This post is by Michael Farmer, Chairman of TrinityP3 USA and author of Madison Avenue Manslaughter: an inside view of fee-cutting clients, profit-hungry owners and declining ad agencies, which won the Axiom Gold Business Book Award for the best marketing / advertising book of 2016.
Clients and Agencies: Don’t go there! Putting a relationship in review at the end of a contract is bad business for both parties. It is not “good governance.” It does not improve quality. It only reduces fees and generates false expectations. There’s a better way to be commercially responsible.
Agencies need to initiate a “productivity and value”assessment of a current relationship before the end of a contract and recommend whatever changes are necessary. This assessment should include reviewing various aspects of the relationship in terms of the certainties and uncertainties that surround each. The fact is, even after many years, ongoing relationships are a mix of certainties and uncertainties.
In the certainty category, there is a wealth of financial information: hourly rates, direct salary costs, overhead costs, profit margins, billable hours per year, costs per FTE, number of FTEs, direct cost multipliers, “effective” media commissions (i.e., fees divided by media spend), out-of-pocket spends, and production spends.
As impressive as this quantity of information is, it tells us very little about what is important for client-agency relationships. Describing a relationship with this kind of information is like describing an automobile by noting that it has a body, engine, transmission, wheels, brakes, steering wheel, windshield, lights, seats, and doors.
Sadly, many of the uncertainties — important as they are — receive little attention from either clients or agencies. Here are some all-too-common examples:
- What is the purpose of the relationship? Is it to drive improved performance or ensure that the relationship operates on a master-servant basis at the lowest cost? Does the client have a clear concept of what the relationship is supposed to accomplish? Is the relationship completely aligned with what the chief marketing officer is supposed to accomplish on behalf of the chief executive officer?
- If improved performance is an objective, how aligned is the scope of work and the decisions that come out of it? Is the media spend appropriate for the performance objective? Is the media mix by channel? What about the creative deliverables? The number of deliverables? The share of originations versus adaptations in the deliverables mix?
- For the scope of work, is there recognition of the need for the right mix of senior and junior FTEs on the agency team? What should be the appropriate mix? How much output is required for each agency FTE? What is an appropriate productivity level? Is the current productivity level appropriate?
- How much complexity is in the relationship due to the various requirements and processes, such as planning, budgeting, briefing, obtaining approvals, reworking, buying, analyzing, and reporting? Is the relationship characterised by decisiveness or indecisiveness? How many iterations does it take between agency and client people to advance each process step? One iteration? Two to five? Six to 10? More than 10? What explains the number of iterations in each process? Can it be simplified and improved?
- How does organisational structure affect operational efficiency? Is the client organisation heavily siloed or matrixed? How many touchpoints are involved for each of the channels? If there are in-house agency operations, do they add an additional layer of complexity and increased interactions, or do they contribute to efficiency in some way?
These questions and others like them remain below the surface and are skipped over when a review is called. They are certainly important. When relationships underperform, which is the usual case, it is more likely due to inattention to these matters, rather than issues relating to agency costs.
As Ed Koch, the former mayor of New York, used to ask obsessively: “How’m I doin’?”
Clients and agencies need to ask the same kind of questions. Every aspect that matters in the relationship should be open for evaluation, particularly at the end of a contract period. Fixing what doesn’t work makes much more sense than going out to find a new partner, gathering reams of new financial information, and leaving unasked the very questions that determine whether or not the relationship will succeed or fail.
Of course, if an agency is not delivering improved performance, and the reasons are due to lack of focus or capability, then an agency review and pitch will most certainly be required.
To facilitate the “value and productivity” review, we recommend the use of an objective third party who can gather the detailed information and present it fairly for the consideration of the agency-client partners.
We do not recommend the popular suppliers who provide superficial “promoter” or “relationship” scores. These suppliers, with their superficial scoring system and absence of data, miss the mark in too many ways. Our analysis shows that even when agencies have high “promoter” or “relationship” scores, they only have a one in five chance of retaining the business. That’s because scoring systems measure affect, rather than relevant data, and, in any case, procurement has a bias towards rebidding relationships at the end of contract periods.
Pure logic suggests a different path. Agencies need to preempt rebidding by initiating value and productivity reviews, engaging appropriate third parties, and then selling-in the concept to their clients.
Clients and agencies can then “ditch the pitch” and instead ask, in a sophisticated way, “How are we doin’?”
Photo credit: Robert Weber, The New Yorker, The Cartoon Bank. With permission
First published in Media Village November 9, 2019
TrinityP3’s Scope of Work Management service evaluates your current agency scope of work and recommends the best approach, calibrated to your needs. Read more here