Why Australian design agencies are failing
A prediction : as AI advances, clients will expect designers to reduce the hours spent on design. This will further undermine the financial viability of the time-and-materials business model. At best, hourly rates will stagnate; more likely, they will decline in real terms.
That’s because the creative agency business model is broken. Graphic design agencies emerged in the early sixties, established by creatives who left advertising and adopted their costing model based on time-and-materials. This outdated model is still prevalent and damaging the industry.
Clients have been conditioned to buy design as a time-and-materials service.
Despite efforts to emphasise design value and alternative costing methods, the industry continues to treat design as a time-based service. Even when agencies don’t quote hours directly to clients, they still calculate the time required and prepare estimates based on these calculations. They track hours and perform job profit-and-loss analyses to verify the accuracy of their estimates. All of this is fine and probably will continue for many agencies.
The result: since 2019, the head count in Australian design agencies has decreased, and the number of small agencies has increased as redundant designers start up. This trend has intensified competitive pressure within the industry.
Here’s what works (and what doesn’t and why)…
Client ROI
Rarely do creative agencies quantify their work’s value in terms of client ROI. Many agency owners report clients are unwilling to provide data for measuring value, often because clients don’t associate design with sales success or impact. They say many other factors increase sales or impact. Our Design Maturity research showed even when there’s anecdotal evidence of design effectiveness, clients don’t invest in measurement.
Is there an answer?
It’s not productising
Ad agency advisors have turned to ‘productising’ as an answer. The models they suggest are still just packaging up services with a fancy name. Just time-and-materials rebranded.
We need a new mindset. An impact mindset.
A new breed of creative agency is making this change. Our analysis using our Happier, Healthier Creative Business Canvas shows a trend in the way they work.
They have recognised impact is more important than design. They no longer see design as an end in itself; it’s a tool they use to explain the insights they’ve gained.
It often starts with an examination of their business model; recognising it’s not sustainable. They question how to make the agency viable; leading to examining their areas of expertise, their pillars of excellence.
These pillars have been built on a deep understanding of an industry sector. They realise in these pillars they’re looking at a client’s business model; they dive deep into the business and examine the value chain. They look for the activities where design can have an impact.
Industry wide research shows the increased value the client will get from improving those activities. This allows them to value price; a price based on the clients’ ROI in their value- add activities, not time-and-materials.
This approach overcomes the client’s reticence to supply data.
The designer has used industry wide research to understand the activities that add value. Design has been applied to make the research tangible.
This is not the only approach we see to introduce impact thinking. There are creative agencies who position as researchers or marketing insights businesses.
Are these the design agencies of the future?
Take away
Moving from a time-and-materials mindset to impact requires a fundamental shift in thinking for most creative agencies.
Contact Greg if you would like to learn more about measuring design impact.
Greg Branson
Want more?
Here’s more information on the Australian design industry:
- Check out this marketing research company who offer creative
- How one ad agency saw the answer as productising
- Using value based pricing for creative services
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