Analysis: Let's talk budget: Are agencies prepared to be hard-nosed on the matter?

It is always helpful for an agency to know a client's budget early in the game, especially during a pitch. Not only does this help manage an agency's expectations on the number of man-hours required for a project and the lavishness of the idea, but it also helps the agency benchmark its services with competitors. While there are tons of clients that are upfront with their budgets during a pitch, in our conversations with agencies the topic of uncertainty around budgets often came up as a point of conversation - especially given the cash-tight environment many companies faced last year.

But cash crunch or not, unfortunately not choosing to disclose budgets during the initial conversation round is not new. SPRG Singapore GM Edwin Yeo told MARKETING-INTERACTIVE, that approximately 30% of the clients SPRG pitches for disclose their budgets early. Often, a reason for not disclosing the budget is due to a competitive mindset as opposed to assessing value for money, he explained. "Some clients think by not setting a budget, they can save money if agencies can come in below budget,"  he said. That said, being upfront about the budget can actually be in favour of the client as it can determine the value of competing agencies, in terms of ideas and what is being offered for the money they are willing to spend, rather than on who is the cheapest.

Very often, in an attempt to be competitive in pricing, agencies will have to find ways to cut costs when it comes to execution, which can lead to a dissatisfaction with the quality of work.

Ultimately, Yeo said setting the budget upfront helps agencies compete fairly rather than a race to the bottom. Knowing the cost helps the agency come up with the best ideas within the clients' expectations "and at least when an agency loses a pitch, it understands that this was because another agency came up with a better strategy and idea, rather than because the winning agency was cheaper", Yeo explained. The bigger challenge would be for clients to understand how to match their budgets to the expected scope of work from agencies. 

"A race to the bottom affects both clients and agencies, as shrinking margins inhibit agencies' ability to hire the best talent, especially in the digital space. An agency's most valuable resource is its people, and the quality of the people invariably determines the outcomes that the clients want in spending their budgets," he explained. Yeo also shared that over the course of last year, the agency experienced several clients asking for more work at a lower cost. Unfortunately, due to the cash crunch, Yeo was of the view that "some agencies have had to take on the assignments which they normally would not have in better times". 

Meanwhile OMD Malaysia managing director Anisha Iyer said when there is no clarity of budget during the pitch process, the agency is "basically shooting in the dark" and relying on benchmarks to make its case.  According to her, there are typically two types of clients the agency comes across - one that has a clear idea of budgets and is clear and transparent with the agency during the pitch process. This usually applies to most global clients where pricing benchmarks and team size are a key component of a pitch promise. Therefore, they understand that a near accurate budget is important to make an informed decision.

The second ones are those that would like agencies to recommend an appropriate budget based on their ambitions. While this is not ideal, Iyer said it forces agencies to create a budget rationale bottom up based on a clear business objective. But on the downside, it takes away from being able to present an accurate response to a client's requirements.

The biggest downside to not sharing a budget, however, comes post the pitch. 

"Once the agency wins the business and then realises the budget is not what was estimated, the entire business has to go through rethinking. From strategy leading to solutions to team size, team capabilities, service level agreements and pricing management, among others, the entire time spent on the pitch process ends up becoming moot," Iyer said. She added that while its "very rare" that clients do not share budgets during the pitching stage, it does happen and that is when the agency insists that clients share a ballpark cost at the very least so that "effort estimation has some basis".

At the end of the day, Iyer believes that any pitch process has to be a two-way relationship. Hence, it is both parties' responsibility to be able to have an open conversation. "Pitches should never be about who is supposed to do what but rather what can be achieved together. I would think every aspect of the pitch including a budget conversation is a dual responsibility and rightfully so," she added. 

Meanwhile, while it is naturally preferred that clients share budgets, there are also some cases where a client may not necessarily know what they ought to be paying for a scope of work. In such cases, CEO of dentsu Singapore Prakash Kamdar said clients need to seek a quote. However, he added that most clients these days are more transparent with agencies on why they are unable to share a budget and are also fair to agencies by requesting for ballpark quotes as opposed to asking for full blown proposals.

Inculcating a culture of being upfront with budgets

Co-owner and CEO of FCB Kuala Lumpur, Shaun Tay, said the agency chooses not to proceed with pitches where an indication of the budget is not forthcoming. That being said, Tay added that it is not hard to convince clients to disclose their budgets upfront as they know the output will be more appropriate and realistic. Tay explained that usually, not sharing a budget is a sign that the pitch itself "is speculative or lacks internal client alignment and buy-in". 

It is a colossal waste of time when no budget is given. Agencies need to take the initiative on this and not wait for clients to bring it up. 

"Given that we are the ones that do the work, the onus falls on us to obtain the required info in order to make a call on proceeding with the pitch or note," he added. 

Meanwhile, the solution for FCB's Tay is simple - be hard-nosed and ask for a budget. Agencies should insist on it and be prepared to walk away if none is given, he said, adding:

A client that refuses to share a budget comes across as a client with something to hide, which obviously does not make for a solid client-agency partnership.

For clients who are unsure on what an appropriate budget would be for the intended scope of work, Tay's advice would be to guide and talk through it with them by showing examples of reference campaigns vis a vis budgets. Thereafter, allow clients time to confer with their stakeholders and reply with either a confirmation or at least an estimation of what they would be happy to spend.

At the same time, Tay said clients should not be afraid of not being taken seriously if they have a small budget.

"If the brief is interesting, the scope of work appropriate and the chemistry is there, a small budget brief is a lot of fun and can lead to bigger opportunities in future. Many of FCB’s clients started this way and over the years, we have built the relationship and business up to a sizable amount," he explained.

For change to happen, it has to be an industry-wide effort. Sean Sim, CEO of McCann Worldgroup Malaysia, said it all starts with engagement and education. He added that generally the Malaysian 4As is present to assist clients in understanding the proper pitch process and standard requirements. Another avenue would be pitch consultants that are able to help manage the process professionally. However, Sim said: "The brutal truth is that in many cases, there are big knowledge gaps in the understanding of actual costs versus expectations."

Currently, it is common for agencies to kickstart the budget question and Sim said agencies, in an ideal situation, should not have to do so as a proper thought out budget should be indicated to measure against a realistic scope of work. It is a known fact that nobody comes out on top when there is a race to the bottom.

This is when being transparent during the pitch and post-pitch might help. OMD's Iyer said most clients do not understand the entirety of the pitch process and the level of thinking and simulations required to respond to a pitch.

We need to find time to educate clients that if they are not transparent about budgets, there might be a problem with pricing fulfillment or challenges due to lack of resources on the business, and therefore avoid the expectation versus reality mismatch.

"It is in the best interest of the client to get the most effective deal in a partnership but it is also more important that the deal is realistic and informed," she added.

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Photo courtesy: 123RF

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