On Procurement and Pensions
Marketing procurement continues to get a lot of flack from the agency community, not least for heavy handed negotiation practices over the levels and terms of fee payments.
There are lots of contentious issues that contribute to the cyclical debates between these two parties:
What is a reasonable overhead calculation?
What is a reasonable profit?
How much should a middleweight creative team cost?
How many billable hours are there in a year?
Spreadsheets are calculated and recalculated through a complex and frustrating ceremony of toing and froing until both client and agency begrudgingly agree on a compromise.
The problem is that when it comes to the determination of fees for the strategic and creative aspects of a client’s marketing budget – these are not costs but investments.
“So what?’ you might reply, no earth-shattering revelation there.
Except this: marketing investments are no different to any other; if you want to maintain or increase your return on a lower investment, you have to increase your risk.
It’s the same with your pension investments. You probably will have been asked if you want a high-risk pension fund investment with a higher-risk portfolio, or a middle or low-risk portfolio with a lower but more reliable yield. So, when clients negotiate down their fees with their agencies, logically, they should expect either to increase their risk or reduce their return.
This leads to a secondary problem: what is the nature of the risk that is being increased? To many marketers and procurement folk, the increased risk is utterly inconspicuous. A problem further compounded by the agency because it’s not in the agency’s interest to identify the risk – to avoid being fired.
So, how could the risk be increasing?
The most obvious is in the calibre of talent assigned to a client’s account and/or the amount of time they have to solve the problems of that account. I could write a strategy for most advertisers in a few minutes after understanding their objective, but to write a good one takes more time. The same goes for discovering insights, writing strategies and briefs, developing creative work or media plans – and so on.
Another might be when the client goes for a less expensive agency. Does the new agency have the same:
Calibre and retention of talent
Recruiting power for the talent you need
Longevity and reliability
…or have they just pitched in poetry only to deliver in prose to match the client’s reduced investment.
Agencies roles usually involve solving problems with unlimited possible solutions. Strategic problems, creative problems. There are no quality measures for these things – and good ones return higher yields than bad ones.
So rather than thinking how you can best save, think about an investment strategy. What should you be investing in an agency to solve this kind of problem? How important is it that it is the best it can be?
It’s not difficult to make a saving on an investment, you just invest less. But if you approach it with a strategy in mind for what you want to achieve from it, it will probably give you pause for thought.
Author and Founder – How to Buy a Gorilla.