Can Advertising Agencies Afford to Be Business Partners?

An original analysis informed by ten conversations on The Indian AdGeek and independent industry research.

An agency can be hired to help grow a business and still be paid according to the people or hours assigned to it. It can promise transformation while its client asks for a rate card. Neither side is necessarily unreasonable. But it is an awkward way to begin a partnership.

Across conversations on The Indian AdGeek, that tension keeps resurfacing. Two guests approach it from very different directions.

Shradha Agarwal, Co-founder and Global CEO of Grapes Worldwide, believes an independent agency needs enough predictable retainer income to cover its people and operating costs. Project work can then provide room to grow. Santosh Desai, Managing Director and CEO of Futurebrands India and Founder of Think9 Consumer Technologies, sees a bigger structural problem. If every new client means adding more people, the business remains tied to the hours it can sell. His answer is to create products and assets that can be used more than once.

Both have a point. Retainers help an agency pay its bills, but they do not make it infinitely scalable. Building a product may reduce the need to repeat work, but someone must fund, sell and maintain it. Meanwhile, the client wants to know something more straightforward: will any of this make my business better?

That is the business-partner gap. Agencies are taking on broader problems, but the rules for defining their work, pricing it and sharing responsibility have not always kept pace.

Large advertisers have already moved beyond billing by the hour

It is tempting to blame everything on timesheets. But the idea that most major advertisers still pay agencies purely by the hour is out of date.

In September 2026, the World Federation of Advertisers (WFA) and Agency Mania Solutions reported that 19% of 69 multinational advertisers surveyed used labour-based remuneration models, down from 54% in 2011. Fixed-fee or output-based arrangements represented 33%, while labour-plus-performance models stood at 21%. The companies, drawn from six sectors, reported a combined $147 billion in global marketing spend; 71% of respondents worked in global marketing procurement. This tells us about large multinational buyers, not every agency contract or the Indian market as a whole.

The distinctions are important. A retainer tells us when an agency gets paid, not necessarily how its fee was calculated. A fixed project price removes hours from the invoice, but the agency still has to manage the hours spent doing the work. A performance bonus may be added to a base fee without changing much else.

The same WFA study found that 89% of respondents believed their agencies offered value for money, yet only 48% felt they had enough visibility into agency costs and profitability. Buyers also ranked a good brief, trust and useful feedback well above financial incentives as drivers of strong agency work. So a relationship can feel worthwhile even when buyers cannot fully see the agency's economics.

The question is no longer simply how agencies bill. It is whether the agreement reflects what each side contributes, controls and stands to lose.

First, the agency has to pay its bills

Consider the day-to-day reality of an independent agency. Salaries go out every month. Clients change their minds. Pitches cost time and money, and winning one can mean hiring before the revenue arrives.

Agarwal says Grapes aims for roughly 65 to 70% of revenue to come from retainers. That is her preferred operating mix, not a benchmark every agency should copy. Reliable income helps cover salaries and the wider cost of running the business, while projects provide additional revenue from available team capacity.

There is one important catch. If salaried employees take on an extra project, the fee may have a healthy contribution after the project's additional costs. But that is not the same as net profit. Extra revisions, freelancers, management time, software, selling costs and work the team must turn away all matter. It is entirely possible to be busy and financially stretched.

Shubhranshu Singh, member of the Board of Directors of the Effie LIONS Foundation and former Chief Marketing Officer at Tata Motors Commercial Vehicles, sees the pressure from the advertiser's side. He questions what brands gain by repeatedly shifting accounts to cheaper partners. In his experience, squeezing fees too far can mean less senior attention, weaker teams and fewer chances to experiment. That is his judgment from working with agencies, not a measured claim about the whole industry.

Desai worries about something else. Even an agency with stable retainers can struggle to grow if each account requires a fresh team. His challenge is to turn at least some expertise into repeatable methods, intellectual property or products, rather than rebuilding the same service for each client.

That does not mean replacing people with products. A new business problem still needs judgment, and a genuinely original idea takes work. Desai himself combines project advice with longer relationships. The opportunity is to stop repeating all the effort when an idea or a capability can be reused.

Ivan Fernandes, a strategic adviser to agencies, founders and investors, argues that neither adding AI tools nor renaming departments is a business model. Agencies need to decide what they are good at, which clients they want and which services deserve to become repeatable products or platforms. They also need to ask whether their pricing reflects the value they bring rather than only the cost of their teams.

That raises uncomfortable questions of its own. Who pays for product development? Who owns the tool? Who maintains it? And when the same system can serve several clients, what is a fair price for each?

What a business partner has to do differently

Being invited into a client's business earlier sounds appealing. It also asks agencies to do more than produce what is already in the brief.

Bianca Dordea, Global Client Lead, AKQA, describes teams working with clients to identify the problem before anyone decides whether the answer is a campaign, product or operating change. She also resists the familiar complaint that procurement is the enemy. Procurement has a job to do. The difficulty comes when a system designed to compare familiar services has to assess work that has never been bought in quite that form.

Her suggestion is to begin with the desired outcome and work backwards to what it will take to achieve it. That does not give agencies a blank cheque. A client still needs to understand the scope, assumptions, approval process and likely cost. Agencies need to know who will share data, make decisions and sign off changes.

That may sound unglamorous, but without those details even a promising partnership can collapse into a dispute about the brief.

Singh describes the buyer's view in equally practical terms. A polished pitch is not enough if the agency cannot show that it understands the business or say who will actually work on the account. He values relevant experience, references and people willing to question his brief. After the marketing team has identified a suitable partner, procurement can negotiate the terms.

The two accounts fit together. Clients want agencies with ideas and the confidence to challenge assumptions. Procurement needs clear deliverables, sensible comparisons and defensible contracts. The solution is not to exclude procurement. It is to bring commercial clarity to the work the client really wants done.

Tracey Barber, Global Chief Transformation and Growth Officer at Havas Creative Network, looks at agency growth through three everyday measures: client satisfaction, the pipeline of new opportunities and the health of the teams doing the work. Her view is that keeping and expanding good client relationships matters at least as much as winning the next pitch.

Agarwal is less convinced that agencies can plan around clients staying for the long term. She recalls losing an account despite believing the work had delivered strong results. It is one executive's experience of churn, not proof that long relationships are disappearing everywhere.

In fact, the WFA's 2026 survey found longer average client-agency relationships than in 2018 across several disciplines. Both things can be true. A particular independent agency can lose good clients while a large multinational advertiser stays with its agency partners for years.

Paying for results sounds simple. Measuring them is not.

If an agency claims to help grow a business, why not pay it more when the business grows? Singh favours a stronger link between agency rewards and outcomes rather than just the volume of work delivered. It sounds logical until you ask how much of the result an agency actually controls.

Adam Ferrier, Founder and Group Chief Thinker at Thinkerbell, explains why this is particularly difficult in brand building. Advertising may change what people buy today, but it can also influence what they consider months or years later. Separating that effect from price, distribution, product quality, media spending and competitors is hard. His agency has explored limited risk-and-reward arrangements, while distinguishing them from the broader value of its work.

Imagine two briefs. One campaign aims to generate registrations in four weeks; a well-defined target might justify a bonus. The other tries to reposition a brand across several markets over two years. Paying both agencies according to next month's sales would make little sense, especially when neither controls the product on the shelf.

Mike Follett, CEO of Lumen Research, offers a useful reminder that even deciding what to measure takes care. He studies what people actually look at, rather than relying only on what they say after being asked to examine an advertisement. That helps establish whether an ad receives attention. It does not, on its own, prove how much profit the ad generated.

Many buyers seem to recognise that limit. The WFA found that, across most disciplines, 67 to 80% of respondents put performance-related remuneration below 20% of the total fee. Bonuses are often bounded rather than making the agency responsible for the client's entire commercial result.

Before attaching money to an outcome, both sides should agree on five things:

• what success means;

• how it will be measured;

• which decisions each side can actually make;

• where performance starts, before the work begins; and

• what happens when external events change the result.

Otherwise, an incentive can end up rewarding luck, penalising good work or pushing the agency towards the easiest number to improve rather than the most useful result for the brand.

AI can reduce the hours. It cannot settle who gets the benefit.

AI has made this debate more pressing. If a task takes two hours instead of two days, an hourly contract may leave the agency earning less for completing it faster. A fixed-fee contract may let the agency keep some of the saving. But checking outputs, correcting errors and meeting new client expectations can consume that time again.

Laurent Thevenet, Head of Creative Technology for Asia Pacific at Publicis Groupe, describes AI changing research, planning and production. It can make teams faster and help them explore more options. He does not suggest that it removes the need for taste, judgment or the ability to decide which idea deserves to be made.

There is a cost question too. In a 2025 discussion of research with Forrester, the American Association of Advertising Agencies (4As) said 75% of surveyed US agencies were absorbing AI expenses themselves and only 6% treated AI as a billable business line. The underlying study's full methodology is not public in that article, so these are 4As-reported findings, not an independently audited estimate of agency profit.

Creating a reusable AI tool also means paying for data, security, integration, support and maintenance. Some of those tools will become everyday infrastructure. A few may become products clients will pay for. The difference will be decided by actual demand, not by what agencies call their innovation labs.

Equity is not a substitute for being paid

Another proposal is for agencies to own a stake in the businesses they help build. If the work contributes to long-term value, why not share in that value?

Raja Ganapathy, Founding Partner at Spring Marketing Capital, draws a sharp line between investing in a company after deliberate selection and accepting shares because a startup cannot pay its agency bill. The second route may leave an agency holding illiquid equity while still having salaries to pay. The company might thrive one day, but that will not cover payroll this Friday.

He describes a model in which investment judgment sits alongside consulting work that can earn fees in cash. The distinction is important. Investment returns depend on the success of a company and whether shares can eventually be sold. Fees pay for defined work. Combining the two can align interests, but also brings questions about valuation, governance, conflicts and the amount of capital an agency can afford to put at risk.

Fixed fees, retainers, limited performance bonuses, licensed tools and equity investments are all ways to earn a return from useful work. They are not versions of the same thing. Each gives the agency a different share of the upside and a different amount of risk.

Could India lead the work, not just deliver it?

India makes this debate especially relevant. Independent agencies can adapt quickly, but fee pressure and uncertain client tenure make investing in new skills difficult. Global networks have deep pools of talent, though bringing their capabilities together can be slow and complicated.

Barber raises a bigger question about India's place in the industry. Speaking about the Havas network, she says major international transformation mandates are still often led from New York, London or Paris, despite the talent and inventiveness she sees in India. That is her assessment, not a published count of global briefs. Still, it is worth asking: what would it take for an Indian team to set the direction of a multinational client's transformation rather than only deliver one part of it?

The answer is not simply cheaper talent, more awards or an AI offering. It is the confidence to understand the client's business, ask difficult questions and take responsibility for work that matters. That requires access to information and decision-makers. It also requires an agency with the financial discipline to avoid promising results it cannot control.

There may never be one new agency model. A strategy consultancy, a creative business, a technology provider and an investor-backed firm can create very different kinds of value. Why would we expect them to have identical contracts?

What they should have in common is an honest commercial bargain. It answers four questions:

1. What is the agency responsible for?

2. What can it genuinely influence?

3. How will success be judged?

4. What risk is each party willing to carry?

The real test of a business partnership is whether both sides can answer those questions plainly, agree on the terms and live with the result. A new label on the agency door will not do that for them.