In today’s dynamic advertising ecosystem, media agencies are navigating mounting pressure to reduce their fees to stay competitive. This shift is largely driven by client procurement departments seeking cost efficiencies and by technological advancements that enable greater automation in media buying. While this trend may secure short-term client wins, it carries the risk of destabilising the long-term viability of agencies. There is a growing concern that by consistently devaluing their services, agencies may be undermining their strategic relevance, eroding profit margins, and jeopardising enduring client relationships.
The structure of media agency compensation has undergone significant transformation. Initially, agencies earned commissions based on 16.5% of media spend, but client demands for greater transparency led to fee-based and hourly rate models. More recently, performance-based compensation – where remuneration is tied to campaign success metrics – has gained traction. These changes, though in part client-driven, have also emerged in response to the digital media revolution, which has given rise to automation and algorithmic platforms. This technological shift has further fuelled a perception among clients that sophisticated software can replace human expertise, thereby diminishing the perceived value of agency services.
Fee deflation is not occurring in a vacuum; it is propelled by a mix of structural and behavioural forces. Intense competition has incentivised agencies to underbid one another to win accounts. Procurement departments frequently drive pricing negotiations with a short-term focus on cost savings, often at the expense of long-term strategic fit. The pitch process itself, now often short-term and price-centric, favours low-cost providers. Furthermore, digital platforms like Google Ads and Facebook Business Manager create the illusion that media buying is simple and can be managed in-house, thus placing additional downward pressure on agency fees.
The consequences of persistent fee reductions are substantial. When agencies focus on pricing over value, they risk commoditising their services – signalling that what they provide is interchangeable and of limited strategic import. Shrinking margins reduce the ability to invest in skilled personnel, cutting-edge tools, and research and development. This not only compromises the quality of service but also weakens the agency’s positioning as a strategic partner. On the flip side, agencies may choose not to compromise the quality of their delivery (and reputational standards) to valued clients with the loss (from a resource cost perspective) having to be absorbed by the agency, hence affecting the bottom line. Innovation also suffers as resources are stretched thin, making it difficult to pilot new ideas or build proprietary solutions that differentiate the agency in the marketplace. Once fees are lowered, it is challenging to renegotiate upward, leading to a race to the bottom that ultimately undercuts the agency’s business model.
Despite the dangers, not all fee reductions are inherently detrimental. When executed with a long-term strategy in mind, they can be part of a sustainable growth plan. For instance, efficiency gains achieved through automation or AI can enable agencies to pass cost savings onto clients without compromising margins – if communicated as shared value rather than mere discounting. Performance-based pricing models align agency incentives with client outcomes, offering the potential for stronger partnerships and scalable revenue. Similarly, newer or niche agencies may temporarily lower fees to enter competitive markets, provided there is a roadmap in place to restore healthy margins as the client relationship matures.
To counteract the negative effects of fee deflation and preserve both revenue and relevance, agencies must pivot strategically. This means transitioning from service providers to business growth enablers – emphasising their role in driving outcomes, not just executing campaigns. Agencies should develop proprietary tools, data, and methodologies that offer unique insights and results, setting themselves apart in a crowded field. Value based pricing, where clients pay for business impact rather than time or volume, is another way to reinforce the worth of agency services. Transparent communication around pricing and results can build trust and clarify the rationale behind fees. More importantly, reinvestment in talent is non-negotiable: experienced, innovative professionals remain at the heart of effective media strategy.
Real world examples illustrate these dynamics clearly. Agencies sometimes slash their fees aggressively to win accounts but this can lead to high staff turnover, deteriorating service quality and, more often than not, result in ultimately losing the account. In contrast, agencies that adopt a hybrid pricing model that combines modest base fees with performance bonuses tends to retain client trust and can lead to increased revenue over time.
The trajectory of fee deflation in the media agency sector is unsustainable. While competitive pricing can help secure short-term wins, the long-term cost is often a diminished role in clients' strategic planning, reduced capacity to innovate, and eroded financial health. Agencies must resist the pull toward commoditisation and instead focus on articulating and delivering measurable business value. Only by reclaiming their role as strategic growth partners can agencies protect their revenue, retain client trust, and remain indispensable in an industry marked by rapid change and rising expectations.
For both clients and agencies to win, agencies need to adopt a confident stance when it comes to building relationships and going back to the basics of a great relationship - integrity and trust. Clients need to understand that only when they pay for quality delivery will both parties win and thrive and their power lies in the careful balance of cost vs compromise (and the procurement conversations this entails). A great negotiation is where both parties are able to meet their targets and both are stimulated, this way they can collectively deliver exemplary work. Ultimately it’s about the good old fashioned stuff – trust, respect and relationships (at the right price). I say BRING IT ON!
Contributed by Ntsako Lowane-Boros on behalf of the AMF Board.
About the AMF
The Advertising Media Forum (AMF) is a collective of media agencies and individuals including media strategists, planners, buyers and consultants through whom 95% of all media expenditure in South Africa is bought. The AMF advises and represents relevant organisations and aims to create open channels of communication and encourage and support transparent policies, strategies and transactions within the industry.
For more information on the AMF, visit www.amf.org.za
