What Agencies Need to Know From the ANA/4A’s Joint Report on the Cost of Pitching

Marketing and agency executives know that running or participating in agency reviews is costly. A single review’s collective expenses—in severe cases reaching $1.2 million—might surprise even the most tenured leaders.

Today, the 4A’s, Association of National Advertisers (ANA) and Advertiser Perceptions released a joint report that measured these costs. The research, titled The Cost of the Pitch, reveals average investments on both sides of the partnership.

To reach their conclusions, the trade organizations surveyed more than 300 marketing and agency executives. This research is the first of its kind, establishing pitching cost parameters that have until now gone unidentified.

Both parties, the research indicates, are wasting money on reviews. This money, the trade organizations argue, could be better allocated to relationship management tools. The best way to put an end to the cycle is to build a system designed to prevent missteps and mitigate the friction that often catalyzes reviews.

Review costs are exorbitant

Brands pay the highest cost. That’s an average of $408,500 to conduct an agency search, when an incumbent agency is not involved in the process. It’s higher when they are.

Agencies feel financial pressure too, especially incumbent agencies that choose to defend the business, spending an average of $406,092. This expense reveals why 25% of agencies decline to defend the business during reviews. Costs are lower, but not insignificant, for non-incumbent agencies. They spend an average of $204,461 to pitch.

The combined impact on agencies and marketers is more stark. They pay out an average of $1 million running a review, and that’s if the incumbent does not defend. If it does, the number balloons to $1.2 million.

These numbers are high, but may actually grow higher if agencies and marketers resume regular pitch travel. Survey respondents provided answers specific to 2021 and 2022, when the pandemic and remote work still impacted partners’ willingness to pitch in person.

Marketers and agencies open up

In addition to cost measurement, the report sheds light on pitching trends, including marketers’ and agencies’ motivations for participating, and common challenges they face as a result of these processes:

• Costs increase when incumbents defend: It’s more expensive for both incumbent agencies and marketers when an incumbent is involved in a pitch. Overlap costs “incurred by the client when they must transition from an incumbent agency to a new agency” contribute to the increase, the research found. Incumbent participation increases costs of several line items. For example, to run a pitch that an incumbent is not participating in, marketers allocate an average of $115,106 to their staff’s hourly fees. If an incumbent participates in the pitch, the number jumps to $125,393 for marketers.
• Clients cite different short- and long-term benefits: A whopping 50% of marketers, both small and large, said that increased motivation is the biggest short-term benefit they see from a new agency post-review. Cost savings was the next-best benefit for marketers, overall. In the long term though, marketers expect business impact, with increased revenue and improved brand perception topping the list of benefits. In terms of its long term benefits, cost savings dropped to fourth place.
• Despite this, cost tops factors that marketers consider: For procurement, agency relationship management teams and brand-side marketers, price is the most important consideration when choosing an agency. To this, the report’s authors suggest considering which contender best understands a client’s business challenges, and which champions the most actionable solutions. “These are better criteria by which to select a winning agency than cost/price. And while some of these other factors show up lower in the importance ranking, they do deserve stronger consideration,” the report states.

• Diversity takes a backseat: Troublingly, marketers collectively ranked “commitment to diversity in key roles” lowest on the list of factors they consider during reviews. Only 14% of all marketers prioritized it, compared to the 62% who prioritize cost. Respondents in procurement roles specifically cared little for diversity: A meager 7% prioritized it relative to other factors.
• Both sides make staffing adjustments: Marketers and agencies alike add or subtract from their headcounts during reviews. Of agency-based survey respondents, 61% said incumbent account reviews led to staffing changes. One third of client respondents said they experienced similar changes when reviewing a new agency. That number dropped to a quarter for marketers reviewing an existing agency.

Forrester’s take

In May, Forrester principal analyst Jay Pattisall released similar research. The analyst urged brands and agencies alike to “ditch the pitch.” Agencies spend a collective $12.46 billion on pitching every year, Pattisall estimated. The number came close to Publicis Groupe’s 2022 revenue, which was $13.5 billion.

This explains why agency costs run higher than marketers would like, Pattisall told Adweek in May. “The monies that are being paid to agencies in fees are, in fact, what are subsidizing excessive new business,” he said.

The state of pitching doesn’t benefit anyone involved.

Incumbent agencies historically struggled to retain business. In 2021, only 15% of defending agencies retained business, according to R3 data. The fear of losing, combined with the cost of defending, explains why incumbent agencies are reluctant to re-pitch. A quarter of them decline to defend their positions, according to the trade groups’ new research, even though 54% suffered a major to moderate impact from resigning the account.

The new research indicates changing tides, since incumbent agencies are more successful than R3 data indicated a few years ago. Trade organization survey respondents on average retained their incumbent agency every two out of three reviews. This is theoretically good news for incumbents, but does nothing to mitigate ballooning review costs for either party. Marketing leaders must ask themselves if a review is still worth doing, assuming they retain current partners.

Is it worth it?

Marketers often launch agency reviews with the aim of reducing costs—never mind how review costs impact the bottom line.

“We expect that with the data presented in this report, clients and agencies will reassess their reliance on agency reviews/pitches to solve problems that may be inherent in a relationship,” the report states.

Instead, its authors encourage agencies and marketers to tap into client/agency management programs or hire a relationship consultant to help the parties address workflow and performance challenges.

The research reveals the significant strain put on incumbent agencies that choose to defend. Their risk factors include disruptions in daily tasks, delays, declines in brand or product awareness, and loss of revenue.

“Given the identified costs and potential damage to the relationship, there are better ways to motivate your agency,” the report states.