It's Time for a Media Agency Makeover. Here Is What's Needed

quotMedia agencies will maintain their relevance into the future because of the knowledge they possess and the best practices they are continuously developingquot amp8211 Brian Wieser global president business intelligence GroupMquotThe pressure to defend and pitch over and over again leads media agencies to perform at nearzero marginsquot amp8211 Avi Dan contributor ForbesBoth parties are right However if agencies are relevant partners they should not earn nearzero margins What39s needed to fix this situation There are three key factors for a media agency makeoverA better understanding of agency economics Media agencies carry out services for their clients amp8212 eg media planning campaign by campaign media buying and analyses of results and reporting But how much work is involved for a given level of spend How many agency people in fulltime equivalents or FTEs ought to be required What level of fees should be paid Unfortunately clients and agencies do not have a shared view of these questions In some cases neither party has an informed view Workloads are not being quantified although it is not difficult to doThere are several areas where agencies need to improve their understandingFragmentation and complexity amp8211 Ever since the introduction of digital and social media marketing scopes of work have become more fragmented and complex So have client marketing organizations Silos abound for search programmatic digital and social Every marketing silo expects to have its own spend its own analyses and its own agency reports Media agencies struggle to meet these growing needs ignoring the effects on staffing needs This leads to understaffingEconomics of scale amp8211 Both parties believe that there are economies of scale ie relationships with high levels of spend are more quotefficientquot A 50 million media spend might need one agency FTE for every 25 million of spend or 20 FTEs A larger relationship with 500 million of spend might need only one FTE for every 50 million of spend or 100 FTEs amp8212 five times the staffing for 10 times the spendDiseconomies of scale amp8211 What is not factored in by either party are the diseconomies of scale that come from fragmentation and complexity If the 500 million spend is fragmented across 15 media types with a large number of complex campaigns that require separate analyses and reports economies of scale will be severely diminished Instead of 100 FTEs the fragmented 500 million spend might require 150 agency FTEs Clients and agencies that do not factor in the effects of fragmentation and complexity have too few FTEs in the resource plan and fees that are much too low I39ve researched this thoroughly using our Media ScopeMetric Model fragmentation and complexity destroy economies of scale too often and drag down performance reducing agency capabilitiesResultsdriven relationships Logically media agencies ought to serve clients and brands by helping them grow in the marketplace using media spend wisely to generate efficient results However the purpose of the clientagency relationship seems to have been forgotten in the thicket of mistrust and costcutting that defines our times Media agencies are now quotlowcost vendorsquot that are replaced at will once contracts expire Under attack by procurement media agencies have accepted this and downgraded their purpose which is now quotwe will cope with any and all circumstances and give you our outputs at the lowest possible pricequotThe consequences of this show up in a simple metric agency fee income per FTE by client Typical media agency figures are in a range of 125000 to 250000 fee income per FTE At a billing multiple of 222 this means that agency average salaries by client are between 56000 and 113000 You can39t generate much value with agency teams that are so junior A typical consulting firm would be generating closer to 500000 in fee income per FTERelationship longevity Understandably agencies that turn over every three years are not going to generate improved results Familiarity and intimacy are required by both parties amp8212 highquality relationships cannot be reinvented with every media agency turnoverIt39s time for clients and agencies alike to commit to media agency makeovers Both parties will benefitThey must commit to maintaining longterm relationships that will solve brand growth problems amp8212 switching agencies only if they do not succeed Also they need to work jointly as partners on complex issues of spend level and mix What39s the minimum spend that will work and what is the appropriate mix of the spend Finally they must mutually commit to understanding the economics of their own relationship so agencies can succeedBoth parties have to contribute guided by the desire to reduce fragmentation and complexity to achieve economies of scale and ensure that the right mix of junior and senior resources will focus on a client39s scope of workMarriages of agencies and clients need to replace onenight stands Media agency makeovers reestablish longterm arrangements as a superior basis for working relationshipsPhoto credit Elton Dedini The New Yorker The Cartoon Bank With permission Click the social buttons to share this story with your friends and colleaguesThe opinions and points of view expressed in this content are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated writers

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It's Time for a Media Agency Makeover. Here Is What's Needed

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