Nick Hand is the commercially savvy CFO and senior finance consultant at Trinity P3. He brings a rigorous financial perspective to the marketing landscape, advising both marketers and agencies on how to move beyond traditional cost-recovery models toward more sustainable, value-based relationships.
They explore the fundamental shift from cost-based to value-based remuneration systems, a transition accelerated by the rise of generative AI. The conversation delves into the “crisis of the hourly rate,” the hidden financial risks of in-housing, and the necessity of differentiating between low-value commoditised tasks and high-value strategic work. They also examine how marketers can align their activities with business outcomes to transition from a “spending” mindset to an “investment” portfolio approach that satisfies C-suite scrutiny.
For a sector where marketing is often the second-largest line item on a P&L, trailing only behind payroll, understanding how to articulate and measure commercial impact is critical. As AI decouples production time from output value, making the traditional “head-hour” model a race to the bottom, this is an essential conversation to eavesdrop on for anyone looking to future-proof their agency fee structures and marketing investments.
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That old adage, “what gets measured gets managed” doesn’t often start from a position of what actually matters to the business. It starts from what’s easiest to measure.
Transcription (Edited):
Darren Woolley:
Hi, I’m Darren Woolley, founder and CEO of Trinity P3 Marketing Management Consultancy. Welcome to Managing Marketing, a weekly podcast where we discuss the issues and opportunities facing marketing, media, and advertising with industry thought leaders and practitioners.
The concept of value, particularly when it comes to agency fees for service, is a conversation that’s gained additional momentum with the application of generative AI to automate and streamline much of the agency’s services process. Helping us to define what agency value could look like, please welcome the commercially savvy CFO and senior finance consultant at Trinity P3, Nick Hand. Welcome, Nick.
Nick Hand:
Hi Darren, thank you very much. Thanks for having me back.
Darren Woolley:
Look, we’re living in interesting times, as they say. I think it’s meant to be a blessing and a curse. One of the topics that we’ve talked about for years is the need to move away from a cost-based system to a value-based system. This has suddenly reared up with AI and the promise of being able to do more for less. Agencies are suddenly realising that charging by the head-hour is no longer a valued way of making money. In fact, it’s a race to the bottom if the machines are taking over the work. But there’s a lot of talk about value, and yet not a lot of talk about what value is, other than either paying for what’s produced or paying for the outcome that those outputs produce.
Nick Hand:
Agencies struggle with it because they’ve never really considered it before. They were being paid on inputs and cost-recovery models. Now, all of a sudden, that discussion has flipped on its head and they are scrambling to try and figure out how they can get paid away from cost inputs. The struggle also stems from the fact that a lot of marketers within organisations don’t know what value looks like either. You’ve got the agency off doing one thing, the marketer thinking value is something completely different, and the C-suite looking at a third stream. Everyone is going in a different direction, so you never get this pull-back to the things that actually matter to the business. What does success look like? Both agencies and marketers are struggling with that.
The Consumer Perspective on Agency Value
Darren Woolley:
It varies depending on who you’re talking to. If you’re talking to a marketer who has a defined budget, they are looking to maximise what they get for that. If you’re talking to a marketer who’s got a growth agenda, they’re probably looking for how they engage an agency to help grow that. One of the things I find is that agencies always think of value from their revenue perspective and not from the consumer’s perspective—the client and the organisation. Ultimately, that is where value resides: in the mind of the person buying the service.
Nick Hand:
Absolutely. It is helpful for businesses to take a step back and imagine they are consumers. In our personal lives, we make value decisions every single time we purchase something. We assess whether the benefit we derive outweighs the cost. But a lot of businesses think insularly about how an agency can maximise revenue from a particular client, rather than what is underneath the brief. Potentially, the goal is to grow brand awareness. What does that look like commercially for the client? Perhaps the client isn’t quite sure. It’s the agency’s job to get under the bonnet of that and not just take the brief at face value. They should always look for the primary commercial objective.
Darren Woolley:
But Nick, we’ve seen that marketers are very much driven by wanting to get more for less, or more for the same amount. They believe that if they do more, the business will get better results, or they want to prove they got a “value deal” by getting more from the agency for the same money. Many marketers default back to an input model, the traditional head-hour rate, because they actually put value around the people they’re getting. Particularly if someone at the agency is highly regarded, they like a retainer model where they can dictate getting those people on their business. The struggle to get to a value-based proposition exists because from the buyer’s perspective, a person is tangible, whereas everything else is less so.
Nick Hand:
That makes sense, and it worked when budgets were higher and channels were fewer. Marketers are trying to do more with less, but the proliferation of online channels and the amount of “content” needed to feed that machine has led them down a path where they have a set budget and just need to do more with it. They aren’t stopping to think about what they are trying to achieve. Am I just trying to get eyeballs, or do I want those eyeballs attached to a human being who will do something in response to the message? Many relationships are bought on cost but expected to deliver value. More C-suite executives are looking at what marketing actually delivers to the bottom line. Marketers simply don’t know how to articulate value in finance or CEO language. They might know the business objectives, but they don’t have the vocabulary to articulate them clearly in a brief. That’s where the disconnect comes from.
Investing vs. Spending: The CFO’s View
Darren Woolley:
There’s a big difference between a marketer given a budget to spend and a marketer who pitches the CFO for a budget to invest. A spend budget focuses on the volume of work produced without correlation to business impact. A marketer wanting a budget to invest must have clear, agreed objectives and measures. We often push aside the marketers who just have a budget to spend because they are just buying as much stuff as they can. The marketers who have an investment to make want to align their agencies to likewise have skin in the game.
Nick Hand:
That’s the key. The CFO will give you more money to invest if you can show the commercial return. Being able to attribute the marketing programme back to tangible business results is vital. Marketers will always get more money if they can show their activities are contributing to that. Likewise, if an activity is not working, stopping it and reallocating the money to something that works is essential. If the marketer is just spending money, the conversation about creating value becomes moot because they’re measuring the amount of stuff they get rather than the impact the agency brings to bear.
Darren Woolley:
Let’s explore that. Under the traditional hourly rate or retainer, it was about retaining a number of people, negotiating the lowest possible fee for them, and then throwing as much work at them as possible.
Nick Hand:
And that reframes advertising as a commodity. Price and efficiency become the most important factors rather than business results. Many processes set up by procurement commoditise agency services. Outside of a few key people, they often don’t care who does the work as long as it is done at volume and speed. Marketers need to decide if they want their agency services to be a commodity. That won’t correlate to moving the needle on the business results that a CFO or CEO is looking for.
The Hidden Price of In-Housing
Darren Woolley:
Then consider when you take agency resources in-house. Marketers often think, “That’s no longer my budget,” but they are still a headcount in marketing. While they reduced expenditure with external suppliers, they increased the internal cost of marketing to the business. From a CFO’s perspective, there must be a demand for a return on that investment beyond it just being “cheaper” than an agency.
Nick Hand:
I would be expecting the same or better returns from bringing it in-house. Why take the risk of employing people and the additional costs that brings otherwise? For commoditised services where you want to do things cheaply and efficiently—like basic design or digital production—in-housing may be fine. But if you are looking for strategic or creative guidance, bringing it in-house can limit you because you are stuck with the people you’ve hired. You can’t necessarily go to your roster and pick the specialist skills needed for a specific brief. It creates more pressure on the marketer and reduces the flexibility needed for non-commoditised activity.
Darren Woolley:
Finance looks at overall business expenditure. Does external supplier expenditure stand out more than internal operating costs? Headcount is an operational expense, but they are counted as employees and might not get the same interrogation unless there’s a process of reducing headcount.
Nick Hand:
Advertising and marketing is usually the biggest or second biggest line item on a P&L, but the first is headcount. When business is good, you can get away with more. When times are tougher and cuts are needed, the marketing budget is targeted first, and headcount second. I’d want to know what these people are contributing to the organisation. If it ends up being a lot of administrative busywork without commercial impact, they are equally up for cuts. It makes them a cost and a commodity that could be outsourced anyway.
Darren Woolley:
Although the conversation for in-housing has switched from cost reduction, there is still a rapid justification because it is “cheaper,” without necessarily proving it. It’s assumed to be cheaper because the company provides the real estate, technology, and utilities that are normally built into an agency fee.
Nick Hand:
The rationale is you’re taking away the overhead and the agency’s profit margin. In reality, you’re probably only taking away the profit margin. Unless you have spare office space you can’t offload, you’ll have to find more space. The flip side is the lack of flexibility in being able to pivot quickly. For commoditised work, it’s great, but for strategically intense work, those models can fall down.
Why Performance-Based Fees Rarely Work
Darren Woolley:
Let’s go back to the marketer with an investment budget aligned to KPIs. Those metrics would have to be valued by finance if they are how the marketer is judged for delivering on the investment.
Nick Hand:
They have to be. Otherwise, if the agency, the C-suite, and the marketer are pulling in different directions, that’s not success. The marketing team’s measurements must be in lockstep with business objectives. If the objective is to buy media at the lowest cost per thousand, that’s a primary KPI. If that’s just a mechanism to deliver a larger objective, then it should be measured, but it isn’t the primary judge of whether the communications have been effective.
Darren Woolley:
This is where we hit a roadblock. In the Four Ps, agencies have very little to do with product, pricing, or distribution. They are primarily involved in promotion, which is just one lever for driving sales and profit. How can you align an agency based on the value they’ve created when they only contribute to one of several mechanisms for driving financial value?
Nick Hand:
The conversation is tempered by the amount of influence the agency actually has. The notion of paying agencies for outcomes ignores the problem that you can’t tie the entire agency’s fee to results they don’t fully control. But you can judge the agency on their proportion of influence. Maybe a portion of their fee is tied to that, so they achieve upside when the client does well but share the pain when they don’t. The key is apportioning that influence to the right degree.
Darren Woolley:
I get that, but it leads back to performance-based remuneration (PBR), which often fails. The downside is high risk for the agency, and the upside is rarely enough to justify it. No one can agree on final attribution. I know examples where things went gangbusters and the agency expected a big payday, only to be told they didn’t really contribute that much. Or it goes badly for reasons the agency couldn’t control, like a factory burning down, and they lose out. When I see conversations about value payments based on outcomes, they are essentially asking agencies to push all their chips onto a single hand. Agencies shouldn’t be asked to do that any more than a person would sacrifice their salary for a small potential bonus.
Value-Based Outputs: The Case for Tiered Deliverables
Nick Hand:
It’s not necessarily about payment by results; it’s about the frameworks in place to measure if the relationship is a success and setting the price up front. Why does something cost $100? What is the marketer expecting the agency to contribute that justifies that price?
Darren Woolley:
Are we talking about value-based outputs rather than outcomes? If a service produces something, we negotiate a price based on its contribution. For example, an EDM telling customers about public holidays has very little value compared to an EDM promoting a sale to drive revenue. I wouldn’t pay the same amount for both. One has no value for driving sales, whereas the other has high potential.
Nick Hand:
Exactly. Businesses need to treat these like consumer transactions. Everything is contextual and can be valued differently because one thing is a greater benefit to the business than the other. It’s about setting the price based on the perceived value that will be generated.
Darren Woolley:
In the past, marketers said, “It takes the same amount of time to do both.” But with AI, time has been largely decoupled from production. You want a qualified human to make sure the sale-driving EDM is effective, perhaps doing AB testing. The other is just information. In financial services, they produce huge amounts of regulatory communication compared to home loan promotions that are incredibly profitable. You shouldn’t pay the same for every output.
Nick Hand:
Where that falls down is that many agency scopes aren’t detailed enough to identify those differences. You can’t just have a line in the scope that says “EDM.” It needs to be fleshed out to explain what it is expected to drive in terms of response and sales. That ascribes it a higher value than a closing notice. Generally, there isn’t enough detail to differentiate those levels of requirement.
Darren Woolley:
That happens when the scope is viewed only as a way to lock in a fee for delivery. If you follow it to the logical conclusion of a retail relationship, the agency has a range of services: high-return, medium-return, and low-return. The low-value services would be priced at the discount end, likely done by AI with minimal human intervention. At the other end is the best thinking to maximise the return on investment. You naturally pay more for that. There is a pricing differential, and as a shopper, you pick how many of each you need and pay the bill.
Managing the Brand Portfolio Like an Investment
Nick Hand:
It doesn’t even need to be worked out entirely in advance. For recurring commoditised services, you agree on the price. For higher-value work, it might be bespoke and quoted when the brief is submitted. The marketer knows they are paying a fair price because those lower fees set a frame of reference. Acknowledging these different value levels is the starting point.
Darren Woolley:
Anything spent at that premium end is assumed to contribute to growth. There could be an additional bonus paid on overall growth. The more the client spends in that area, the larger the share of the bonus. It keeps the agency focused on why they are doing the premium work—to drive growth—while the low-cost work is just to get things done efficiently so money can be reinvested into higher-value areas.
Nick Hand:
Paying a bonus on commoditised work doesn’t make sense. Incentivising the agency on the higher-value work is the way to go.
Darren Woolley:
There’s a trap here. Marketers often say they spend 30% on brand building, 30% on promotion, and 40% on retail. But when we look at actual expenditure, it’s often 70% on retail and only 10% on brand. They are inclined to go short to drive immediate sales while giving up on long-term brand building.
Nick Hand:
If you incentivise the agency, that needs to be factored in. Perhaps the agency is bonused on churning out lower-value work efficiently to manage short-term goals. If that means more to the organisation than long-term brand building, then that becomes the higher-value work in practice, even if it’s priced lower.
Darren Woolley:
In one case, a company realised product promotion was actually part of their brand work, so that became the high-premium work. Retail was split because they realised there were different types. Many marketers don’t like to prioritised their work this way because they feel every task is equally important. But from an investment point of view, that isn’t true.
AI, Speed-to-Market, and the Productivity Premium
Nick Hand:
Marketing budgets need to be treated like an investment portfolio. You invest in different areas to spread risk, knowing some have higher returns. Some are long-term propositions. If marketers looked at their investment this way, you’d see more apportioning of value based on what is being achieved.
Darren Woolley:
When we worked with a consumer goods company, budgets for products were aligned to market potential. Small products with big growth got a certain budget compared to dominant but static ones. Some brands couldn’t even be invested in because there was no financial argument for it.
Nick Hand:
Were the agency fees aligned with that approach?
Darren Woolley:
No, and that was the problem. A small brand with a small budget paid the same fee for an equivalent piece of work as a large brand. We designed a pricing model based on brand value, reviewed every year. It meant paying more for more upside and less for less upside. The agency couldn’t get their head around it because they thought it took the same amount of work either way.
Nick Hand:
The agency missed the point. The client expected them to spend the bulk of their time and thinking on the higher-value brands. If you give agencies a flat playing surface, they’ll spend too much time on declining brands and not enough on high-growth ones. That’s on the agency.
Darren Woolley:
It was also on the marketer, because brand managers were fearful that paying less meant the agency wouldn’t spend enough time on them. They had a Walmart budget but wanted a Chanel service. There are many emotional drivers. Agencies want cost recovery, while brand managers see their budget as a sign of their own importance.
The Road to Trust and Transparent Pricing
Nick Hand:
AI is making the go-to-market faster. An agency can now pump out 20 iterations using generative AI. That might cause analysis-paralysis, but it also means a brief can reach digital channels in days rather than weeks. The agency could argue that speed is more valuable to the advertiser and justify a premium. It might actually give agencies a reason to increase prices because they can get the client into market faster.
Darren Woolley:
This highlights how important trust is. Appointing an agency based on “upside” requires high trust. A pricing model allows for agreement up front and adjustment later. Marketers need to think about their scope of work not just as services, but in terms of what they want those services to achieve. You could build a 3×3 framework: what is the purpose, how much do you need, and when do you need it?
Nick Hand:
The proliferation of data has over-complicated measurement in the pursuit of perfection. Having something simpler that is agreed upon by both parties is often more effective. Measurement should start from what actually matters to the business rather than what is easiest to measure. If an agency is measured on something different than what they were asked to do, it won’t be a success.
Darren Woolley:
Nick Hand, thank you for this conversation. I think it is an interesting one about what value actually looks like, and one that will continue.
Nick Hand:
Fantastic. Look forward to it. Thanks Darren.
Darren Woolley:
And for you, what does value look like?
