Consequences of an Agency Review: What Every Client Should Consider First - Joanne Davis
Prevalent Reasons for Agency Reviews for Mitigation, and Realities:
Review of One
If a marketer believes changing an agency might result in savings, we suggest the marketer consider a “review of one” first:
- Provide expectations to the incumbent agency — in writing
- Share that client may need to conduct review if the incumbent is not able to meet client’s new targets
- Give the agency sufficient time (e.g. 30 days) to respond to the client request — in writing
- Be prepared for agency to suggest changes in client process to enable agency to reduce fees and/or agency requesting more work to help them afford a “volume discount” — seriously consider what you can do internally to streamline
- Be open to incumbent agency suggesting a sibling agency in their holding company or network that may be in a lower cost market, thereby able to provide discounts
Costs to Change Agencies and Productivity for the Marketer
If you cannot find a suitable solution with your current agency, carefully consider the following before you start a review for a new agency.
Changing agencies requires time, money and patience. It also requires understanding of the loss of productivity during a review and during a new agency ramp up (even a change to an agency within the same holding company as one potential outcome from a “Review of One” results in loss of productivity). And keep in mind the risk of your proprietary knowledge being transferred to potential competitors if your incumbent goes to work for a competitor (despite NDAs and contractual requirements (i.e., team can’t work on a competitor for six months), it is difficult to enforce and avoid mistakes that an incumbent agency might make in sharing your future plans).
Below I have listed assumptions and numbers to illustrate the hard costs.
Marketing department costs — hard costs and loss of productivity:
- Full up agency review (that includes spec creative) usually takes at least three months
- Preparing the specs, RFI, reading responses, semifinals meetings, workshop sessions, finalist meetings, reference checks, scope of work, staffing and contract proposals could take 15–25 days per client stakeholder
- If there are five client stakeholders involved, using an average of 20 days, that’s 1/12th of the client’s official work year
- Assume the average salary is $250K times five clients, that’s $1,250,00 and 1/12th of $1.25MM is $105K in hard client costs
- With Work From Home, we don’t have hard costs for travel to visit agencies, but when we can travel again, assume $25K for travel
- If you’re a client who chooses to provide an honorarium to finalist agencies, assume three finalists with an honorarium of $25K each
- Add the lost costs in productivity at the client because the days spent doing the agency search aren’t being spent on day job work for another $105K
- And if a client wants a consultant to help manage the process and help you attract agencies you don’t know, add $100K or more depending on complexity and/or is there is more than one review if disciplines are de-coupled (media review and separate creative review)
- This totals $310K to $385K and could be a lot more if there are more client stakeholders involved
Don’t forget there is almost always at least a month’s overlap between the old agency being paid and the new agency being paid. If the fee is $12mm per year, that’s two months of double paying $1mm.
Loss of institutional knowledge of the old agency is harder to quantify. It’s more serious if there is limited history at the client. Ways to mitigate loss include:
- Prepare for change by ensuring that client has historical copies of all materials
- Review contract to see if client has right to hire people from long-time agency to the client or have them moved to the new agency
Hidden Costs for a New Agency Starting
Dollar value of time it takes for new agency to ramp up and get to full speed depends on how large, how many brands, client governance of the agency (how many clients can “ask” for work) and how complex the client’s business is. A consumer product is a lot easier to learn than financial services, technology, pharma, etc.
It usually takes about three months for client companies to feel a new agency is ramped up fully.
We strongly urge every client to think through the risks and the costs and work harder with your current agency before conducting a review.
The bottom line: only conduct an agency review if you are pushed to do so and there are no other suitable alternatives.
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