Agencies could be at risk of eating into their profit margins during 2012 as running costs increase faster than fees.

Recognising the difficulty agencies have encountered when working out how best to charge for their services, the Institute of Practitioners in Advertising (IPA) has joined forces with the Incorporated Society of British Advertisers (ISBA), Marketing Agencies Association (MAA) and Public Relations Consultants Association (PRCA) to release an updated Agency Remuneration best practice guide.

The launch coincides with research from the MAA that shows clients are paying agencies almost 20% less in fees than they were ten years ago.

The IPA said this update was necessary “particularly in light of the rise of digital communications and how clients pay agencies for the multiple services required.”

Since its initial publication in 2005 there has been a trend to move towards more complex and sophisticated remuneration models as agencies and clients look for “value-based efficient relationships.”

These trends are also a reflection of a national move, both for clients and agencies, towards more flexibility in providing effective marketing campaigns on slimmer budgets.”

The guide details the pros and cons of nine different payment methods, including variable fees based on time spent, a retainer fee, licensing fee and payment by results.

Author Chris Merrington suggests that many agencies are wary of putting up their costs as they fear that clients will simply take their business elsewhere.

In his new book, he cites four main reasons for this fear: having the wrong relationship with clients, an over-dependency on a few larger clients, the wrong mind-set or lack of confidence, and clients abusing their position. 

ISBA director of consultancy and best practice Debbie Morrison said with reference to major blue-chip clients like Nokia, Diageo, Coca-Cola and Sainsbury’s:

They’re just not getting what they need from agencies, so many of them are bringing certain services in-house. Services like comms strategy and content creation are being done internally (because) agencies just aren’t broad enough in their vision.”

However, it’s not all doom and gloom. Code Worldwide rightly points out that technology brings huge opportunity – specifically since clients are forming marketing technology teams with a new set of requirements. Just as long as agencies are clear about the role they play.

Next month will see the publication of Econsultancy’s Agency Digital Maturity Report. Produced in association with Adobe, this will assess how agencies need to evolve to survive in the digital age.

Econsultancy research director Linus Gregoriadis explained that agencies are having to evolve quickly due to a range of factors including the shift to ‘earned media’.

The proliferation of data and the increased use of cloud-based marketing technology are also having a major impact. Our new report will explore these trends in more detail, with a focus on how agencies can find new ways of adding value for their clients in a rapidly changing marketplace.”   

Econsultancy has also published a Digital Agency Rate Card Survey, which details average UK agency charge-out rates for a range of digital disciplines.