Close-Up: The death of the ad agency retainer

A rise in project work means client/agency relationships may never be the same.

When flicking back through Campaign's archive using the search term "project-by-project", you tend to get stories about smaller clients that have never been able to afford a retained agency deciding to appoint one for the first time.

Yet, in the past few months, this pattern has begun to change. Bigger clients with bigger budgets, such as B&Q, Five and Yell, are starting to favour project-led relationships over the classic retained agency model.

Needless to say, both approaches have positive and negative attributes. A retainer means that a client gets a strategic understanding of its core business based on a long-term relationship, but at a higher cost.

A project-by-project strategy sees this cost fall, as well as often yielding better ROI when used for a specific one-off campaign.

Carl Ratcliff, the head of brand strategy and marketing at Five, is now working with agencies on a project basis. "It breeds a hunger and freshness that is often missing on a retainer. It can feel exciting, like you're constantly having an affair," he says.

However, critics of this approach say that the deeper understanding of a client's business, which in turn garners the best creative results, is missing. Some observers believe that working on a project-by-project basis is a short-sighted false economy.

As with absolutely everything these days, the global recession is adding its considerable weight to the issue by slashing the amount of money that marketers have to play with, meaning that they have to think harder about how they apportion their budgets.

When faced with these challenges, project-by-project can become extremely appealing. An £80,000 to £100,000 retainer fee can start to look like a luxury.

Paul Phillips, the managing director of the AAR, says: "It's a question of degree. When things are rocking and rolling, clients are willing to enter into long-term relationships - when things aren't, they don't. They also know that agencies are more open to project-by-project because they need the business."

However, this sort of mindset is also fostering a cynical view among some that project-by-project can be used as a way for clients to mercilessly exploit an over-supplied marketplace by using the strategy as a rod to beat down how much they pay agencies for work.

But Nikki Crumpton, the executive planning director at McCann Erickson, reckons that clients are not as ruthless as many believe and follow that route because it suits their marketing plan.

"It's certainly true that it can make your business more efficient, but I don't believe it's used as a weapon - unlike pitching, which is regularly used by procurement teams as a way to slash margins, as we've seen on numerous occasions recently," she says.

The pitch is also being affected by the growth of project-by-project work. Some clients, such as Unilever, favour approaching an agency they want to work with, offering it a paid-for project and then extending the relationship to a retainer if it is suitably impressed with the output. This also cuts out the expense of pitching.

This strategy can work extremely well for smaller agencies or start-ups, for which pitching, if consistently unsuccessful, can be a fatal practice. The digital start-up Fifty Foot Squid recently benefited from Unilever's approach by picking up some project work on a global brief for the Dove Self-Esteem Fund.

Obviously, there are downsides. Project work is unpredictable; a start-up can get much more stability from a retainer - allowing it to work out those small issues such as whether it can pay its rent and its staff.

The project approach is ingrained in the way that some of the newer digital and integrated agencies are set up. During the past decade, as the digital industry has grown, clients have not only had to split up their marketing budgets, but have become accustomed to an ultra-competitive market where margins are small, projects are hungrily fought over and retainers are not always expected.

These relationships have naturally developed with the emergence of a collaborative approach between agencies and their clients to find a middle ground that works for both parties. Seasonal or variable retainers are becoming more and more popular with clients that may only have two or three busy periods and a few months of marketing stagnation, where clients (most probably the procurement department) can see money leaving their pockets with nothing tangible coming back the other way.

Take retailers that base their marketing around key seasons. James Murphy, a founder of Adam & Eve, explains: "You could have a higher payment for six months and then nothing for the other six, so you get the payment policy of project-by-project work but the stability of a retained agency."

And there is also the tried-and-tested "put together a roster and throw briefs at it" strategy, which offers a number of agencies that have the familiarity with the brand, as well as the fresh thinking of project work.

Of course, even in a downturn, professional pride will ensure that the best agencies will produce great work, whether it's as part of a retainer or a project brief. The danger is that when clients see they can get great work from a project-led agency relationship, they (or those pesky procurement people again) might not see the point of reviving the retainer relationship post-recession.

If this becomes the case, then agencies, especially the larger networks, will have to fundamentally rethink the way they run their businesses. They will have to move to a leaner, more nimble commercial model - with the use of freelancers and the outsourcing of business becoming more and more important.

However, there is also a fear that there will be an overall drop in creative standards because the knowledge and understanding built up through a retained relationship will disappear.

Whatever happens once the planet manages to manoeuvre itself out of recession, it is clear that agency/client relationships will have changed immeasurably, and it seems very unlikely that they will return to how they used to be.

- How will the client/agency relationship change after the recession?

George Bryant, founder, The Brooklyn Brothers

"There is no going back from the changes that are happening at the moment. The nature of the retained agency will change irrevocably. It will have to become more accountable and more flexible because clients have seen how work can be produced quicker, more effectively and cheaper."

James Murphy, founder, Adam & Eve

"Agencies of all sizes are going to have to get used to variable retainers and project-by-project work. Once procurement teams cut adspend during the recession, they're going to find it difficult to reinvest the money in a retainer if they think project-by-project is working."

Carl Ratcliff, head of brand strategy and marketing, Five

"Once the economy has righted itself, people will want to have different relationships and partnerships - it's inevitable. We need more transparency around production and project-by-project work offers this while a retained relationship just won't bear fruit."