“Your responsibilities”.

Imagine an agency telling a prospective client – not one we’re working with already – that they had to actively participate in delivering to make the marketing programme effective?

I love it.

Now I’m recommending we put this into all new client proposals. It’s authentic and transparent and gives the brand clear boundaries and guidelines that will help us give them exactly what they hired us to do.

What do you do in order to improve your client briefing and agreements?

I cringe most when creative agencies themselves do bad creative on themselves.

How could this text be improved? [apart from the spelling mistake].

Staying current with procurement purchasing and how to assess a supplier of web design can be short-circuited by reading Lance Wiggs’ excellent quick assessment of the local market.

If you’re not from his locale, still read it.

• The points he makes about Pricing for services in the Buyers Guide section is instructive.  Many agencies are still charging by the hour and it’s clear that over-charging still exists.
• Intermediation or sub-contracting is part of the process and this affects both buyers and sellers.  Transparency and honesty are the best approach here.
• The attributes of a “good client” are excellent.  Being clear about your role as the buyer is important.
• The Agency Sellers Guide has some great points.  Too many agencies rely on word of mouth promotion.
• The attributes of a “good seller” are important.  Know thyself.

And finally, the comments.  I was the first (*) but there will be many more.

Here’s my penny’s worth of commentary

Lance, great, incisive analysis as ever. Thanks for taking the time to do this work on behalf of the whole industry. I’m a newcomer to Auckland and my agency doesn’t do web design but I will comment on the two parts of your piece that are not wrong, but may mis-represent the way part of the industry is changing.

I am writing a series of blog posts called “The Creative Agency of the Future” #FutureAgency in which I’m collating examples from the business operations practices of agencies who are challenging the status quo and looking for improved ways of delivering excellent marketing services to their clients.http://creativeagencysecrets.com/category/creative-business/future-agency/
Here are two ways that leading agencies are different from the ones you researched:

1 – charging. Some agencies are moving away from time/hour charging basis and onto a fee wholly based on results, or partly based on outcomes.
2 – business development. This is my specialism. It makes me cry that marketing agencies can’t market themselves successfully. Many whine about “procurement” or “RFPs” or “pitching and coming second” but the underlying fact is that a planned approach to HOW you win new business tends to deliver MORE new business. If you don’t do it yourself, outsource. It’s the lifeblood of your agency and as you say yourself, relying on word of mouth may not be sufficient for your business survival.

Tripp was a commenter on a blog we follow and we got to asking each other questions and answering them on the question stream – this led, inevitably to an offline connection – here’s what we discussed.

Tell us about how you think agencies should get paid?

We have some views on agencies and compensation….I know a number of people in the Pitch TV show Tracy Wong and Liz Paradise from Mackinney – the commentary on pitching in general and giving away ideas and what makes each agency unique is the people they have and the ideas they generate.  When you give them away cheaply at the start of the relationship what you’re left with is the cheaper commodotized part of the relationship – and that’s just execution.

Most agencies charge on a time cost basis which lawyers and accountants use the agency revenue model is devolved.  We compete for the least valuable part of the industry.

I have been with  (32 people) Firebrand 5 years I head the Creative Department we are 15 years old.  Evolved wholehandedly – started as promotions – retail activation and off-pack and then moved into a traditional type agency TV, Print, Outdoor and more recently it’s got harder to compete and margin is harder to come by.  When I got here we came in with some different ideas that we were small enough and nimble enough to change the way we operate.  It doesn’t make sense to do it the way others are doing it especially if it’s ‘less than ideal’.  Plenty of agencies continue to do it.

 So how do you start changing the way an agency operates?

We took a hard look a the agencies we admired.  I always worked for high end agencies like Fallon.  Teasing out the best pieces – seemed to start to make sense.  We looked at our compensation agreements and figured out what was broken.

When you look at the time costs system and you look at what clients want – they don’t come looking for more billable hours but that’s exactly the way agencies want to set up their agreements.  They are incented to take longer and to ‘do things’ rather than ‘accomplish things’.  Clients come looking for results and the value we bring through ideas that ultimately will drive their business forward.

So you have two un-aligned objectives.

How did you go about testing the clients ability to accept change?

We started to sit down with clients at the beginning of the relationship to establish the goals. and to move to being value based – charge our clients for the value we bring which ultimately are the results.  Internally this has ramifications – we know that when we work best it’s when we collaborate.  We pull in (even on conncepting sessions) PR, media, planners so the team is broad based.  If you did it on a time cost you couldn’t charge for all those people.  We got to ideas better.  So we charge for the results.

Here’s an example: Product sales like cars – they want 500 new sales for the next year.  They know they have a 10:1 ratio of leads to closes.  We say OK we’ll get you 50k leads…. that ‘s the agreed goal.  We may ask for back up or rationale on the numbers.

So we say if we hit the number – what’s it worth to you to achieve that?  Understand the cost per conversion / acquisition.  The number is usually the budget they had planned!.

If we hit that the agency gets paid X.  If we fall short the agency gets paid X minus (there may be some bands).  If we exceed the number by % we get 2X.  So there’s upside for us and for them.

What we found is that as long as the client is winning they are happy to pay for it.  We write that into a normal contract.

What is your motivation to change how you charge?

We want to be in the business of creating value.  Messages are just a means to an end.  If you focus on the doing then you lose sight of the ultimate goal.  No two compensation agreements are alike.  We have a committee – the value council – who look at each client and agree the terms. Some are equity positions, some are flat fee based.

Do you have to lead to make these changes?

Yes we absolutely have to lead that conversation.  In fact most clients are resistant to it even though it’s to their benefit.  “What’s the catch?”  The catch is if you win, we win….!  If we do something that has amazing success we should share in it.  Agencies have been dinged for so long – they get paid no matter what.  When the average CMO tenure is 2 years or less the agency just ends up losing out all round.

We pass our expenses through at cost, as before.  We do have some arrangements for media commissions.  By and large if we have to bring in external resource we don’t mark it up.

What’s the future?

There has to be a split in the industry sometime.  There are things we’ve allowed to happen e.g. the revenue model – we spoke to a guy who consults on value based compensation.  In the ’50s average margin for an agency was 40%.  At the end of 2011 the average margin was 8%.  And that’s the commoditization – clearly that’s a race to the bottom and that has to change.

For us the idea of pitching business of getting involved with big search consultants that is not a good place for us to be.  We are going to have one foot in our bucket from the beginning because of our size.  We go directly to clients and say ‘hey look we would have spent X$ pitching you and how about we take that money and put it to productive use for you?  You get to test drive us as a group of people.  We have a lot more success with that.

There is a certain amount of integrity – clients don’t take advantage and walk away.  Instead of being in a position to take what we have to give and then go – they usually decline the opportunity if they don’t intend working with us..

I hope this discourages brands who won’t fit our personality from working with us.  We are fully aware that we are not for everyone – it’s a test for them as much as for us.  Mostly you don’t know if the client is someone you’d like to work with until you’ve spent time in the car with them.

#FutureAgency

It doesn’t work like that.

There certainly are many agencies who sell themselves as inbound or content marketing specialists.  And there are just as many brands who say they use Inbound Marketing as part of their promotional mix.  Some unscrupulous agencies sell this as the modern web solution and imply that it’s all you need to do to succeed online.

It isn’t.

Inbound marketing Has to be balanced with outbound marketing.

We were listening to Jay Baer on a podcast with Copyblogger and in it he says

“You don’t create demand with inbound marketing, you fulfil demand.”

You are capping your upside

You are reaching out to people who will take the step to find you.

For these people inbound marketing is great, it works.

What about other customers?

But what about all the ones who haven’t yet realised they might need you?  For them you need outbound demand generation activity.

Classically this is ‘campaigns’ – executed in many ways, online and offline.  Ways to bring your brand to the attention of prospective customers in different marketplaces and with a range of communications.

But there’s more to modern marketing than this.  Baer comes back in again with a new catchphrase “YouTility” – this is where you keep your brand front-of-mind in the intervening period between gaining awareness and the point at which the client is ready to purchase.

Blogs and other inbound marketing tools are good at maintaining youtility.  And coincidentally these are also good tools for inbound marketing.

See the connection?

Related articles

• Why and How Businesses Can Profit from Inbound Marketing [Infographic](saleschase.com)
• The CMO Guide To Inbound Marketing #Infographic(serve4impact.com)

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• Inbound Marketing Attracts Millions from Google, Salesforce and Sequoia (seomoz.org)
• The Ins and Outs of Inbound Marketing [INFOGRAPHIC] (contently.com)

Ben Wightman

How did you end up working in an agency?

I come from a sales background selling TVs on the high street 14 years ago. I was prompted to make a move to the online side of retail off the back of increasing numbers of customers speaking at great length about the products but ending the conversation by saying they were going to go online and check the prices.This was frustrating for any salesman.

I learnt about SEO, paid search and managing websites, affiliate marketing and then after a few years I decided to specialize in paid search.

What has changed for the high street retailer in the context of PPC?

Mobile is going to be a revolution for the high street retailer. There always seemed to be a division between the online and offline worlds. Many felt the internet was a threat to the high street then but more recently the growth of mobile and smartphones for mobile web access has changed.

In my opinion – this is the glue that will bring together the online and offline worlds.

Mobile is the medium that connects web users with the physical world. Mobile has a great synergy with above the line magazine or TV advertising.

What are your main findings in the Mobile Internet Report?

We have a home improvements client running TV campaign and we noted during the evening hours (8-10pm) when these run up to 39% of web traffic is from smartphones and there are significant increases in mobile traffic during these hours.

Before, the normal rates were 13-14% for that advertiser.

One study by Tesco found that 50% of all smartphone users used it for web browsing while watching TV.  So we quickly worked to tie this in with a mobile optimized paid search campaign to pick up the interest driven from the TV adverts.

How do you serve mobile ads?

We created a Google Adwords campaign tailored specifically to serve adverts to mobile users – in the ad settings set to serve out to mobile and smartphone devices and desktop.

Add to that writing advert text that speaks to mobile users. Anyone working in mobile search has to appreciate the subtleties of behaviours between mobile versus tablet and desktop users.

What is a customer trying to do while using these devices? e.g. mobile web use peaks during commuting hours and after the evening meal (watching TV or social time) but desktops peak earlier during the day during working hours and in the evening.

But the trends for mobile are very different. Using a smartphone for searches in a lunch hour means the likelihood is they are looking for quick easy information – not wanting massive detailed content. So mobile ad texts and landing pages should be configured to service that requirement,.

Do you do PPC for your own work at Latitude?

Yes – we do have a small one.  Is it effective? As far as I’m aware yes – it only has a small keyword inventory.

[We are interested in #FutureAgency - do agencies practice what they preach to clients].

How do you do new business development for Latitude?

I act as a voice of authority in paid search for new business.

Our agency set up is quite differently from others. We have a dedicated client services team who do the day to day contact with clients and our production team focuses on making the magic happen by building and managing the search campaigns. We work in different pods but close together.  Attending a pitch we’ll typically have a client services leader accompanied by a representative from each of the relevant production teams.

Are many Brands moving into paid search for the first time?

No most of our brands have a long established history with paid search – most come with an existing account and we optimize that. Many are moving from in house to outsourced experts. occasionally they move from another agency.

How can readers get the report and get on your mailing list?

When they are published we send the new report to clients first and  on our Latitude Group site.

Get the Latitude Mobile Report for 2012 

My personal view about how to justify marking up services to sell to clients is this.
If you have invested time and money researching the service, learning how to use it and how best to integrate it into marketing campaigns then it is legitimate to charge your clients for selecting and using that service. BUT transparency is key – the client must know your mark up and agree to this before starting the service.

[Read last week's #FutureAgency post about the services you could sell to clients]

Many agencies also sub-contract services to and from freelancers and other smaller agencies. This is a great way of tapping into key skills that you don’t have in-house but which clients need. We have a WordPress specialist, an Adwords specialist, a Database researcher, graphic designers and HTML coders whom we use regularly.

These all pass the 2 question test above and so are appropriate ways to get additional revenues.

Inappropriate revenue streams?

There are other ways of making money. These are “unearned” revenues do not come from your intellect, your expertise, your industry experience or are delivered with no skill related to marketing.

Many agencies make profit from marking up expenses – public relations firms in the UK used to be authorised by their industry body (PRCA) to mark up expenses 23.5%. FREAK. Twenty three point five percent extra revenues for doing precisely nothing. It may look like easy money to the agency but think about it from the client’s point of view. Did they get value from that work?

This soft of rip-off culture has no place in the agency of the future. It’s not transparent, its borderline unethical and adds no value to the client.

In the past, I persuaded colleagues to review one of our agencies by demonstrating to our Finance Director that their expenses charges had increased for 10 out of the past 12 months. How could they justify that greed? Were their campaigns more successful?

Here at Creative Agency Secrets we do mark up sub-contracted services – that’s because it costs us time to oversee, manage and deliver the work. But expenses like straight up I-spend-money-to-go-to-your-office type costs, we charge at cost. Why should I profit from something that adds little to the client’s bottom line? We also choose not to expense telecommunications costs (Skype, mobile phones, conferencing, webinars).

Affiliate Revenues

A legitimate source of additional agency revenues is affiliate or partnership relationships. These can be for services or products that you introduce to your client and for which the service-provider pays you a portion of their revenues. These are different and separate from expenses. The client is purchasing from the service provider, not from you. They can choose to take or reject your recommendation of that service set and so are making a commercial purchase decision. For transparency’s sake, we always tell clients when we are earning money from referrals or affiliate relationships.

If the services you choose are ones that you are using for your own business (refer to Part 1 choose your agency) and so you know their offering intimately, these are the best ones to choose. Keep the list short. A large list will only dilute the effect because many affiliate programs have tiered sales volumes and you can earn more revenues if more business passes through your channel.

Note, I’m not advocating you become solely an affiliate marketer. That is not the agency business model – what creativity is there in just reselling others’ services? The top strategic agencies who outsource production retain the thought leadership, marketing strategy and planning roles and thus add value to their clients.

Underlying principle: transparency; multiple revenue streams through appropriate partnerships and the whole underpinned by retained, preferably 12 month long contracted relationships.

 

Next week we sh0w you How to become the right agency for target brands.

easy.  Today we showcase a client and their challenges and a book and a blog post.  Together they give you the one principle you need to write a B2B online brand strategy.

How to get customer community integrated into your marketing

Three things we read and discussed coincided this week:

1. Planning with the Silver Fern Farms marketing team
2. Reading The B2B Social Media Book
3. Commenting on Confused of Calcutta’s blog post – Musings about communities and prices

Start with the blog post - there are three main points: Everyone in the community is a customer; Communities expect a range of prices for each product or service; A connected community converges to act as a single, composite customer.  

Take the range of prices – some customers are happy to read free offerings; others will contribute to comments or test purchase items while others are avid fans.  The Silver Fern Farms team were discussing how to organise messaging across different geographical marketplaces – not all their range is sold in each country. [They sell lamb and venison in supermarkets.]

Treating all the customers and prospects as a single, composite customer enables us to deliver into separate marketplaces with variable messaging.  Yes, we do not use the same message to each group.  BUT we know the customer is smart and can read.  Being clear about what products are available in which supermarkets matters.  It builds awareness of the wider product range and helps customers appreciate the global nature of the Silver Fern Farms business.

Is B2B any different for online?

Slant these ideas into the business to business B2B world. This is where I find clients have the greatest problems “coping” with a singular community.  And ironically, this is where the greatest opportunities exist for B2B.

Read this quote from the Book

Most B2B companies live with fear. The fear of giving away too much information, saying something wrong, giving competitors an advantage.

But I know B2B companies have another fear. Integrated messaging.

This is perceived as hard to do.  Mainly because of the territoriality of the agencies and staff who service the brand.

Each market, each customer, each group of buyers fits into a hierarchy of customer-types. From the inquirer who wants to read for free but not participate up through to the possible purchaser.  Your brand needs to set up its marketing to allow and

enable each customer type to engage at the participation level the customer chooses.

I wrote that in bold because this principle is the key to your strategic marketing plan.

How does engagement work in practice?

Set up a range of marketing activities that allow any customer from the vast pool of possibles to enable customers to get what they need.

Think of it as a staircase, each step has an increasing level of engagement and possibly a higher price.

When planning your online messaging think of your brand’s online presence as if it were a niche magazine.  You should aim to be the best ‘trade journal’ magazine you possibly can be.  Dominate your niche and the customer will figure out which of your offerings (from free to paid) she wants and where/how to acquire for herself.

And so we hoped to find a strong follow up to that story and were delighted that Lance Wiggs wrote up a talk John Brackenridge did to the BBD CEO Summit.  We were hoping to find out exactly what John hired….

There is a bit of ‘history’ in the industry as Mckinsey was hired to advise on the structure of the growers versus the marketers in 1999 and recommended splitting the marketing and promotion function off into a ‘commercial entity’.

And we thought now was a good time to show off our original 2010 pitch.  What’s interesting is that little has changed.    We’d still recommend most of the same activity.

Download it here NZ Merino Proposal

Or review the slides.

Being exposed to a single large client is well-known as a fundamental mistake for agencies. I had a consulting client who spent a year executing a new corporate identity for a UK Building Society Bank. Within 4 weeks of it’s launch and roll-out nationwide, the outfit had been bought by Santander Bank and was renamed. There was no repeat business, they’d spent over 80% of their energies on one client for whom there was no prospect of any more work = end of agency. and lost jobs.

So what should a modern agency to do?

1. The best answer is to have a range of clients, none of whom are over 20% of your monthly billing. Try to create contracts that don’t all end in the same month so you have overlap and won’t be very short of work all at one period if several clients don’t renew or projects don’t lead to more work. And also try to get longer contracts – aim for a year if you can; 6 months minimum. In this way your underlying revenues don’t change much month to month and you can take some uncertainty risk out of the business.
2. The second thing is look to get new revenue streams. There are two schools of thought about whether agencies should make money selling things that are unrelated to their core expertise. Some think it’s a good way to diversify and others think it dilutes the core skills of a creative agency.

A bad example of new revenue streams

For a while in the UK TV shows were paid for by “advertiser funded programming” i.e. brands paying TV companies to make the show. This wasn’t sponsorship or advertising, it was for product placements and other benefits. Both TV production companies and advertising agencies tried to get into this game. But few succeeded. The reason is that the skills to negotiate broadcast programme contracts and assess brand ROI are rarely found in the same people with the same experience. Many agencies spent a lot of time paying staff to chase these deals which didn’t come off and so ended up costing the agency a lot for no return on their investment.

A good example of new revenue streams

There are good ways to earn revenues from ancillary associated products and services.

How to find appropriate services to resell. The best way to appraise them is to ask two questions:

“ Are these products or services very close to the agency core skill set?”

“Are we using these services to deliver campaigns for our clients?”

And thus many agencies resell software licenses for cloud services which they use themselves

• Project/campaign management (Basecamp)
• CRM (Salesforce, Highrise)
• Email sending (Aweber, Constant Contact, Feedblitz)
• Web Content Management Systems (Hubspot, Contegro)
• Website hosting / domain management (eUKHost, Network Solutions)

Read the rest of the #FutureAgency series by following the category in our sidebar

Next time we ask, Is it appropriate to mark up services sold on to clients?