Unfortunately, too many advertisers approach the media function with a determination to cut the agency's fee, thinking that is the root of their discontent. Agencies would do well to remember some basic figures and principles, because in terms of actual savings or money earned, a marketer can reap the least in terms of real dollars by the agency fee. If a marketer's sales are worth $100 a year and their advertising-to-sales ratio is about average (5%), then their media spend is $5. If their media agency fee is 2 1/2%, that's 12.5 cents. So sales are about 800 times larger that the agency fee and media spend is roughly forty times greater. While considerably more money is at stake when it comes to strategy resulting in sales, or first-class negotiating resulting in a more efficient media buy, all that great strategic thinking and negotiating prowess comes from the highly valued, hard-working agency.
The key for agency management is openness. If they take the lead in clearly outlining the scope of work and rework, demonstrating that staffing is proportionate to that scope and that compensation and expenses are commensurate with norms, the work and rework process is smooth and personalities fit. This is how clients get maximum value.
Another hot button at the Florida confab was media auditing, which used to be called "post analysis." It involves a third party checking the qualitative and quantitative aspects of an advertiser's media schedules with an eye toward uncovering discrepancies. The nation's 67 advertisers spend over $100 million a year, the top 200 spend more than $50 million and the top 500 spend more than $25 million: even a small percentage savings on a buy can reap huge amounts of real money to be saved or reinvested. So how can agencies get ahead of the auditing curve? By exercising complete transparency from the outset, media buying and stewardship groups can circumvent the audit, in many cases saving a grateful client the audit fee and engendering much needed trust.
It's not just about making a good buy, it's about agreeing on a clear set of specifications beforehand, reporting the buy with full disclosure and using the results of that report to positively affect future buys. In other words, spend the $5 wisely and tell them how you spent it, and you get to keep the 12.5 cents with less hassle.
Finally, agencies must embrace the same tools that sophisticated clients are using to correlate their marketing activities (including media thinking) with sales. Since many agency plans are now predicated on and subjected to a thorough accountability process, no longer is the plan something rather intuitive, with little relation to consequences other than making an efficient buy when the plan is executed. By actively encouraging a client to use these return-on-investment tools and devising some of your own, planners and researchers are in a position to more directly affect sales return and to prove their worth-along with the agency's media fee.
This is the future of our business. Media professionals who don't engage this process are going to be left behind.
Founded in 1985, Morgan Anderson Consulting is considered a pioneer in the assessment and benchmarking of ad agency contracts and compensation, resource utilization, client/agency alignment and independent media planning/buying assessment. The firm works solely for advertisers.