Co-Founder/CEO of Vujà Dé Digital, on a mission for conscious capitalism and reinventing the media agency model.
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How do you ensure you’re a priority client with your advertising or media agency? Driving lower fees may seem like a win or a smart move, but the reality is you’ll most likely move yourself down in priority. Will they tell you that? Most assuredly not.
When a client thinks they’ve gotten a killer deal on agency fees, they’ve also likely negotiated themselves out of a top-tier position with their agency. You don’t want to be the client that’s paying the least for advertising and media buying support. I’ll break down the reasons why below.
In general, when we look at what’s happening with business across industries and the economy, prices are up. Why would we think that advertising and media would be any different? The reality is that advertising talent salaries are up 25%-30% or more, like in other industries. The same is true with media costs. Driving your fees down with your agency partner in an already challenging business period may not be a smart move.
The following are some common risks that come along with driving fees down to the point your agency has little margin to work with.
Talent
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By cutting a deal with a one-way win, you’re squeezing margins, making it challenging for your agency, one of your most important partners. We already know that the cost of talent has risen as the costs for just about everything have gone up. You want to work with agencies that can hire and retain top talent. Top talent is not cheap.
Creativity
Lower margins mean that agencies are incentivized to do only what is needed to complete the work they’ve been hired to do. The incentive to try new things and bring new ideas to the table goes out the window. Doing the basics to keep things status quo is all the fee structure affords.
Service Levels
Low fees get you base-level service. Meetings may be kept to a minimum and agencies are incentivized to automate reporting to minimize client engagement. Another common tendency is to assign more junior-level talent to lower-paying clients. The margins to cover the agency costs for managing a low-margin account drive the servicing decisions around talent. This also dictates how much time can be allocated to any piece of business.
Analytics
Low fees don’t allow or support deep dives into analytics and campaign performance. In fact, it encourages the opposite thinking. Thorough deep-dive analytics means you might find something you don’t want to know. It almost encourages the mentality of “see nothing and say nothing.” A client is much better off paying a reasonable fee to encourage the agency to look deeper to find opportunities for campaign improvements. When the media or agency fee is paid regardless, less incentive exists for thorough analytics.
Quarterly Business Reviews (QBRs)
The goal of QBRs is to look at what worked and what didn’t work as well as explore new ideas for campaign expansion or opportunities for innovation. When agency margins are tight, QBRs become a review with the agency painting the best picture possible. The position is if it’s not broken, don’t fix it. One way you know whether you’re reviewing performance in an authentic QBR is when an agency points out positive wins, things that didn’t work and areas for improvement. It will also commonly include new beta testing opportunities and the latest tech opportunities to explore.
Best Practices
Low margins mean that resources to allocate to the account are finite, and commonly the bare basics are done to get the account up and running with base-level performance. When the agency can staff the account appropriately with a reasonable number of hours and necessary resources, marketing campaigns are successfully executed and managed with improved account performance over time. With adequate agency compensation, best practices and cutting-edge strategies become possible due to the ability to allocate the necessary resources to the account. Clients with the lowest fees are commonly on autopilot mode until a potential threat to move the business or put the account up for review becomes known.
Agencies with performance compensation models don’t typically win in the lowest agency fee pitches. They know that clients will ultimately get the performance they’re willing to pay for and the client will commonly be looking for another agency within a year or less if they’re selecting primarily on price.
When an agency gets paid whether numbers are hit or not, and business objectives are not tied to agency compensation, the likelihood of achieving the highest potential performance for a client is marginalized. With a performance compensation model, an agency is incented to do whatever it takes to hit the client’s objectives because they get paid when the client’s numbers are hit, with upside potential for exceeding the objectives.
The adage “you get what you pay for” holds true in the agency world just as in other areas of life and business. All teams are not equal. What you pay does matter in terms of the level of service and the quality of the team. With an equitable agency-client financial exchange, you’re exponentially more likely to get the priority attention and the agency’s best talent, which almost universally translates to better results.
The belief that time and talent are equally available regardless of the agency, client or remuneration is a misnomer. Every agency possesses a spectrum of talent and scale and strives to balance both to the benefit of both the agency and its clients. However, being the lowest fee and lowest profitability for an agency naturally puts you in a disadvantaged position when difficult decisions around time or talent need to be made.
For a new way of approaching media buying where your agency becomes an extension of your team, consider a performance-based agency compensation model. Your best bet is to choose a partner who’s willing to put skin in the game along with you.
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Author: Todd Juneau, Forbes Councils Member
