Ad Agency New Business Conversion Rates…The Real Numbers

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I am certain that we have all been involved in discussions about agency new business conversion rates or asked by management to justify our own. The answer to the question invariable triggers more questions, like: Is this a good conversion ratio and are we competitive? How did you calculate it? Do all disciplines experience the same rates? … I thought it might be time to try and put this one to bed!

It really all boils down to how you measure them.

  • If you define conversions as the number of pitches (pitch being defined as a presentation that in most cases requires speculative work and leads directly to an appointment decision) then the range varies from 25% on the low end to just over 50% on the high end. According to Cleve Langton, in the early part of 2009, DDB were running at about 50%.
  • Alternatively, if conversion is measured all the way back from the RFI stage, then the percentage drops dramatically. The reason being that in the early stages there are so many more competitors, variables and steps to get through before making it through to the final pitch.

The final pitch stage is all about making a final decision as to which of the agencies already selected, is capable of coming up with the superior idea and work to support it. Whereas the first stage is defined by the questions; does the client think you have the right capabilities to handle their business, and do they feel comfortable with the chemistry?

In addition to how you measure, there are also many other factors that can materially affect your new business conversion ratio, either positively or negatively. Here are a few examples:

  • How aggressive your pitch approach is and what type of risk you are prepared to accept going in?
  • Are you breaking in to a new category or are you a known and respected player?
  •  The number of pitches you are involved in at any one time and the depth of resources to support them.
  • Your pricing model and flexibility to negotiate the fee. ( I have had personal experiences where we won the pitch, but decided to withdraw afterwards due to pricing and contract issues)
  • The type of accounts/work you go after. Are they all large budget AOR type assignments or rather multiple small project assignments?
  • Do you have a proprietary system/software that is not available through other sources?
  • Your agency is part of a larger group that consistently refers business to you.

The reality is that there is no one size fits all. Every new business professional and agency CEO will tend to calculate their new business conversion ratio, in a way that reflects their agency in the best possible light. So the next time you feel inadequate during cocktail conversation with industry piers about this subject, just calculate yours again using different measures and assumptions. After all, it’s the bottom line and agency profitability that really matters.

 

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