This is a phone call I get pretty often. An advertiser reaches out, looking for a third-party perspective on their media investments or their communications strategy because they don’t feel like they can trust their ad agency. While this represents a great opportunity for my firm, a true agency is its clients’ most trusted strategic advisor, and it’s impossible to avoid speculating about how the incumbent agency lost their ability to deliver advice to their own client.
How did the agency get here?
More than likely, the situation came about because the agency aligned its compensation model with something other than the client’s success by being compensated either partially or wholly with a percentage of the client’s media spend.
There’s an old saying that rings true when it comes to agency compensation: When you’re holding a hammer, every problem starts to look like a nail. Such is the issue with commission-based compensation. With profitability hinging on how much the client spends on media, the tendency is for the agency to recommend increasing the media budget as a solution to all problems. Eventually, clients tire of hearing the same advice over and over and they begin to wonder whether the agency’s advice is geared toward helping them succeed or toward helping the agency garner a bigger fee.
This is, of course, a huge problem when it comes to doing business in the age of programmatic buying, where black boxes can obscure true costs and allow for undisclosed markups on media. When agencies are earning a percentage of their clients’ programmatic spending, whether it’s disclosed or undisclosed, they immediately jeopardize their role as a strategic advisor. Given programmatic buying’s popularity, this means advertisers have fewer unbiased strategic partners they can rely on.
That is, unless agencies wake up to the notion that when they jump aboard the programmatic bandwagon, if they build in a percentage of the client’s media spending for themselves, they relinquish their ability to provide unbiased advice to their clients. That role for agencies was hard-fought, and we ought not to give it up so easily.
Look for strategic counsel to become a hot commodity in the coming years, and be sure that when compensation models are discussed with potential clients, your agency comes down on the right side for what you hope to accomplish over the course of the relationship. Or, if you’re an advertiser that spends money, be sure your agencies are compensated in a way that lets them tell you what they really think.
Tom Hespos is a contributor at The Makegood and Founder and Chief Media Officer at Underscore Marketing, a boutique firm that creates and manages digital marketing programs. Look for Tom’s column the 1st and 3rd Friday of every month.