employees doing as much of the work as possible. This is not a great recipe for ensuring that you have access to the right expertise when you need it.
Virtual agencies tend to employ more experienced professionals; people who have gained serious experience elsewhere, working in more traditional agency environments, and who are now seeking a different approach to how they work. Client teams at virtual agencies are usually built around the skill sets required to deliver, rather than on individual billing rates or titles. In other words, they get who they need for the job in hand when they want them. This offers enormous advantages to clients, who can have regular access to senior-level people and teams that are client-centric (focused on meeting the needs of the client), rather than agency-centric (focused on maximising profit for the agency). If the agency is pricing for its services appropriately (which I’ll address next), this is a win/win for both the agency and the client.
The High Cost of Low Expectations
I said in my 2014 Brainleaf blog that when it comes to the issue of pricing, “this is a major opportunity for fundamental change, and potentially a key differentiator for firms willing to innovate.” In the traditional agency business model, hours are scrupulously tracked and clients are billed monthly based on the number of hours per month required to deliver the work. This is the same approach used by lawyers and accountants, and it is the standard approach adopted by most communications consultancies. Unsurprisingly, in my 20-plus years in this business, I haven’t met many clients who expressed deep love and affection for this approach. Yet most agencies continue to persist with it, either because they are lazy or because they haven’t been able to come up with anything better. So, what are the alternatives?
Over the past five years, value-based pricing is one option that marketing services firms have been implementing. This model is based on the client and agency agreeing up front on the outputs that drive the most value for the client, and pricing the project based on targets for agreed value drivers. This could be anything from the key messages contained in media coverage, advocacy platforms developed, content outputs and utilisation across marketing channels, content downloads, conversion rates and more. Value-based pricing allows agencies to focus more on the quality of their outputs and less on tracking their time.
Clients can relax, knowing that budgets have been set and that if the project scope doesn’t change, they won’t be invoiced for extra hours. The challenge with this model, and the benefit, is that it requires real transparency between the agency and the client, a deep understanding of what drives value for the client’s business, and a commitment to strong partnership and risk sharing. Value based pricing also requires a bespoke approach to building budgets for each client, since “value” is a measure that is unique to every client. It requires a degree of sophistication and financial literacy on both sides, but agencies who have committed to it, have seen improvements in their ability to add value to their clients’ business, greater agency profitability and increased sales.
In addition to value-based pricing, project-based budgeting and retainers are being more frequently used by agencies as alternative approaches to hourly billing. Other, newer innovations in financial models for agencies include points-based, or credit-based pricing and hybrid models that combine some variation of a retainer, project budgets and value-based pricing depending on the unique needs of each client.
When it comes to billing models, virtual agencies have an opportunity to get it right. They have fewer fixed costs and greater flexibility, which means it’s time for virtual agencies to find and implement billing models that clients love, and that maximise agency profitability and effectiveness.
Winning the War for Talent
It was true in 2014, and it is even more the case today, that the best strategic communications and creative talent is not confined to any geographic location. As a virtual agency owner and team member for many years, I’ve worked with world-class consultants and in teams with people based as far away from each other as London, San Francisco, Bangalore, Sydney, New York, Kearney Nebraska, and Macclesfield, to name just a few locations. The ecosystem of collaboration tools is bigger and better than ever, removing any boundaries and making geography less relevant.
Smart, well-managed virtual agencies can attract and keep the best people. We can do this by offering world class consultants the opportunity to work with global clients, be part of integrated project teams, and do their best work. All from the comfort of their own location. Without expensive offices and high rents, we can offer employees the incentive of good pay. We can promote the quality of life advantages of working from home, not having to commute to an office and no longer having to endure noisy open plan offices. Who needs to be watching the creative team kick a football about, as the person sitting opposite munches egg and onion sandwiches and crisps while you try to have an in-depth conversation with a client?
The Future is Beautiful. And Virtual
When it comes to providing game-changing strategic communications, delivered by highly experienced teams, with specialist expertise and world class creative capabilities, virtual agencies offer advantages that more traditional, “bricks and mortar” agencies can only dream about. Sure, there are the traditional network agencies that can boast of having offices in 70 countries across the globe, and there will always be some clients who are still impressed by that, even though they will rarely, if ever, work with more than one of those offices.
For the rest of us, and for those clients looking for something different, virtual agencies offer a model that has many advantages. Virtual agencies have formed in response to the need to address some of the biggest shortcomings in the traditional agency business model
When it comes to strategic communications, virtual agencies can really set themselves apart from their traditional predecessors, offering new solutions that will not only improve agency profitability and increase sales but most importantly – make clients happy.
Looking at the state of our industry in 2019, the future looks beautiful. And virtual.
About the Author
David Avitabile has more than 20 years of experience in healthcare, health policy and medical communications that includes international drug, diagnostics and medical device launches in Europe, the United States, Latin America and Japan.
David has helped clients build new communications infrastructures, messaging, and processes to support emerging product portfolios and position themselves in new therapeutic areas. David has started and built two of his own international communications consultancies and has provided management consulting and leadership development to agencies in the United States and Europe.
David is one of our Collective Members.