Opinion: On the Campaign Couch ... with JB

Q: Dear Jeremy, I've asked my advertising agency to cut its fees by 30 per cent. It has. And, so far, I haven't noticed much of a difference in delivery. Surely, it's not going to expect me to increase fees by 30 per cent when we come out of recession. Is it?

A: The advertising business continues to be defined by unanswerable questions. For this reason, it wisely prefers not to ask them. How does advertising work? What is creativity? How can it be quantified? Is a 48-sheet poster better than beermats? No wonder agencies struggle to work out what they do and how to get paid for it; and no wonder that clients continue to ask perfectly reasonable questions such as yours.

One of the management skills that separates the outstanding agencies from the run-of-the-mill agencies is their controlled encouragement of waste.

The agency business model is insane. Agencies are not only members of a cottage industry but they also work on a sale-or- return basis. Everything they make has to be different so there are no economies of scale. If clients don't like the first product they're offered, their agencies have to make another one for free. And maybe another. They can spend three months producing nothing of value - or can make a client rich on the back of an idea that took less than a minute to flower. Accepted definitions of efficiency are at best irrelevant and at worst destructive.

Let's keep the numbers simple. The agency pays a creative team £100,000 a year each. In the course of that year, each works eight hours a day for 48 five-day weeks. That's 240 days, or a total, say, of 1,900 hours. So each is costing just over £50 an hour.

Now let's look at output by team. In an unusually productive year, the team may generate five minutes of usable footage: let's say ten 30-second commercials or the equivalent. It follows that each commercial, from planning to transmission, will have consumed 380 hours (that's 47.5 working days) of creative team time, costing a total of £38,000. This figure ignores the costs incurred by the contribution of the producer, the planner, the account handler and any out-of-pockets. And the film has yet to be made.

You do not need to be a time-and-motion expert to suggest that a television advertisement lasting half-a-minute could surely be thought up and written down in less than 47.5 days - or two calendar months.

(I've just divided £200,000, the total annual cost of the team, by ten, the number of commercials to make it to the screen, and it comes to £20,000 - which is a lot more reasonable per commercial than the £38,000 quoted above. What a saving already.)

The creative process needs room to breathe. It needs diversion, distraction and contemplation. It needs waste. The version of creativity demanded by advertising may be humbler than that of fine artists but it's a great deal more demanding.

Why do the best poets find it so embarrassingly difficult to write poems to order - on a royal birth, for example, or on the anniversary of D-Day? Because they're stuck with a brief, that's why: just like every creative team in town. And what they produce will be judged not just on artistic merit and not even first on artistic merit but critically on its relevance: did it meet the brief? That's a tougher challenge altogether.

So, sir, to return to your question. I'm not in the least surprised to learn that your agency meekly accepted a 30 per cent cut in its fees and that you've so far noticed no drop in delivery. If agencies really put their minds to it, they could probably produce a year's worth of advertising in a fortnight; it's the sort of thing that happens all the time in seminars.

What your agency has done is cut down on that all-important waste; and in the short term, it won't seem to matter at all. But please understand that in the rather longer term, you may very well starve your creative counsellors of the very oxygen they need if they're to give you what you went to them for.

You will, of course, tell me that recessions have their advantages; that traditionally a lot of agencies have been over-manned and ill-disciplined and that a few short sharp shocks will do nothing but good all round. I'm sure you're right. But don't forget Professor Laffer and his wonderful curve.

Sooner or later, an ever-increasing squeeze on suppliers produces exactly the same result as an ever-increasing squeeze on taxpayers: nil return. Sensitive and intelligent people know where the optimum point lies. Come the end of the recession, your agency will probably hesitate before suggesting a modest upward fee correction - but as a sensitive and intelligent person yourself, I'm sure you'll want to offer it.

- "Ask Jeremy", a collection of Jeremy Bullmore's Campaign columns, is available from Haymarket, priced £10. Telephone (020) 8267 4683.

Jeremy Bullmore welcomes questions via campaign@haymarket.com or Campaign, 174 Hammersmith Rd, London W6 7JP.