Where Will Clients Find The Next Pound Of Flesh?

Where are advertisers going to get the next round of agency fee cuts from? 

Compensation consultant Michael Farmer has data showing that the amount of agency work delivered relative to compensation has been increasing every year for the past two decades. But if you are in the agency business, you already know that. You live through the slog every day. 

But hang in there. It may finally be time for clients to look inward to achieve further efficiencies. What, you say? Self-procurement? No more “let them eat cake”?! Turning the long knives on themselves? 

It will happen. It must, because there is no place left to turn, and as importantly, because there is waste there to be cleaned up. 

Here's how. As all agency people know the fewer client approvers you have the better the work. So heavy client staffing, regardless of cost, can actually be counterproductive. Remember the old adage about a camel being a horse created by a committee? Look at the work. There are certainly a lot of high- priced camels out there. 

But unfortunately, even clients who know that less can be more are still reticent to reduce layers of approvers. The agency is the fun part of most clients' day, so how can you tell the assistant product manager that they don't get to weigh in on the TV board? It's easier to allow everyone to play with the agency, because there is no "cost" to that behavior. You'll just tell the agency tough, that's how we work around here, and BTW, you still have the same deliverables at the agreed upon fee. And it better be good work.

Accountability is missing from the client side. 

This has to change, but the missing ingredient is data. Agencies need the data that proves too many client approvers for example, increase cost and reduce effectiveness. Then they will be armed with what's required to effectively negotiate higher fees, or fewer approvers that lead to lower agency costs and higher margins. I am hoping that startup CreativeWorx, which is focused on agency time management, will help provide some of this data. 

Also important to agency productivity is the quality of client briefs, which is very subjective and hard to quantify. So what is a good metric for client-side management of agency productivity that takes all of this into effect?  Mr. Farmer has a great concept that elegantly captures the essence of the problem called the CSP ratio.  It's the ratio of client service people to creative FTEs. Too many client hand-holders not enough people making the donuts is a sign that the client isn't optimizing the agency's valuable resources. 

Too often, clients get to behave badly, or avoid adopting more productive approaches simply because they are "the client" and feel they don't have to change or “evolve."  Seems like in the current paradigm, it's always the agency that has to take the hit.

But the truth is that advertising is a product that is co-created by agency and client, and compensation numbers should be based on plans that factor in both sides, because they are interdependent, not independent.

The faster we get the tools and metrics to manage this process as one interrelated ecosystem, the better we will all be. Then both sides will be greatly incentivized to work together and not 'negotiate' against each other.
1 comment about "Where Will Clients Find The Next Pound Of Flesh?".
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  1. Michael Farmer from Farmer & Company LLC, October 17, 2013 at 3:10 p.m.

    Jon's right that relationships have become one-sided. Ironically, Procurement people should know better -- all the quality/cost improvements that saved manufacturing and distribution businesses were based on treating suppliers as partners rather than vendors. Procurement reverted to "old style" vendor negotiations when it came to agencies, though. It's not to late to change the affect, though, and pull costs out of the system, not just out of agency flesh!

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