The second annual OUCH! Factor Survey: Revealing The Hidden Costs of Pitching by growth consultancy New Business Methodology has revealed an industry in which pitching for projects is rife.
With the average Australian agency’s 2021 total pitches costing the equivalent of $1 million in non-billed pitch-hours. For a year’s worth of pitching efforts, the average agency won just over $3 million in new revenue.
The 2022 OUCH! Factor Survey questioned 94 CEOs, MDs and leaders from creative, media, digital, PR and integrated agencies, and 14 CMOs and procurement leads, asking them to share their 2021 pitch year. The data investigated the difference between independent agencies and holding companies, agency size and agency discipline (creative, media, PR, digital/tech, full-service and consultancy).
This year the survey was backed by the following industry associations, which invited their members to participate: Advertising Council Australia (ACA), Australian Association of National Advertisers (AANA), Media Federation of Australia (MFA), Independent Media Agencies of Australia (IMAA) and the Public Relations Institute of Australia (PRIA).
It found the average Australian agency pitched 19 times (up 70 per cent YoY from 11 times in 2020) and won 9 pitches (up 76 per cent YoY from 5 times in 2020), spent 231 hours on each pitch (up 30 per cent YoY from 177 hours in 2020), and a cumulative 4,314 hours a year pitching (up 126 per cent YoY form 1,913 hours in 2020) – investing the equivalent of $115,000 (up 24 per cent YoY from $92,000 in 2020) in unbilled pitch-hours before winning a single pitch.
By analysing the opportunity cost associated with pitching – looking at what the time invested in pitching would equate to if it were to be spent on billable activities – The OUCH! Factor Survey found it took the average agency 24 months to reach profitability on clients won in a pitch (74 per cent longer YoY from 14 months in 2020). For the worst agency respondent, this rose as high as 111 months (9.2 years).
Combined, the respondents pitched over 1,500 times for a total potential pitch revenue value of $518 million.
Interestingly, 29 per cent of pitches had a potential value of less than $100,000, while 46 per cent were worth between $100,000 and $500,000 – indicating that 75 per cent of pitches are likely to be projects and won’t last the 2 years needed to achieve profitability. If ¾ of pitches are short-term projects, agencies will seldom be able to recoup the hidden costs of winning them.
In addition, the average Australian agency had a 17 per cent EBITDA average so would need to earn $5.8 million in annual revenue to recoup all the non-billed pitching time. Or seen another way, 33 per cent of the pitch revenue an agency won last year (the revenue from 1 client out of every 3) is needed to cover the non-billed hours spent pitching – that’s an increase of 93 per cent YoY from the 17 per cent of revenue needed in 2020.
The average pitch-win value of $350,000 in 2021 dropped by 34 per cent YoY from the $530,000 of 2020. The respondents’ pitch-win rate in 2021 of 50.3 per cent was marginally higher (5 per cent YoY) than the previous year’s 48 per cent and the pitch-revenue win-rate of 45.9 per cent was 4 per cent less than the 47.6 per cent in last year’s survey.
Those 177,000 total unbilled pitch-hours by all the agency respondents cost them $41 million in non-billed hours, while total hard costs equalled $3 million for a total pitching cost of $44 million.
Julia Vargiu (pictured), director Australia, SI Partners and founder & managing director of New Business Methodology, said: “The OUCH! Factor Survey shows that instead of improving, the hidden cost of pitching in Australia is getting worse. But it doesn’t have to be this way. What we can learn from The OUCH! Factor results is agencies must work smarter, not harder. They can stop relying on pitching like an agency and start winning business like a ‘creative management consultancy’ – starting with flipping the pitch.
“By ‘flip the pitch’, we mean start with the financial negotiations with potential clients first. Agree on revenue terms and if you can’t, say ‘no’ to the pitch. Only proceed if the numbers add up, and the account can be a long-term profitable client for the agency. But agencies must be disciplined and set a self-imposed pitch-hour time limit before they pitch, or they will rarely keep the account long enough to recoup the cost of winning the client. Agencies rarely calculate the revenue needed to recover their annual non-billed pitch efforts, often ignoring that their wins must also pay for the time they spent losing.
“We advise agencies not to pitch for small projects, for the same reason: they’ll rarely become profitable. The best agencies in the market have stringent pitch criteria, vetting pitches to ensure they achieve at 70 per cent+ win rate. They value their pitch-revenue win-rate over their pitch win-rate and focus on high-value/high-margin work rather than high-volume/low-margin work. This is an industry where 25 per cent margins are achievable, but not when you’re spending hundreds of thousands of hours losing or pitching for free. Most clients dread hearing their agency doesn’t make a profit on the first year they work together.
And the savvy agency CEOs know there are much smarter ways to build team camaraderie or train their staff than with risky pitching.”
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