OUCH! Factor Survey looked at the hidden cost of Australian agency pitching in 2021.
He revealed that the average agency spent the equivalent of $1 million on unbilled pitch hours in 2021 and earned just over $3 million in new revenue.
The 2022 OUCH! Factor Survey, now in its second year, surveyed 94 CEOs, GMs and leaders from creative, media, digital, PR and integrated agencies, as well as 14 CMOs and CMOs, asking them to share their 2021 pitch year.
The data looked at the difference between independent agencies and holding companies, agency size, and agency discipline (creative, media, PR, digital/technology, full service, and consulting).
This year’s survey was supported by the following industry associations, who invited their members to participate: 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).
According to a survey, the average Australian agency pitched 19 times and won 9 pitches, spent 231 hours on each pitch and accumulated 4,314 hours a year pitching.
This means agencies invested the equivalent of $115,000 in unbilled pitch hours before winning a single pitch.
An agency had to invest the equivalent of $115,000 in unbilled pitch hours before winning a single pitch.
The average pitch-win value of $350,000 in 2021 has dropped significantly by 34% from the $530,000 in 2020.
The data revealed that it took an agency 24 months on average to achieve profitability on clients won in a pitch, which was longer than the 14 months noted in the 2020 results.
The 177,000 unbilled presentation hours by all survey respondents cost them $41 million in unbilled hours. Meanwhile, total costs were $3 million for a total presentation cost of $44 million.
The pitch-win rate in 2021 of 50.3%, which was higher than 48% in 2020. While the pitch revenue success rate is 45.9%, compared to 47.6% in 2020.
The results revealed that 29% of locations had a potential value of less than $100,000, while 46% were worth between $100,000 and $500,000. According to the analysis, this indicated that 75% of the locations were probable projects and would not last the two years required to reach profitability.
To add, agencies had an average earnings before interest, taxes, depreciation, and amortization (EBITDA) of 17% and would need to generate $5.8 million in annual revenue to recoup all of the unbilled presentation time.
Julia Vargiu, Director Australia, SI Partners and Founder and Managing Director of New Business Methodology, said: “Instead of improving, the hidden cost of pitching in Australia is getting worse. Agencies need to work smarter, not harder.
“They can stop relying on the pitch like an agency and start winning business like a ‘creative management consultancy’ – starting with flipping the pitch. By “turning the tide” we mean starting with financial negotiations with potential customers first.
“Agree on earnings terms and if you can’t, say ‘no’ to the pitch. Proceed only if the numbers add up and the account can be a profitable long-term client for the agency.
Agencies rarely calculate the revenue needed to recoup their unbilled annual pitch efforts, often unaware that their earnings must also pay for the time they lost.
“We advise agencies not to pitch for small projects, for the same reason: they will rarely become profitable. The best agencies in the market have rigorous pitch criteria, checking pitches to ensure they achieve a success rate of over 70%. 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 wasting or free throwing. Most clients dread learning that their agency isn’t making a profit in the first year of their collaboration. And savvy agency CEOs know there are much smarter ways to build team camaraderie or train their staff than with risky pitches,” Vargiu concluded.
See also: OUCH! Factor Survey to examine the hidden cost of pitching
Top image: Julia Vargiu