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To pay or not to pay for a pitch?

For as long as I have been in PR the debate has raged on should potential clients pay for pitches?

Having owned an agency for seven years, I can certainly attest to the enormous time and effort that goes into every single proposal, not just the winning ones. The research, intellectual property and creative concepts that go into proposals we put out is someone’s full time job and quite often the entire team is involved in the creative process. And for every success that makes that effort worthwhile there are always the ones where the potential client decides to try and implement it themselves, which they can never do in the same way, or give your ideas to the successful agency to include in their strategy – fair no, but does it happen, yes.

I have long thought this was the cost of doing business and in the Australian market, in the past we have been flat out getting clients to understand the value of PR, let alone any hope of them paying for our initial ideas to get the business in the first place. However, I am not alone in thinking it strange that in the PR, advertising, marketing industries we are one of the only market segments that often don’t get paid for our time.

Vale International Ltd., a global advertising consulting company with talent and resources in 75+ countries, has just announced results from an extensive analysis of new business practices among independent advertising agencies on six continents. The study, carried out in March 2010 as annual benchmarking data, surveyed 320 offices representing 12,800 employees.

According to Jorg Borgwardt, Managing Partner of Vale International, “One of the most interesting findings is that agencies which insist on being paid for the pitch average a 57.8% success rate. Those that did not ask for a fee had a success rate of slightly fewer than 10%.”

Other study highlights include:

1. Increased pitching activity

Despite the 2009 economic situation, agencies on average participated in more pitches in 2009 than in 2008.

2. Lower budgets and shorter contracts

Budgets tendered in 2009 were 29% lower, and most agencies reported a sharp increase in requests for project rather than campaign work. A new tendency emerged in pitches: many were initiated to find a lower cost supplier rather than a novel creative concept.

3. More agencies fighting for smaller budgets

In 2009, on average, 6.3 agencies competed for the same prospect; a 24% increase vs. a year ago. More dramatic is the fact that 27% of agencies counted eight or more competitors pitching for the same business.

4. Agencies are in danger of giving away the shop

Only 30% of agencies stated they pitch only if paid a fee.

5. Increased role of the procurement officer

In 2009 procurement officers took over making 77% of decisions for agency revenue.

So while we may see it s the cost of doing business, I may suggest based on this study, that a time will come in Australia where that cost seems unreasonable, after all you value what you can put a price on. I certainly don’t eat a meal in a restaurant for the purposes of seeing if I like it and if I like I pay and if I don’t like it I don’t pay – you pay for the restaurants time, service and produce. Why is it different with communications services?

So I ask the questions would you be prepared to pay a fee for a proposal? I’d like to hear your thoughts.