At Cannes Lions, artificial intelligence stole the spotlight. Agencies of all sizes showcased new capabilities while highlighting the humans behind the ideas. But behind the optimism, many agency leaders are quietly concerned that their outdated commercial models could soon collapse under the weight of change.
A new report from Forrester found that 75% of U.S. ad agencies are now using generative AI. That’s a jump from 61% the year before. But while AI is transforming operations, only 6% of those agencies are successfully monetizing it. Most are absorbing the costs, which is putting pressure on the full-time equivalent (FTE) pricing model that still dominates agency contracts.
A Business Model Under Threat
The FTE model charges clients based on the number of people and hours assigned to a project. It’s familiar and easy to compare during pitches, which is why it remains popular with procurement. But as AI tools reduce the need for large teams, this model becomes less sustainable. Smaller teams mean lower billable hours, and that leads directly to shrinking margins.
Forrester analyst Jay Pattisall says the failure to update how agencies get paid is an existential risk. “The inability to monetize AI as headcounts shrink is a death sentence to their current economic model,” he told The Drum.
His estimate that 7.5% of U.S. advertising jobs will be automated by 2030 now looks conservative. Based on recent trends, that figure could double, with significant impacts as early as 2026.
Clients Are Open to Change, but the System Isn’t
Both agency and client leaders acknowledge the need for reform. A recent IPA report found that only 27% of agencies believe they’re paid fairly, while 58% say commercial agreements haven’t evolved. Meanwhile, CMOs are increasingly open to outcome-based or performance-based models, especially when they can see clear business value.
So what’s holding change back? The pitch process and procurement systems are a major hurdle. New pricing approaches often get rejected early on because they’re harder to compare. Even when accepted, finance teams may reject performance-based deals due to accounting complexities.
Grey London CEO Conrad Persons noted the disconnect: “We can do amazing things creatively and strategically, but the conversation about monetization hasn’t caught up.”
Rethinking Agency Compensation
To solve the issue, Forrester suggests a hybrid pricing model. One example is the “Human Technology Equivalent” structure, which combines a flat-rate service fee with a technology fee that covers AI and software. This makes it easier for procurement teams to understand the cost while recognizing the value of new tools.
Some agencies are exploring outcome-based compensation. These models reward agencies for meeting defined metrics tied to business goals. They work best for integrated accounts where the agency controls both creative and media. WPP, for example, is pushing for bundled service offerings that combine production, media, and creative into a single scope. This makes it easier to tie payment to performance.
“I think we’re moving away from time-and-materials and FTE models,” said WPP CTO Stephan Pretorius. “Clients are more willing to adopt outcome-based models when we handle multiple services.”
Competing on Speed and Efficiency
The pressure to adapt is growing. New entrants like BrandTech Group are already using AI to produce high-quality creative quickly and at a lower cost. CEO David Jones claims his team can now create TV commercials in under a week for a tenth of the price. “If you’re a traditional business that relied on selling humans, you’re going to have a very challenged future,” he said.
His message is clear: if agencies don’t change how they price and deliver services, someone else will do it for them—and cheaper.
What Comes Next
The industry is unlikely to fully abandon FTE pricing. But hybrid models and flexible scopes are gaining ground. As AI continues to reshape agency work, payment structures need to reflect that shift. Otherwise, agencies risk being left behind; not for a lack of creativity, but for failing to evolve their business fundamentals.
