Getting on top of commercial issues can make all the difference to an agency’s overall wellbeing.
Ahhhh…Those were the days… Some of us are still old enough to remember them…back when the money was simply the money. Fees were determined by a client’s media spend and then it somehow just took care of itself, it just rolled in. Now the grubby issue of cash is like a bad smell that won’t go away – clouding our day-to-day working lives – marring our client relationships.
You’d be forgiven for thinking I was being sarcastic, but judging by the results of the IPA’s 2016 survey on Pricing, Selling and Negotiation you might think again. The findings mostly range from uncomfortable to pretty chilling, and it needs to be taken seriously. As seriously perhaps as a drinking, smoking, overweight 50-something needs to listen to his J.R. Hartley-esque doctor when he says:
“You really need to act now before it’s too late.”
For example, the survey found:
- 4 in 10 respondents didn’t know the difference between inputs-based and outputs-based remuneration.
- 9 in 10 respondents always or sometimes responded to challenges on price by explaining and justifying their costs – not talking-up value.
- … 8 out of 10 sometimes resulting in a reduced scope. (“Sometimes” isn’t “rarely” – that was another choice of answer.)
One of the reasons the industry is in this condition, is that agency finance is too often left solely to the finance department, which picks up the pieces after the work is done and the campaign is up and running. Getting on top of commercial issues can make all the difference to an agency’s overall wellbeing. There are ways and means – from simple tactics to large interventions – whereby agencies could improve their financial performance automatically – if they just got together and shared a bit more.
Based on past conferences, this year’s IPA Commercial Conference on Wednesday July 6th will be attended by too few CEOs, MDs or other senior suits. It’s almost guaranteed. Just like stubborn men (usually it is the men) who won’t see the dentist until it’s too late. But the IPA Commercial Conference is exactly where they ought to be. The advertising business’s finances have never been so poor as they have been in the last couple of years, and contrary to popular opinion, it is not the fault of the clients. If a car salesman makes a loss because he discounted his car too heavily it’s hardly the fault of the buyer.
So what needs to be done?
- Get match fit: get proficient with numbers, agency finances, and commercialism; price differently, charge differently. Start at the top and make it the clarion call for the business; as much a part of the agency’s mission as any other performance measure. Businesses that don’t make enough money are not long in business.
- Hold heads up and negotiate with confidence. Agencies too frequently allow negotiations to be conducted as if their fees were costs and not investments. Reframe the issue: if you reduce investments you reduce the likely returns.
- Differentiate – but do it more meaningfully. There are alternative ways to differentiate an agency to procurement than agencies might use with marketing. This is B2B marketing 101 and many agencies have cobblers’ shoes syndrome.
If every agency were charging 100% of its time, there would be no financial problem. None. And if overtime hours were billable, too? And if agencies didn't charge for hours at all? There's plenty of useful, informative debate to be had.
This is essential, strategic, business stuff.
David Miekle is founder of Salt Partners, and is currently writing a book - How to Buy a Gorilla - on agency relationship management. The IPA will be unveiling survey results on commercial and pricing strategies at the IPA Commercial Conference and this article is based on a preview shared with the author.
Last updated 21/06/2016