IPA cautions inevitable agency rate increases given prevailing inflation levels

Agencies face a myriad of increasing problems and costs that they can no longer be expected to absorb.

IPA Director General Paul Bainsfair has warned of agencies inevitably having to increase their prices in light of prevailing inflation levels.

No agency would take the decision to raise their fees lightly. But with inflation levels at their highest level in 40 years – rising by 9% in the 12 months to April 2022 and potentially hitting 10% in the last three months of this year, such decisions are, unfortunately, inevitable.

Paul Bainsfair, Director General, IPA

Agency pressures

"Similar to many parts of the economy, our agencies have navigated the fallout from Brexit and the pandemic as best they can. But off the back of this, coupled with rising inflation, they face a myriad of increasing problems and costs that they can no longer be expected to absorb.

Agencies are encountering a sector-wide skills shortage coupled with increases in recruitment fees; wage pressures with increased competition for talented people; individuals seeking higher salaries to offset the cost of living; raw material increases; as well as soaring energy and production bills. All of which are hitting agency costs hard. After years of responding to the Procurement demands of clients there is little or no room to respond with cost reductions, therefore, fees will have to increase. This is something that clients - facing enormous pressures themselves and in the main having to ensure that selling prices are moving in response – may not welcome but will certainly understand."

Value vs costs

"While agencies talk costs with their clients, it is of course vital for clients to keep the value that agencies deliver front of mind and in doing so assuage a potential knee-jerk reaction of simply cutting spend.

As the evidence shows, companies that continue to invest in advertising in the downturn fare best in the long term. Agencies are not just creative machines but are also effective commercial powerhouses with expert understanding of consumers, including when and where is best to engage with them."

Pricing and pitching

It is not for the IPA to tell agencies what to charge or how to operate. But as the power behind our practitioners we are here to provide guidance, support and a collective voice.

"On which note, I must highlight the recent launch of the cross-industry Pitch Positive Pledge. At a time when belts are tighter than ever, the need for both clients and agencies to heed the core pitch principles are acutely pertinent, particularly pledge 1: ‘Be positive a pitch is required’. I think we can all agree that more open, mutually-beneficial conversations are of more value than any unnecessary pitching activity and its associated, significant costs."