Close-Up: Should the IPA change its fee system?

Is the trade body's income-based membership fee system 'deeply flawed'? Matt Williams reports.

The past few weeks haven't been easy for governing bodies. The BBC Trust has come under attack for its plans to increase the licence fee, the Football Association has been accused of disregarding fans for the sake of an extra few quid and we all know about the furore that's surrounded the MPs' expenses scandal.

And it seems that the IPA is not immune to criticism either. In last week's Campaign, Ian Millner, the chief executive of Iris, attacked the body for having a "deeply flawed" membership-fee system, which currently charges agencies based on income rather than profit.

This, he argues, fails to take into account agencies' actual financial health at such a pivotal time. And it appears that Millner is not alone in feeling this way. "In the climate we're in, the IPA should be sharing the pain that the agencies are suffering. They're meant to be stakeholders in an agency's future, but, instead, they're just leeching off us," one agency managing director says.

And the problem, he believes, is that the body is so stuck in its ways that it won't even entertain the idea of changing its fee system to help out its members.

"The membership fee is worked out in such an old-fashioned way, and that's because the IPA is old-fashioned," another agency head says. "They are so out of step with what's going on in the agency world and are simply happy with their nice trips to China and a big ivory tower in Belgrave Square."

So, if these critics were to be given the opportunity to devise a better system, what would be fairer? One chief executive of a DM agency recommends "menu pricing", in which agencies only have to pay for the services they require.

"The prestige of being affiliated with the organisation is great," he says, "but there's so much you don't use that only paying for what's relevant would be a far more attractive proposition."

Millner suggests a fee based on profit and performance: "You definitely need more of a flexible structure. Profitability is important. Performance is important. Affordability is important. But the IPA just doesn't realise that. They are completely incapable of change."

However, the current system is not a problem for all. "We've always found the fees to be very reasonable for what you get out of it," Tom Bazeley, the managing partner of Lean Mean Fighting Machine, says. "Whether we'd be saying that if we were a bigger agency, I don't know."

There are also the complications that introducing a new profit- or performance-based system would bring. Not only would such a scheme open the system up to abuse (agencies and networks often declare differing profits to benefit their business model), there's also the fact that external issues, such as the recession, affect every agency's income in a similar way, whereas what affects profit is how each agency runs its business.

"If someone runs their business well, so that profits stay high while revenue comes under pressure, why should they be penalised?" Neil Christie, the managing director of Wieden & Kennedy, says.

It's natural that, in a recession, every agency will want to manipulate their outgoings in order to benefit them in the best way possible. And, with very little change to the IPA system in recent years, it's no surprise that the set-up is coming in for criticism. However, if the membership-fee system is only affecting certain agencies under specific circumstances, then maybe those agencies need to look at their own workings as well as external forces.

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AGENCY HEAD - Ian Millner, chief executive, Iris; member of the IPA

"The IPA is in complete denial about how they charge and what people get for their money. If it's ever questioned, they hide behind committees and regulations. All you ever get is the answer: 'That's just how we do things here.'

"But everyone at the moment needs to evolve to the current climate, so why don't they? They can't assume that they are immune to the recession and can't carry on thinking that their members will still be able to carry on without changing either. We're all coming up with new ways to charge clients, and so should they."

AGENCY HEAD - Jonathan Harman, chairman, Carlson Marketing; not a member of the IPA

"A trade body like the IPA should be helping agencies become more profitable, so I can see why charging an amount in relation to profit would make sense. If the body helps an agency become more profitable, then they're helping themselves too.

"Charging as they do now - based on gross income rather than profit - harks back to the days when agencies were paid a percentage of a client's billings. That's an imperfect system and so is rare now. If agencies have become more innovative in how they charge, maybe their trade bodies could too."

TRADE BODY HEAD - Hamish Pringle, director-general, IPA

"The IPA membership fee was last reviewed and changed in 2003, when new banding levels were introduced. As part of this review, it was agreed to continue to use agency income as the subscription metric. The problem with using an alternative method, such as agency profitability, is that member companies have different ownership structures and objectives. Agency income directly reflects the fortunes of every respective business.

"We know IPA membership is value for money because we ask our members what they think every year. Last year, 82 per cent believed the IPA offers 'extremely', 'very' or 'good' value for money."

AGENCY HEAD - Neil Christie, managing director, Wieden & Kennedy; member of the IPA

"Of course it's true that in the current climate, everyone has to examine costs very closely to ensure that they get value for what they spend. That includes everything from IPA membership to the chairman's chauffeur.

"But if I understand the IPA membership-fee system correctly, if your revenue goes down, your IPA dues go down. Seems fair.

"So if you have high revenue (and high IPA dues) and low profits (so the dues seem onerous), then you're not running your business properly. That's not the recession's fault, or the IPA's fault, it's the fault of the agency management."