Former Mediacom CEO Jon Mandel caused something of a stir last week at the ANA Media Leadership Conference, asserting that media agencies aren’t living up to their fiduciary responsibilities. We couldn’t agree more, and commend Mr. Mandel for having the courage to address the issue in the face of a complicit industry that would rather not discuss it.
As an agency, we can confirm that kickbacks do exist, due solely to the notion that they’ve been offered to us. You can identify the media vendors who offer to arrange such undisclosed commissions by their dejected looks as they leave our offices.
The issue isn’t that such opportunities exist – undisclosed markups have been with us for a long time – it’s that many agencies have forgotten how to be true agents for their clients. It’s alarming how many media agencies view their clients as sheep to be fleeced, as opposed to partners in success.
But you didn’t start reading this article because you wanted to lament the disintegration of the client/media agency relationship. You wanted some practical advice on what you can do to help protect yourself against undisclosed markups, kickbacks and other such arrangements that drain money from your bottom line.
Longer-term initiatives you might consider involve taking media buying in-house, developing or buying your own programmatic buying solution, or conducting a deeper investigation into media billing practices. These are things that take months or years, though. Here are some things you can do today:
- Change your agency’s billing terms. Order your agency to have media vendors submit copies of bills to the client organization, showing net and gross pricing. If your arrangement with your agency doesn’t include commissions, these prices should be the same. If you compensate your media agency on commission, the difference between the two prices should match the percentage in your agency’s contract.It’s one thing for a vendor to submit a bill showing no markups to an agency. It’s another thing entirely for them to do it to a client. Few vendors will risk trying to sneak an undisclosed markup past a client, as the risk becomes greater of a court viewing it as outright fraud.
- Hire an Auditor. There are companies that specialize in media auditing, and most contracts with agencies allow for audits. Auditing companies can ensure that payment histories to vendors match what has been billed to the client. You’ve reserved audit power for yourself as an advertiser – use it.
- Scrutinize Rollups. If, when you get detailed media flowcharts from your media agency, you don’t see detailed breakouts of activity, that’s where markups can hide. Insist that agencies break out individual media properties on buy authorizations. If all you’re seeing is “Newspapers in 12 DMAs” or a big line item under “Trading Desk” or a DSPs name in digital, you’re leaving too much wiggle room for agencies to earn undisclosed markups. Make sure every media property on your buy has the number of units you’re buying and a unit cost attached to it.
If you’re wondering who can do the detail work associated with reviewing and matching up bills, it might be worth doing a cost/benefit analysis. Depending on how much you’re spending on media, you could convince management that additional headcount is justified, or maybe you can hire an outside consultant if not an auditing firm.
The example Mr. Mandel showed at the ANA conference reportedly showed a differential of seven percentage points in additional commission the agency could earn without their client knowing. If that particular deal were a yearlong contract worth $1MM in spending, that’s $70,000 the agency was taking from the bottom line. I’d like to think recovering that sum is worth the expense of uncovering it.
Lauren Boyer is a partner and CEO at Underscore Marketing, an integrated media agency focusing on health and healthy brands.