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Sweathead: How money works in agencies

Sweathead_Podcast_Mark_Pollard

This post is by Darren Woolley, Founder and Global CEO of TrinityP3With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on optimising marketing productivity and performance across marketing agency and supplier rosters.

Mark Pollard is the Strategy CEO at Mighty Jungle, New York City. He is also an author, keynote speaker, podcaster, agent provocateur and more.  At Mighty Jungle, Mark helps leaders, marketers, and agencies get out of their heads and into the wild using a combination of training, strategy, and writing, And he’s done this with The Economist, Decoded, Mozilla, Poo-Pourri, Dreampad, McCann, Havas, Vaynermedia, TBWA/ Media Arts Lab, and more.

He connected with me as I sat in an airport lounge waiting to travel to Melbourne at the start of a global pandemic. It was a conversation for his fabulous podcast – Sweathead. While we talked on many things, it was mainly about pitching and how the money works in advertising agencies. A topic that does not get the airtime it deserves.

Mark described the episode in his podcast notes “Darren Woolley is Co-founder and CEO of Trinity P3. He spent 15 years as a copywriter including working as a Creative Director at JWT. Then he decided to help marketers make smarter decisions with their marketing. A big part of his work focuses on helping marketers hire agencies and fix relationships with their existing agencies. In this chat, we ask whether procurement or pitch consultants have hurt the industry the most, how agencies make money from employee salaries, as well as different ways agencies can charge for their work”.

Enjoy!

Transcription:

Mark Pollard:

What’s up, welcome to Sweathead with Mark Pollard. I have Darren Woolley here today. He’s founder and CEO of TrinityP3, a management and marketing consultancy in Australia, but with ties and work around the place, around everywhere. And he’s currently sitting appropriately in a business lounge about to fly. So people are going to hear some of that noise, but that’s just going to make everything feel real to them. Darren, how are you?

Darren Woolley:

Very well Mark. And yes, look, it’s just part of business life. I’m sure you spend a lot of time in business lounges.

Mark Pollard:

I wish. I spend a lot of time on planes. I’ve started to treat myself a bit more lately. But I don’t mind a little bit of a business lounge. I find that the comfort plus and premium are really what airplanes used to be a long time ago. So I at least try to treat myself to that experience.

Darren, what does a management and marketing consultancy like TrinityP3 do?

Darren Woolley:

Well, we see ourselves as independent advisors that sit between or with the agency and the advertiser. And we try and help stimulate or facilitate the interactions. Because often, we find that there are obstacles that arise in agency-client relationships that actually stop people achieving their objectives.

So that’s the short answer. The long answer is a whole range of things that we actually do.

Mark Pollard:

I guess for a lot of people with fewer years in the industry, as in appears you not running an agency, for example — we would have largely experienced someone like you as what we would have called back then a pitch consultant. And pitch consultants didn’t always have the best reputations.

And my savage second question to Darren, is who ruined the industry most? Procurement or pitch consultants?

Darren Woolley:

Look, I think they’ve both had a hand in it, but I think procurement in the last 10 years has actually driven a lot of the value out of the industry, by driving down the price.

I think procurement has taken a very commoditised view of marketing and advertising. And so, the belief was to measure the price rather than measure the value. And I think measuring value is something that the industry struggled with for years.

Mark Pollard:

I’ve always had a problem with agencies having to open their books and reveal their entire business model; how they charge, how much they charge, even down to a particular employee level. Like what that person’s or a group of peoples’ salaries are. Is that a common practice still?

Darren Woolley:

It is a common practice and I completely agree with you. I think that having to reveal every aspect of your business, as you say, how you charge or the business model — is just a ridiculous approach.

I mean, if I go and buy a product, I don’t ask the dealer at say the car dealership, how much it costs to make the car and how much the employees made. But then I’m measuring the value against what I’m actually purchasing.

And I think that’s why procurement especially, has taken this approach because they have trouble actually understanding the value of what an advertising agency or a strategist or a media buyer does.

So what they want to do is work out what the cost is, because they think cost is actually a measure of value.

Mark Pollard:

Right. So if I think about what you do, you’re largely involved in helping a client acquire agency services. Part of your work I believe is mediation. So sometimes an existing agency and a client or a group of agencies — there might just be a relationship that’s not working and you could come in there and help as well.

Sometimes it’s auditing an existing agency ecosystem and potentially, helping a marketing client or people in procurement or finance work out how to optimise what they have. Are there any other key chunks of what you do?

Darren Woolley:

We’ve been helping marketers work through their own structures and processes they have internally. Because marketers are really struggling these days with largely being given the authority to do the comms, the communications, but then given the responsibility of managing the whole customer experience as they say. So that means marketers are now trying to work out how do they work internally to actually influence the whole customer experience.

We also do work around not just helping marketers but also helping agencies; how do they become more distinctive or present their story in a more compelling way? Because from our perspective as you call a pitch consultant, we actually want all the agencies to put their best foot forward. We think every agency should be a winner. They can’t be, but at least in the way they present themselves, they should be a winner.

The thing we don’t do is we actually don’t do auditing. We leave that to the auditors to do. But we will do things like give an evaluation or benchmark. And what we mean by benchmark is not average. We have high, medium and low benchmarks so that marketers can actually get an insight into a perceived quality in the marketplace as to the level that’s charged. Because I believe premium pricing should reflect a premium product or a premium service.

Mark Pollard:

Have you ever been on the receiving end of a chemistry meeting, especially in your 20 years? Where a CEO who might or might not have good social skills and leadership skills certainly holds everyone together and says, “We’ve got a client coming next week and we’ve got to prepare all these things.”

And obviously, one of the main things is that third slide with the map of the world and all the offices of the agencies around the world that will never, ever work with the client. And then update the logo slide, including some clients that they no longer work with. And have you ever been on the receiving end of that?

Darren Woolley:

All the time. Look, I think the hardest thing for agencies is to actually present their own story.

I was a copywriter for 15 years, Mark. And the hardest job in any agency is writing the agency credentials, doing the Christmas card and doing the Christmas party invitation because everyone has an opinion in an agency, and they’re all different.

Everyone wants to be something to someone and they all want to be everything to everyone. And so, communications and being able to actually understand your own story

So what we see constantly in credentials or chemistry meetings, is agencies desperately wanting to be liked by everyone. And so they end up becoming virtually meaningless because every presentation looks the same.

Mark Pollard:

My hunch is that for the majority of agencies, especially agencies that have been established for a long time — it’s because executives are promoted not always because they have a point of view, but because they fit within the bureaucracy and the systems. And so to run an established company, you typically do need a more conservative brain, and they’re not out there trying to change the world necessarily and they’re scared of losing a sale. Is that a fair point?

Darren Woolley:

Look, that’s true in some cases. I think the other thing that is wrong with the way that people get promoted is they get promoted based not on their skills to manage and lead, but on their ability to do the job.

So you’ll find some organisations, some agencies will have a creative person as the lead (that’s unusual). Some will have a strategist that’s at the lead. That’s also relatively rare.

Most of them come from account management. And the skillset in account management is about building relationships, getting jobs done, project managing, being a people person. And while you think that that would be a great skill to lead an agency, what’s often missing is the vision and the leadership to actually drive that agency forward, and build a quite rigorous position in the marketplace.

Mark Pollard:

Are there any interesting trends that have stood out for you in very recent years as far as marketers and how they’re assembling agencies? So it could be the types of agencies, the types of relationships that they want or don’t want with agencies, the types of projects they want or don’t want with agencies. What are you seeing there?

Darren Woolley:

Well, there’s actually a couple of trends happening, but they almost cancel each other out. We hear a lot of large marketers trying to move to the one-stop-shop. And we’ve seen this with publicists, one, and the old days with WPPs, horizontality — which they’re now calling I think the campus or something.

So this idea that marketers just want one throat to choke is one trend. On the other side, we’re also seeing marketers go the other way. And because they’re bringing some services in house, when they look outside, they start cherry-picking best-of-breed. They start finding those people that are particularly strong in a particular specialist area. And they’re trying to bring them together and integrate them into a collaborative ecosystem.

And then on top of that, the other trend is that because of influencers, marketers are often starting to play with looking outside the traditional roster or supply chain of agencies to specialists or influencers or — and that could be music, film, fashion, all sorts of things depending on the category.

What I find with all of those things, is that they are great as an idea or a strategy, but the implementation is usually what brings into path and makes someone change direction some way down the track.

Mark Pollard:

Well, the great idea is because they usually come out of the accountant finance mindset. I mean they definitely don’t come out of the mindset of someone who understands psychology or culture because the challenge with a lot of the one-stop-shops people I know who’ve been in them, is first of all, most people that do creative work, they seek variety and novelty.

And one-stop-shop, it’s harder for them to do it unless they have a lot of projects that they’re making and those projects are a high quality and they’re not under the thumb of the client, so they’re actually able to push and do provocative work. So one-stop-shops usually ignore that piece of psychology.

And then there’s a cultural issue. I mean, you’re basically an in-house team that has a separate office and it’s more conservative. And the ones that I’ve known set up in recent years, I hear stories of really high churn with employees. There are definitely some one-stop-shops I’ve heard of who’ve done well and survived for a very long time. But I hear a lot of stories of churn in these places. Have you been hearing these things as well?

Darren Woolley:

Yeah, look, absolutely. And you’re right, part of it is those creative people — and when I say creative, I mean strategy people and the sorts of people that are attracted to the advertising industry need a constant challenge. They need something new and different to get their teeth into regularly.

And so this idea of bundling everyone into a one-client-agency and thinking that that’s going to work, doesn’t actually fulfil the needs. It’s the same as in-housing. When people try and bring creative and strategy, comms strategy in-house, the people get really frustrated and they’ll walk out because they’re not getting the range of challenges. They’re also often directly exposed to the conservatism that exists inside many of the organisations that are building these in-house agencies. So look, it’s a real issue.

But I also think the industry has to bring about the change. And one of the models that I’m really excited about is this idea of agencies actually becoming agents of creativity and strategy, and to start representing the talent and really just bundling it on a project by project basis for clients to make it more accessible.

Mark Pollard:

Yeah look, that model’s been touted for a very long time. I guess Sydney was Hosts. Did they push that model to a degree when they first started, hence the word “host?”

Darren Woolley:

Yes, they did. And it ultimately wasn’t sustainable because it was an advertising agency still. All they were doing was bringing creativity. I’m talking about, you know — I’m sure you saw Entourage when it was new and fresh. Imagine having an Ari Gold representing a whole lot of creative people and strategy people, and being able to bundle these people together on a project basis to solve specific problems that major corporations have.

Mark Pollard:

There’s two things with that. I see these presentations. Every so often, someone will set up a collective and everyone’s Bohemian and they’re from all these different kinds of backgrounds. And I’m like, “Oh, you know how much that’s actually going to cost to get those 10 people into a room?” Like the economics of that at a high level, which is not what you’re saying it’s the only way to do it — but at a high level, like really impractical.

And then to me, that’s not about an agency becoming an agent because an agency is an agency. What you’re talking about is entirely different because that company is more about like logistics and operations and sales. And so creative people won’t by default work in that kind of setup. So it’s a very different setup and would mean a reduction in agencies.

Darren Woolley:

Well, except that I find agencies are largely becoming more a factory that manufactures advertising or communications than it is actually driving ideas and solutions. Because the vast majority of their revenue comes from the implementation. The vast majority of agency revenue is about the cost of production and the cost of managing the account through account management, production, creative supervision.

We did some analysis and it’s more than 10 years ago.

When you look at the total expenditure on marketing communications, the amount of money that goes into developing an idea (and I’m talking about the strategy and creative) is less than 1%. So 99% of a client’s budget on advertising is actually going into all the other things that lead to that 1% investment in an idea.

And yet, the idea is the thing that we all know sits at the very centre of all our production.

Mark Pollard:

So it’s funny because I did see a talk and I believe it’s public, so it’s okay to quote this from John Windsor, who you’d be familiar with because he set up one of these collectives that was bought out and I don’t think it operates anymore.

I think he was looking into the numbers of a particular holding group. And something like 70% — I might be misquoting it, not by much — but about 70% of the money in this company went into non-strategy and creative roles. So into managing the process but also increasingly into administration and bureaucracy. And so you pair your number of the 1% to the 30% of the money going to people actually doing the work.

What have we done and how do we get out of it?

Darren Woolley:

And that is the $64 billion question, Mark. Look, I think what we’ve done is it was always easier to charge for the tangible thing of production because at the end of it, there’s an output. How hard is it to charge for an idea?

I say to procurement people all the time, “Why are you paying your agency by the hour to come up with an idea?” First of all, who knows how long it takes. I know 15 years of coming up with ideas in agencies, sometimes an idea might come to you in an instant, but usually because it’s a fantastic brief. But then how much more time do I need to spend to make sure it’s the best idea I can possibly come up with.

So this concept of paying for ideas by the hour is just ridiculous. But that’s the way that the agency moved. In some ways, the old media commission was flawed in many ways, but it took the money discussion off the table and allowed agencies to get paid, largely for encouraging their client to spend more money on media.

Mark Pollard:

Have you seen any good alternative models in recent years? Because this has obviously been a public discussion for well over a decade. And by public, I mean internet and probably non-internet public discussion for well, since the unbundling of agency services.

But have you seen anything recently that has excited you and seems legitimate and not just, “Yeah, that’s kind of a cool thing to say in a presentation?”

Darren Woolley:

Yeah, look, we’re big supporters of output-based models and outcome-based models. So at the moment, most agencies are getting paid for what we call the inputs; what’s the cost of us servicing this business, which is the input?

But then, what does the agency actually produce? And when I talk about produce, I don’t mean just tangible things like advertising, but even strategies and ideas, you know, what’s the tangible value for that? How can we value that and make that the output model?

And so be less concerned about how many people worked on it for how many hours and start putting a value on it. Because if a brand is worth a huge market capital and an idea can drive the growth of that brand, doesn’t that intrinsically have more value than say, working on a brand that’s in decline or a brand that’s just maintaining the current market share.

So we really like, and it excites me to talk about these things, because what it does is it actually makes advertising strategies and ideas become more part of business. Because you’re linking the value of it to the actual changes that occur in the business.

Mark Pollard:

Right. So is there a way that we could make this a little bit more specific? Because I feel that these things are easy to discuss in an intellectual way until we put some example numbers to it. It’s like, “Well, I don’t know …”

Let’s say a CMO has a budget in some part of the world of about $10 million (we’ll call it US) — $10 million for a year. That means I’ve probably got a pretty sizeable team. And they’ve got, let’s call it four to five agencies. Maybe they’re in a holding company, maybe they’ve coupled some people together.

How do they work out what part of that $10 million goes to which agencies to do what? And then how do they reward the agencies financially if at all when they do well or punish them if they don’t do well? How can it work if we’re taking $10 million as a relatively easy number to play with?

Darren Woolley:

So I’ll give you an example for a client we have that is a house of brands, they have a number of brands. They’re sitting there and they’re going, “Well we want to work out a way of paying our agency that is not based on just retaining a bunch of people.”

And we took them through the idea of a value-based output model. What that meant was that we worked out traditionally what they paid and whether that was a fair value for paying the agency (in some cases, it wasn’t) and we set that as a base. And then we had incremental increased pricing for whether something was standard value, high or high strategic value.

So, then as we went from market to market, we got the marketers to sit down and create a matrix, as to whether a brand was high financial value or high strategic value. And that they were going to pay their agency more for that type of work because they were working on a brand that had more strategic and financial value to the company as opposed to brands that had lower financial or strategic value to the company.

Now, what it basically meant is we were still separating the $10 million that you talked about based on the work that was produced. Except that the agency’s working on the more valuable brands got paid more money for doing the same work. Whereas the ones working on the lower value financial or strategic value brands, were getting paid less for doing the same work.

So it was more about the value that the brands represented to the company, than it was just exclusively about the number of hours.

Mark Pollard:

Right. So that sounds a little bit like the Boston matrix applied to the house of brands and through that, applied to the agencies.

Darren Woolley:

Yes. Now the agencies really struggled with that because you know, what we’re saying to them is on brand A, which we think is incredibly valuable to the company in this market — we’re going to pay you let’s say, 250,000 to do that piece of work. And on brand C, which has low value of the company, we might be paying you 120,000 for the same work.

And they’re going, “But it takes us the same amount of time and so the same costs.” And I said, “But we’re not paying you for your costs. We’re paying you for the value of the work. You need to then manage the process and manage your resources to actually deliver the outcomes.”

Another example is the difference between doing a piece of brand work and a piece of tactical work — don’t have the same value. And yet if you base it on the number of hours it takes, you end up paying the same amount of money.

Mark Pollard:

And I know you’re just making up numbers in the context of my made up number, but like 120 grand for example, let’s pretend that is for a year — what are the ratios that you’re-

Darren Woolley:

No, no — for one piece of work. Sorry Mark, I didn’t mean to cut you off.

Mark Pollard:

Only one piece of work.

Darren Woolley:

Yeah. So it would add up. The more work they’re producing, all I’m using is … okay, let’s use a boring example. The cost of a TV ad, the agency’s cost, not the external costs, would be 250,000 or 120,000. You work out how you’re going to resource that, but that’s what the value is to us for you to do that piece of work.

Now, if I also want an outdoor campaign, radio, 57,000 Facebook updates and digital display ads to feed my programmatic trading desk, then that multiplies out. But there’s a fundamental pricing difference between the high value, low value and medium value.

Mark Pollard:

Right, but how do you define one piece of work? And can you do that without a media plan? And if you’re doing all of this with a media plan before the idea, then how good is the media plan going to be? How do you work through all of that complexity?

Darren Woolley:

Okay, so the first thing is we have a fee for developing the strategy and the big idea, because there should be at least an idea that then goes into execution. Too often people are running straight to execution before they actually have a strategy and an idea. The idea that the media plan’s sitting there and tells you, “Right, here’s the brief and we need you to produce X, Y, and Z.” — Why don’t we come up with the idea, the comm strategy and the idea, and then the media plan and the budget can inform how we need to then execute that into the marketplace?

I think that marketers also have fallen into a trap that as we’ve got more and more channels than you can possibly execute across, they want to do everything. But the thing that should be limiting it is the budget.

The trouble is that agencies under retainers are willing to do everything that the client wants, even though their budget may not actually justify it.

Mark Pollard:

Well, what’s the range in ratios that you’re seeing as far as agency employee salary to hopeful revenue per employee if they were utilised 100%? You can talk about range or ratio.

Darren Woolley:

Look, there was a time when 2.5 multiples on direct salary costs were an industry standard.

Mark Pollard:

That’s the number I was going to say.

Darren Woolley:

Yeah, 2.5. And what’s that mean? 100% overhead and 20% profit margin to get you a 2.5 multiple. But we’ve seen them as low as 1.4, and I’ve seen it as high as 4.

And people say to me, “Oh, what’s the benchmark?” And I go, “Well, that would really depend on a whole range of things.” One could be the size of the client’s budget. Another one could be the particular market that you’re working in. The other thing could be the agency itself, and how they manage their own overhead costs. So this idea that there’s an industry standard.

I think the use of benchmarks, people make benchmarks mean that’s what it should be rather than, that’s a reference point that allows me to make a decision as to whether I’m willing to pay more or less.

Mark Pollard:

It’s like the idea of best practice. I mean, you can aggregate a whole bunch of stuff into 10 principles, but it doesn’t mean you have to apply all of them in the exact same way because you’ll probably end up with the average of all of them anyway. That’s not science by the way, I just made that up.

And I just want to help people. Like a lot of people in agencies don’t understand how their own business models work, and it’s sometimes kept away from employees because it can help them negotiate a little bit more.

So 2.5 ratio is a ratio I’ve heard a lot of, and that is, as you said, it’s up and down. Do you have a sense of average overhead per employee? So that when an employee gets hired, if there’s an office, just to turn up to the office — what sort of percentage of salary … is that the right question? What percentage of salary is allocated to overhead?

Darren Woolley:

Okay, so when you get employed, you get a salary, but that’s not the total cost of the company of employing you. The first thing is all the other things that are directly related to your salary. So that’s the direct salary cost, will be pension or a health fund or whatever that is — part of your salary package.

Then on top of that, the agency has a whole lot of overheads. And overhead are things like the real estate, the office that you’re sitting in, the desks and furniture, the telephone system, the internet, all the IT infrastructure and all those things. And that’ll usually be about between 60 and 65% of your salary.

Then on top of that, there’ll be what there’s called indirect salary cost. That’s all the people in agencies that are not directly billed to the client. So then they’re not recovering those peoples’ salaries.

Now that could be finance and accounts. It could be the receptionist, it could be an EAs. In some agencies, it’s even the managing director or the CEO, because those people are often not billed directly to clients. So that makes a significant part of the overhead. And that can take it up to 100%.

So if you’re getting $100,000 or the cost of employing you directly is $100,000, then the agency could be looking at having to recover another $100,000 just to cover the overhead. And then on top of that will be a profit margin. Most agencies will target 15 or 20% and that’s applied to both the direct salary costs and the overhead, which is why we get a 2.5 multiple because the overhead makes it 2, and then the profit margin makes it the 0.5.

Mark Pollard:

Two questions; one is, so with the holding companies, especially in Australia, for example, with headquarters in Paris or New York or Chicago, some of those offices have to keep back something like 10 or 20% of their total revenue to their headquarters. Is that correct or is that net profit that they would kick back?

Darren Woolley:

Yeah, that’s part of the network infrastructure support. So yes, it’s between 10 and 20%. Typically, it’s around 10 to 15%. But some of the bigger holding companies have that sort of leverage on the local office to pay that amount on revenue.

The other thing that you’ll find is sometimes within particular global clients, and this is why it’s quite amusing that global clients think that they’re getting a better deal by having one agency globally, is there’ll be a whole layer of management that gets paid. And then on top of that, is the 15% leveraged to actually maintain that infrastructure anyway.

So in some ways, having a global agency can end up more expensive, but it seems cheaper because they’ve done a package deal and got some sort of discount overall.

Mark Pollard:

Yeah, and then there’s one thing that I’ve always found unfair having grown up in the “digital world” is that holding groups especially will allow lower margins from their creative agencies and PR agencies and also potentially lower growth with some of them. Not all of them, but some of them. And they’d always target like 30 to 40% margin from the digital crew.

And some offices would be a bit tricky and circulate that additional margin to make it look like it came from the entire agency, not just one department as a way to avoid having to change. Is this still happening, Darren?

Darren Woolley:

Well it is, and it’s happening even more so these days with media. Because there’s still in the media side of the holding company, you’ve got programmatic trading desks that are potentially generating huge profits or huge margins that are then getting amortised across the whole organisation, so that it’s not as clear that where the profits are coming from, just for the shareholders that the profits are coming.

Mark Pollard:

Are there many other industries that are happy operating at 15 to 20% margin and an often it’s lower. I mean, that’s not like a healthy business aspiration, is it?

Darren Woolley:

Well, I always, when I have this conversation again with procurement — I had a procurement person saying, “Well, we only make 8%, so we only want our agencies to make 8%.”

Now I put it out to them, “That’s 8% on $16 billion. You’re talking about them making 8% on about 5 to $10 million. And if I had 5 to $10 million and I could put it in a bank account or an investment that earned me 8%, then why would I be bothering going through the hassle of servicing you as a client?”

You’ve got to look at the return on investment. And I think the other thing about that 8% is it’s EBITDA. So it’s before they’ve paid their taxes and all the other things to come down to what the final profit would be.

Mark Pollard:

Yeah. And I mean, let’s admit it, a lot of large companies are very good at not paying tax.

I’ve got some questions from Twitter that I’m going to hit you with. They might be too aggressive. I like this one. This is from John Tipple, thank you: “What percentage of clients already know who they will appoint before they even issue the pitch brief? Multiple choice answer — 70%, 80%, or 90%?”

Darren Woolley:

Or none of the above. Look, I have to say it’s very rare for us to have a client say, “Look, I want to appoint this person.” We always ask them which agencies are they aware of and we’ll include those agencies in the mix of consideration.

But I haven’t had many clients if any, that I can immediately think of, that ended up appointing the ones that they named the first briefing session that we had with them. So I don’t think it happens as often as people think it does. I think that’s more a myth.

Mark Pollard:

Yeah, and it can feel like you’re on the receiving end of a negotiation between two parties that were always going to do business with each other. But it also depends on the behavior of the people in the room and what gossips out on the internet or just out in the industry. I have another question from-

Darren Woolley:

Sorry, before we move on, I have a real issue though with what’s happening (and this is procurement-driven) — where they take the incumbent to market to a competitive tender purely as a strategy to get the incumbent to reduce their fee. And so everyone else is just pitching to create the competitive tension, so the incumbent reduces their fee and keeps the business. I think that’s a really toxic train that happens.

Mark Pollard:

Is that what you heard happened with Audi and BBH in the UK recently? For those who don’t know, Audi had worked at BBH, I think for 30 years. BBH had done amazing work. And some of the recent work was some of the most effective and most award winning. And then Audi called a pitch and it was really interesting to see some agencies getting involved with a bit of activism and trying to stand up for themselves and withdrawing from the pitch. Is that what you think was going on there?

Darren Woolley:

Well, the first thing I read in the trade media was it was a procurement-driven decision to go to pitch. And secondly, yes, that was the strong rumour that it stayed with BBH because basically, they were brought to heel to use a terrible metaphor on their feet.

Now, I think that’s a terrible thing to put an agency through a pitch. A lot of marketers say to me, “Oh, it’s good to take the incumbent to pitch because they know my business. So they’ve got a better than even chance of keeping the business.” And yet the numbers don’t stack up.

The company convergence that tracks this stuff, shows that it’s about one in four, the incumbent’s chance of maintaining the business. That’s not better than even.

Mark Pollard:

Okay. Sam Hague asks, “Are you seeing more pitches from holding companies, organising agencies versus single agency brands?”

Darren Woolley:

What we’re seeing is on a global basis, holding companies are being more proactive in customising solutions for global clients, which is excluding many of the independent agencies from competing. Because this is going to the point of developing a one-stop solution by pulling together a whole range of capabilities under the holding company, and creating either a bespoke agency or some sort of group that will solve all of the client’s needs.

I just saw recently that Bank of America just moved away from WPP. But WPP won that about five or six years ago based on creating a bespoke agency from the range of services.

So yes, we are seeing that for the really big pitchers, on a market by market basis, it doesn’t apply as much. Because on a market by market, they still want the best in market.

Mark Pollard:

Okay. Lara Regna asks, “What do you do to better understand the client’s mindset?” What sort of profiling do you do, what questions do you ask them, how much time are you spending with them?

Darren Woolley:

We spend a lot of time upfront, especially around pitchers, understanding what are the motivations for the client going to pitch. And secondly, getting them to very clearly define what success looks like. Because what can often happen in a pitch process is they get all these different options presented to them and to avoid the shiny new object allure, we keep them fairly honest to what they define as success. And we’ll have a very deep discussion if they start moving away from that.

There’s a second part to that question, which I’m not sure, Lara, inferred — which is agencies need to do a lot more work really understanding their prospects before they even agree to pitch. And that’s doing a whole lot of things like interviewing out suppliers of that company, profiling people on LinkedIn, looking at the culture of the company just by doing a media search.

I think it’s really important to understand who the client is and what the company’s like before you race in pitching for them. Because I think agencies that are more selective in choosing which clients they want to work with, actually become more successful.

Mark Pollard:

I mean that means you need a CEO who agrees with that kind of stuff and I think there’s so much pressure right now. A lot of people will pitch for nearly everything.

Sean Dineen asks, “What are your thoughts on practice and preparation?” I have a feeling the context for this question is pitching, but I’m going to apply it to a chemistry meeting. What are your thoughts on practice and preparation? Where do you draw the line between too scripted versus no energy and total Thunderdome?

Darren Woolley:

Okay, that’s a really good question, Sean. I actually find that it comes across as insincere if people have done enough rehearsing to know who’s being handed to who, but to the point that there’s no opportunity for being yourself.

I think the best pitches, the best chemistry comes across when you can tell that the team really do know each other and that there’s just a natural interaction. Now, you can learn that if you’re a really good actor and you have a really good director. But for most people, it just comes across as over rehearsed and quite insincere.

In fact, clients will often find out the true personality or culture of an agency when something goes wrong because you can’t script that. And so either the presentation doesn’t come up on the screen or some prop falls to bits or something doesn’t work. That’s when you really get a true insight into the agency.

Mark Pollard:

Who do you like seeing in the chemistry meeting? Because sometimes agencies don’t know who’s going to work on the business and yet, there’s often a request to see the people who would work on the business in the room.

Darren Woolley:

Yeah, and we’ve had a lot of situations where agencies will fly in the pitch team and it’s very clear that they don’t know the local team. And the client also picks up that they’ll probably never see the pitch team again.

So it’s a balance. You need at least some people, and especially if you’ve got an account management person that could possibly take over this account if you were successful, then it’d be good to have them in the room.

But largely, we explain to clients that agencies don’t have resources just sitting around waiting for them to walk through the door. And that the agency, ultimately, the culture of the agency will be set by the senior management team.

So it’s good to see the senior management team and if you really want to see someone that will run your business, then perhaps the agency could bring someone from account management into the room. But this idea that we want to see the team that’s going to be working on their business in most agencies, that will still be the most senior team in the agency. Just don’t bring your external pitch team in.

Mark Pollard:

Yeah. Reza Rostampisheh, asked the question — you’ve answered some of this. One of his questions is how can we end up not winning the wrong clients? What would you add to your answer before about researching who the client actually is?

Darren Woolley:

Well, it’s about cultural fit. One of the things I didn’t mention before is I’d be looking at what sort of agencies have they been with in the past, and how long do those agency relationships last.

If you’ve got clients that are changing agencies every two to three years, then most agencies go, “Oh well, we’ll be the one that changes them.” It’s like sort of thinking that you’ll make that wayward partner suddenly become faithful. It just doesn’t happen.

Dr. Phil says the best predictor of future behaviour is past behaviour. So look at a client and see, is this the type of client in the past that you would like to have in your future?

Mark Pollard:

I even know some of the people that I heard this from, but there was an agency I’m familiar with, I worked near it, not in it, back in Sydney. And they would assume they would have a client for about three years, I think. In their minds, what I heard was in the first year, you’re basically making up money from pitching. You’re like trying to break even on the pitch in that first year. And then the second year you sort of settle in. And then I think some agencies start to under service the client assuming that they’re going to leave.

Do you hear these sorts of stories as a way to deal with that kind of churn, if a client has a reputation for not sticking around long?

Darren Woolley:

Yeah, it’s true. There is a three-year cycle except usually in the third year, the agency will invest a bit to try and build the relationship, hoping the contract gets extended.

So the first year is the honeymoon period where the agency is trying to recoup the amount of money they invested to win the business.
Second-year, they’ll be inclined to the complacency, other agendas, other issues will draw the focus away from their client.
And then in the third year, there’s usually a rally trying to see if there’s a possibility of extending that contract for another three years.

Mark Pollard:

Okay. Here’s a question from Ali Latham: “Why do we allow pitches to happen on Mondays?”

Darren Woolley:

I don’t know. I would try and avoid a Monday if I could because otherwise, you’re rehearsing on the weekend. We usually try and make any presentation at the back end of the week.

Having said that, there’s one thing I do want to point out, is we don’t do a speculative creative. We do half or full day strategic workshops as a way of the client getting a sense of how they would work with the agency. So again, I wouldn’t want it to be on a Monday.

Mark Pollard:

Two quick questions that I want to ask and hopefully, you can give some quick answers. When is it okay or not okay to challenge the pitch brief? That’s from Inta Plato.

Darren Woolley:

I think it’s always worthwhile challenging the pitch brief if you have a sound reason for challenging it and are willing to stand by it.

Mark Pollard:

Tim Gagan asked, “What key factors could help small and nimble teams of talent available at fractions of costs, but with concentrated power to compete for consideration or a seat at the table against major agency brands?”

Darren Woolley:

I would recommend that they look for picking up projects initially rather than pitching directly against the big brands. Look for the projects that the big agencies are not cracking and use that as a way in the door, and then just expand the business relationship from there.

Mark Pollard:

Beautiful. Darren, you have a huge and impressive content marketing machine behind you, so I know you have a good answer to this question — where’s the best place for people to find you on the internet?

Darren Woolley:

TrinityP3.com, and we’ve got a blog with many of the answers there on that website.

Mark Pollard:

Beautiful. Thank you so much for joining me on Sweathead here today. Happy flying!

Darren Woolley:

Thank you very much. It’s been an absolute pleasure, Mark, thank you.

Mark Pollard:

Peace.

What is the right agency fee model for you? Be it for a media agency, creative agency, a digital agency or more. The TrinityP3 Agency Fee Decision Tree will help you find the right model. Find out more

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    Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com

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