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Sunday, January 27, 2013

Advertising Agency Fees

Not that many years ago, advertising was a sweet business. Commissions were a very generous 15%, production could be marked up and any number of expenses could be billed back to clients. Over the years, much of this has eroded and the commission structure with its guaranteed income is but a fond memory for people who invariably are no longer in the business.

Recently, two global marketing and food giants, Procter & Gamble and Unilever, have announced that while they are ramping up their emphasis on advertising, they will be putting ad agency compensation under greater scrutiny than ever. All of that grabs headlines but, in reality, this has been going on with mid-sized and smaller ad agencies for some time. Hence this post.

Interviewing several marketing directors and small to mid-sized company CEO’s, a few interesting comments emerged. Here is a sampling:

“Like many companies, we now spend more on promotion than advertising. The agency hates this but we have prospered through the tough economy of the last few years. The accountability of various promotional tools let us know what is working instantly. With advertising, it is always hard for us to gauge. Was it worth the big expense? They say that we are eroding our brand, but I have had five straight years of earnings increases.”

“Agencies don’t do thorough analysis anymore. We have two young guys who break down every coupon that we drop. After 18 months on the job, they can tell us redemption rates before we drop and come close to forecasting it by DMA. We know just how much value to put on each coupon. These kids have optimized our promotional activity tremendously. When I used to have the agency do this for us, they had college interns look at it and charged us an arm and a leg. Our in-house data driven junkies love the work and run rings around the agency team.”

“We hired a new CFO a few years back. He said that he could save us a few million if we squeezed expenses everywhere. Our agency’s chief met me for lunch and said that he was sick of how our bean counter nickel and dimed his shop. I put the account in review and they shaped up. We have cut fees but don’t ask for as much either.”

“TV production is still way too high. The agency submits three bids but my CEO just smiles and says they give us three expensive bids. He forced me to go outside last year and we saved a nice six figure sum. We don’t want crap but the average consumer can’t tell the difference between a $100k and a $250k spot.

“Never let your agency copy anything. Just have them e-mail you almost everything or have work embedded in a PDF. There are hidden charges everywhere.”

“As we have ramped up our digital presence, we have far less of a need for collateral material. Agencies always made a lot here but they are going to have to adapt.”

“Mobile couponing is going to be big for us but it is not there yet. The potential is huge and I don’t think agencies see it or how we will bypass them.”

“We go to specialized boutiques for a lot more work, especially digital. The young people there are fast and unpretentious, low cost and they listen to us. Our main agency spends three days to get a work starter going and then assigns a team. By then, the boutique has already delivered our project. Sometimes it is good and sometimes work man like, but there is no BS with them. Established agencies take note.”

“This past year, we invaded two countries in Latin America with our brand. The TV that we ran there worked like gangbusters. This year we are shifting more money there and running more promotion in the states. Our results were “impossible” thundered my US agency head. I responded that our work far south of the border is being received as it might have been in 1950’s America. He just does not want to get what is going on globally. Sadly, I think that I need to make a change.”

My sample was highly unscientific and there is definitely a bias among people willing to talk with me. For example, no one wrote to me and said that they were getting excellent value from their mid-sized shop.

If you are a client reading this, your takeaway might be to examine your fee structure very carefully. Also, how current is your shop, especially a long standing one, with what is going on in 2013 marketing?

Should you wish to contact Don Cole directly, you may reach him at doncolemedia@gmail.com


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