Two years ago, the ANA report put transparency firmly on the agenda of the media and marketing industry, highlighting the fact that some agencies generated revenues that were not transparent to their clients. Today, those in charge of marketing budgets often make it clear that they want increased transparency on how every pound is spent, and, most importantly, the impact this has on business performance.
Historically, the hidden market – including inventory media, rebates, value pots, and mark-ups on third-party solutions – generated significant revenue for agencies. This helped sustain and grow billings, whilst at the same time remuneration for services was flat or decreasing. Times have changed and improvements made: agencies are now showing themselves willing to operate more transparently – including offering full transparency. But in reality, without the hidden market, agencies need to compensate for a significant hole in their revenues.
Delivering increased transparency
Transparency today is not just a rallying cry. It’s being addressed from financial, strategic, and operational perspectives. What’s more, it now features routinely in contracts between advertisers and agencies. Recent World Federation of Advertisers’ (WFA) data show that 90% of companies reviewing contracts are looking for greater transparency.
Media agencies are working hard, in partnership with their clients, to find solutions that address these concerns. How agencies deliver transparency is now a critical criterion for evaluation in the agency selection process. What all parties appreciate is that there is a cost to advertisers attached to addressing the issue.
Making the most of the pitch
The media agency pitch provides the perfect opportunity for advertisers to reconsider both the model they use to remunerate their agencies and the level of remuneration for their incumbent or new agency, should they choose to move. And advertisers looking to make fee structures more transparent must be prepared to pay fairly for the services – and the people who work on their business. If they don’t, there’s a risk that agencies may look for new and creative approaches to replacing lost revenue.
For fair and transparent agency remuneration, advertisers need agencies to provide clarity on what they get for their fees and a breakdown of ad hoc costs. For digital, agencies need to unbundle costs and commit to separating out working and non-working media spend. And within non-working media, there should be a clear separation between data, platform costs, and resource fees. We firmly believe that this is the best and most equitable route to driving accountability in digital marketing.
Until recently, many advertisers have empowered agencies to manage third-party contracts on their behalf. But advertisers are starting to take control back from agencies and have contracts directly with ad tech providers, even if agencies are still tasked with managing the platforms. If advertisers continue to allow agencies to run contracts for them, they should expect pass-through costs.
Agency remuneration typically includes both a fixed element – covering full-time equivalent staffing costs and operating overheads – and a variable element to cover performance and deliver margin and profit to the agency. The variable element needs to be attached to both marketing and business objectives, so that agencies can share in advertisers’ success. To ensure that agencies are effectively motivated and don’t look to secure revenue from hidden sources, these objectives need to be measurable, challenging, and above all realistic.
Pitches often see agencies fielding their brightest and best staff. As the top talent is both limited and expensive, advertisers need clarity about who will work on their business and for what proportion of their time. If the contracted remuneration package does not cover their cost adequately, advertisers should not expect them to stay working on their business once the pitch process is over.
Towards equitable remuneration
For advertisers to receive good service from motivated partners, agencies need to be fairly compensated for the work they do. Equally, advertisers expect agencies to deliver on the promises and guarantees made during the pitch process. For these two reasons, it’s vital that both parties define clearly the value that will be delivered, incorporating both service and costs. In this way, some of the trust that was eroded by the hidden market can be restored.
Getting remuneration levels right sets the tone for the long-term success and sustainability of a new or refreshed advertiser-agency relationship. With the industry leaner and increasingly performance-focused, there’s no doubt that this topic will dominate debate at Cannes this year.
Laetitia Zinetti, practice principal for Media Management at Ebiquity