Clients Actually Running Their Agencies

When ad agencies earned commissions they were profitable, independent and marketing partners for their clients. Then, in the 1970’s consultants came in and started cutting commissions – first network TV buying and planning, then spot television, then, gradually all other services, even production.

The problem is fees. 

There are several issues with fees, these are the same for the large, worldwide agencies and small independents.  First, there is always an agency somewhere that will cut fees and take the business at a lower cost.  Fees, in this way, have commoditized the business, making one agency, in the minds of many clients, the same as any other since they are only looked at in terms of dollars.

The second issue is that money rarely takes into account the talent working on a client’s business.  Fees do not guarantee that money paid to an agency will guarantee the best people for that particular account.  Client’s demanding a lower and lower blended rate (the aggregate of all salaries, stated on an hourly basis) have made it difficult if not impossible for agencies to provide the best, most talented staffing on their account (that is not to say that paying more money is a guarantee of the best talent, but it does mean that the stars may  not be affordable for the client).

And this brings up the biggest and most important issue.  With fees, clients are actually in charge and running their own agencies.  It used to be said that commissions (usually 15%) were paid to guarantee objectivity. Agencies were able to be honest with their clients about the necessities of the business.  For those too young to remember, commissions were paid by the media, not the client.  The media billed the agency gross, and the client paid the net (less the 15%).  Consequently, agencies tended to be objective and, when they felt it necessary, disagree with their clients.  It also meant that the agency controlled its staffing on any particular account, giving the account the people they deemed best and most appropriate for the business – ad agencies could determine who could best service any particular client.

I have always understood this issue, but one day, about 15 years ago, it came home.  One of the major agencies was about to hire a group director to run a particularly large and visible account.  As a courtesy, they sent the person to meet the client; she already had an agreed upon compensation package and a start date.  Her meetings at the client were pleasant and quick.  After the meetings the agency called me to tell me that they could not hire this person – the client decided that they no longer needed anyone on their business who was this senior.  Period.  End of story.  The client dictated the level and experience of the person who should be running their business, right or wrong.  They agency disagreed but felt that they could do little about it.  A year later, the agency lost the account because the client did not feel it was getting the best work.  True story.

Sadly, at most large agencies, the job of the group director is to keep the dollars in line and insure that the agency is adhering to the client’s financial guidelines and dictates. It is why agencies no longer spend enough time visiting their clients and walking the halls, or making necessary market visits (store checks) or calling on merchandise managers with their senior clients. 

This means that in every aspect, including creative, the client is now in charge of its own business.  Despite the strength of some agencies, it makes it extremely difficult for any company to tell its master that the master is making a mistake.

In essence, fees have made many agencies into in-house agencies.  Pity. The big loser is the client.