Ad Agencies Faced Shift Away from Labor-Based Fees

Clients are increasingly moving toward performance-based models, pressuring agencies to change billing structures.

Updated on Sept. 29, 2026 in Advertising

Bold vector editorial illustration of a classic brass scale balancing against a modern resin cube, symbolizing a shift in agency billing. — Advertising agencies are rapidly moving away from labor-based fee structures as clients demand payment models directly linked to verifiable business outcomes. AI Illustration. Upload story photo >

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Horizon Media president Bob Lord recently criticized labor-based pricing models, signaling a broader industry movement away from traditional agency billing. Multinational advertisers utilizing labor-based remuneration have dropped from 54% in 2011 to 17% in 2026.

Why it matters

The decline of labor-based models reflects a push for greater agency accountability, as clients increasingly demand payment structures linked to business outcomes rather than staff hours. Agencies that fail to adapt their compensation models may struggle to justify costs as clients prioritize technology over headcount.

Labor-based billing for multinational advertisers fell to 17% in 2026 from 54% in 2011. Currently, fixed-fee and output-based models account for 35% of agreements, while 23% of agency deals are structured as hybrid labor-plus-performance arrangements.

The players

Bob Lord

President of Horizon Media, a large independent media services agency known for its scale in planning and buying.

WPP

A multinational advertising and communications holding company that utilizes diverse billing models, including time and materials.

Cindy Rose

CEO of WPP who oversees a global portfolio of creative and media agencies and expects growth in outcome-based pay.

Richard Hartell

An industry observer who noted the data-sharing challenges clients face when implementing outcome-based pricing.

The details

Agencies traditionally monetize technology investments by embedding them into labor-heavy, full-time equivalent (FTE) staffing costs. Horizon Media, for instance, recently proposed a model to an airline client that would cut FTE staffing by one-third while boosting technology investment by 20%. Moving to these outcome-based models remains complex, however, as many clients struggle to share the necessary data to accurately measure and verify business outcomes.

2011 saw 54% of multinational advertisers utilizing labor-based remuneration models.
WPP began working with Jaguar Land Rover on an outcome-based model in May 2026.
Bob Lord criticized traditional agency pricing models on September 29, 2026.
Bob Lord predicts that client payments for FTE-based models will end within the next five years.

Market Landscape

The transition away from labor-based billing follows the established pattern of the May 2026 WPP and Jaguar Land Rover outcome-based engagement. This shift reflects a broader industry move toward models that prioritize technological delivery over staff hours.

Operators should evaluate their agency contracts for exposure to labor-based staffing models, which are likely to face renegotiation pressure within five years. Focus on transitioning toward output-based metrics that align agency technology investment directly with your firm's revenue goals.

The takeaway

The move toward performance-based billing requires businesses to establish clear data-sharing protocols to measure success. Monitor the structure of your agency retainer renewals to determine if they shift risk toward outcomes rather than just headcount.