Pull Back the Cost Curtain on Advertising

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It’s 2019 and it still feels like I am living in the past when managing advertising agencies (so it’s time to pull back the curtain!). They are reluctant to provide a consistent level of transparency and business partners are still hesitant to push back on them to provide it. You would think this wouldn’t even be up for discussion given all the information we’ve been given, specifically: 2006 ANA/4-A’s Compensation Guide, 2016 K-2 Media Transparency Report and agency management tools available. And it is driving me bloody bonkers!

 

From the looks of it – I’m not alone! See the two-year update on this report from ANA – click here for the article link.*If you haven’t already read the guide or report sponsored by the ANA – click here, scroll to the bottom of this article to download a copy of each for review.

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Advertising. I get it. I really do. After almost a decade of working with Sales and Marketing not much has changed. Advertisers become reliant on agencies and they then become scared to have the rate conversation. I remember showing a brand director their AOR had a profit margin at around 35%. The reply was a simple shrug since they were considered a trusted business partner. WTF. If an agency is gouging you at 35% profit when the standard is around ~15% – are they really a trusted and strategic partner?

 

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Let’s quickly review what information was provided in the 2006 Guide and 2016 Report – the basis for this article. (I’ll save the agency management tool discussion for a subsequent article.)

2006 – ANA and 4 A’s Compensation Guide: In a joint position paper, the associations issued guidelines for Advertiser and Agency contracts. They agreed upon the transparency and cost components of labor based (rate) and cost-plus models. This included a detailed worksheet that provides calculation and breakout of all expenses related to an SOW or contract.

2016 K2 Transparency Report: Holding companies and independent agencies both conduct non-transparent business practices in regards to media. Rebates were not disclosed or passed through to advertisers. Holding companies have even acted as a media supplier by purchasing media on their own behalf and then reselling it at a markup (ranging from 30-90%) all without the client’s knowledge.

 


Now, if you know that I’ve had this information for a few years to work with, you’d probably guess my job has been a cake walk. Too bad it’s closer to walking over hot coals! So how do we pull back the cost curtain with agencies? Well, here’s my insight since you asked.

First, start with the internal marketing team. We have to load our “sourcing tool belts” with benchmark data, ANA guides and reports, case studies and external examples to drive a level of comfort. We also have to ensure we have the right business terms, KPIs and contracting language prepared to support it.

Next, we need to acknowledge or validate that brands depend on agencies for strategy, asset and project management, compliance submissions and a lot of the heavy lifting. As sourcing specialists, we must explain how these negotiations will not change the quality, level of support or working relationship with the agency moving forward. Basically, you need complete alignment with the brand on what’s acceptable project detail, if you want to pull back that curtain.

 

(Especially if they are a small team, which means creating these things in-house isn’t an option. Too many tactics, channels and too little time.)

 

 

Marketers and Agencies both need strategic partners. Step it up and BE that partner.

Last, we need to act like partners with the agency. We also need to be transparent with them about our motivations and concerns. Additionally, try to provide them with additional support when needed i.e. hold QBRs with Executive involvement, offer insight on other brands and hold 360 reviews to alleviate internal problems. Be their ambassador too. This way when you have the conversation, it’s one of the efficiencies and strategic project planning and it’s easier to have.

Even if you accomplish this, you might not get both the agency and brand-aligned. But keep trying and be consistent in your messaging. They aren’t easy relationships to manage, and it won’t happen overnight – but it is possible. Keep a positive mind and you’ll be able to bring your marketing team into 2019!

Pulling back the cost curtain on advertising agencies

 


 

 

 

 

ANA Advertising Financial Mgmt. Blog Review

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