Picture this. Not long ago, a few months after awarding its creative duties to a network ad agency for a handsome monthly retainership fee of Rs 12 lakh, a leading home appliance manufacturer had a change of heart. Justifying the decision to slash the fee to Rs 8 lakh, the head of marketing told the servicing head at the agency, "You guys are doing good. It's just that we do not have a lot of work for you." Just a month before completing a year as the company's agency on record, the client had reduced the agency payout to Rs 6 lakh.
While this is just a snapshot of the client-agency power equation, it shows that the ball is seldom in the agency's court at the negotiation stage . That is bad on two counts. One, the agency has to continuously stretch its resources. Two, all this stress is going to show in the creative product. Let us first try and make sense of the mathematics of retainership fees. After winning the business, round two with the client involves negotiations on the retainership fee, based on the scope of work. Once the agency has a sense of the yearly workload and media spends, it draws a list of dedicated resources on the account and the time to be spent working for the client. In the next step, it adds 30 per cent overhead expenses and a percentage of agency profit, and arrives at the retainership fee.
Don't be surprised if you don't see clients and agencies sticking to this calculation though. In fact, a large number of agencies choose to quote a random figure to begin with. This is followed by more negotiation rounds before a retainership fee is decided. An agency's track record and the last year's work are also considered.
Both the client and his agency can be blamed for this chaos. Agencies are usually not gung-ho about projects as they end up spending more time and resources when compared to working under the retainership model. As far as retainership fees goes, only a handful of mature clients have the required wherewithal to forecast the demand on agency resources. Not that agencies are great at assessing how they will be required to stretch themselves. In the past, many of them including McCann Erickson, Contract Advertising and Everest Brand Solutions, have taken clients on a monthly retainership fee of less than Rs 2 lakh. On the other hand, most independent agencies have set an average base for this and are unwilling to bend over backwards while negotiating with clients. Indies like Scarecrow, Curry-Nation and TapRoot (before its acquisition by Dentsu) saw success soon after starting out because clients realised these agencies can play a crucial role in their brand's success.
The outcome of the agency-client retainership negotiation depends on one factor - how dominating a client is and how desperate the agency can be. Neither scientific nor sustainable.
