Australian agencies are pitching a lot more for a lot less

Australian agencies are pitching a lot more for a lot less, according to the second annual OUCH! Factor Survey.

 

Pitching is costing the average agency the equivalent of $1 million in non-billed hours to win just over $3 million in new revenue.

 

Three-quarters of pitches in 2021 were worth less than $500,000, indicating they're likely to be projects.

 

The 2022 OUCH! Factor Survey questioned 94 CEOs, MDs and leaders from creative, media, digital, PR and integrated agencies, and 14 CMOs and procurement leads.

 

The data investigated the difference between independent agencies and holding companies, agency size and agency discipline (creative, media, PR, digital/tech, full-service and consultancy).

 

This year the survey was backed by: Advertising Council Australia (ACA), Australian Association of National Advertisers (AANA), Media Federation of Australia (MFA), Independent Media Agencies of Australia (IMAA) and the Public Relations Institute of Australia (PRIA).

 

It found the average Australian agency pitched 19 times (up 70% YoY from 11 times in 2020) and won 9 pitches (up 76% YoY from 5 times in 2020), spent 231 hours on each pitch (up 30% YoY from 177 hours in 2020), and a cumulative 4,314 hours a year pitching (up 126% YoY form 1,913 hours in 2020) – investing the equivalent of $115,000 (up 24% YoY from $92,000 in 2020) in unbilled pitch-hours before winning a single pitch.

By analysing the opportunity cost associated with pitching – looking at what the time invested in pitching would equate to if it were to be spent on billable activities – the survey found it took the average agency 24 months to reach profitability on clients won in a pitch (74% longer YoY from 14 months in 2020). For the worst agency respondent, this rose as high as 111 months (9.2 years).

Combined, the respondents pitched over 1,500 times for a total potential pitch revenue value of $518 million.

Twenty-nine per cent of pitches had a potential value of less than $100,000, while 46% were worth between $100,000 and $500,000 – indicating that 75% of pitches are likely to be projects and won’t last the two years needed to achieve profitability. If three-quarters of pitches are short-term projects, agencies will seldom be able to recoup the hidden costs of winning them.

The average Australian agency had a 17% EBITDA average so would need to earn $5.8 million in annual revenue to recoup all the non-billed pitching time.

 

Or seen another way, 33% of the pitch revenue an agency won last year (the revenue from one client out of every three) is needed to cover the non-billed hours spent pitching – that’s an increase of 93% YoY from the 17% of revenue needed in 2020.

The average pitch-win value of $350,000 in 2021 dropped by 34% YoY from the $530,000 of 2020. The respondents’ pitch-win rate in 2021 of 50.3% was marginally higher (5% YoY) than the previous year’s 48% and the pitch-revenue win-rate of 45.9% was 4% less than the 47.6% in last year’s survey.

Those 177,000 total unbilled pitch-hours by all the agency respondents cost them $41 million, while total hard costs equalled $3 million for a total pitching cost of $44 million.

Julia Vargiu, director Australia, SI Partners and founder & managing director of New Business Methodology, said: “The OUCH! Factor Survey shows that instead of improving, the hidden cost of pitching in Australia is getting worse. But it doesn’t have to be this way. What we can learn from The OUCH! Factor results is agencies must work smarter, not harder. They can stop relying on pitching like an agency and start winning business like a ‘creative management consultancy’ – starting with flipping the pitch.

“By ‘flip the pitch’, we mean start with the financial negotiations with potential clients first. Agree on revenue terms and if you can’t, say ‘no’ to the pitch.

 

"Only proceed if the numbers add up, and the account can be a long-term profitable client for the agency. But agencies must be disciplined and set a self-imposed pitch-hour time limit before they pitch, or they will rarely keep the account long enough to recoup the cost of winning the client.

 

"Agencies rarely calculate the revenue needed to recover their annual non-billed pitch efforts, often ignoring that their wins must also pay for the time they spent losing.

“We advise agencies not to pitch for small projects, for the same reason: they’ll rarely become profitable. The best agencies in the market have stringent pitch criteria, vetting pitches to ensure they achieve at 70%+ win rate.

 

"They value their pitch-revenue win-rate over their pitch win-rate and focus on high-value/high-margin work rather than high-volume/low-margin work. This is an industry where 25% margins are achievable, but not when you’re spending hundreds of thousands of hours losing or pitching for free.

 

"Most clients dread hearing their agency doesn’t make a profit on the first year they work together. And the savvy agency CEOs know there are much smarter ways to build team camaraderie or train their staff than with risky pitching.”

AT A GLANCE
• Respondents represented 108 Australian agencies and marketers with 94 representing agencies of all sizes and disciplines.
• Combined the agencies pitched over 1,500 times in 2021, for a total potential pitch revenue value of $518 million, and won $252 million.
• Agency respondents spent 177,000 hours pitching – and nearly 90,000 hours losing.
• Profit from pitches won was $43 million (based on 17% average EBITDA).
• At the average industry hourly charge-out rate of $234/hr, the cost of all non-billed pitch hours is $41 million (soft cost).
• Total pitch hard costs were almost $3 million.
• 29% of pitches had a potential value of less than $100,000
   -12% of pitches had a potential value of less than $50,000
• 75% of pitches had a potential value of less than $500,000
   - 46% of pitches had a potential value of $100,000 to $500,000
• 30% of rostered agencies pitched against other rostered agencies for projects.
• Only 3.8% of pitches paid a pitch fee, with the average agency getting paid $7,100 for a year’s worth of pitching.

 

The Average Australian Agency:

• Pitched 19 times a year (up 70% YoY, 11 times in 2020) and won 9 of those pitches (up 76% YoY, 5 times in 2020) for a 50.3% win-rate;
•  Spent 231 hours (up 23% YoY, 177 hours in 2020) on each pitch, 490 hours (32% YoY increase, 372 hours in 2020) for a pitch win, and a cumulative 4,314 hours (up 126% YoY, 1,913 hours in 2020) a year pitching;
•  Invested the equivalent of $54,000 (up 23% YoY, $44,000 in 2020) in unbilled hours for each pitch, $115,000 (up 24% YoY, $92,000 in 2020) before winning a single pitch, and close to $1 million for all 2021 pitches;
• $350,000 (a 34% drop YoY from $530,000 in 2020) was the average value of each pitch win, a total of $3 million in pitch revenue was won in 2021;
• $5.8 million in revenue is needed to recoup the cost of the non-billed pitch-hours last year (based on 17% average EBITDA);
•  It will take the average agency two years (74% longer YoY from 14 months in 2020) for the clients won from pitching to reach profitability.