Tuesday, May 1, 2018

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.


  1. To the last line of this article, “In essence, fees have made many agencies into in-house agencies”, it’s sad but mostly true. Whether the old media commission + production mark-up compensation model; monthly retainers; project fees; or straight-up manhours (as if they were all created equal), agencies have lost their way because they rarely ever say “No”. Nancy Reagan once said, “Just say no” … but it’s no easier now for agencies than it was then for drug addicts. You get hooked on today’s or tomorrow’s next “fix” (cash or drugs, respectively) and the “pusher” runs your life. You jump when they say jump; sacrifice your dignity; and lose a lot of hard-earned money in the process. Time for EVERYONE to get “clean”.

  2. Anon: This is a brilliant response. I wish you had identified yourself Thank you.

    1. Since you said my response is "brilliant" ... Bill Crandall

  3. You get what you pay for. I can't tell you how many times I've seen clients negotiate low-ball contracts only to complain months later that they aren't getting the senior management attention they thought they deserved. "Then maybe we should revisit the contract". That's when its time to remind them of THEIR customers who demand more management face time than they originally bargained for. Lord knows agency clients love to complain about their own clients' demands. LOL

    1. One of my favorite stories is the client who cut the agency's fees and then complained that they weren't getting service while the agency complained it could no longer make any money. They agreed to part. The client hired a new and even larger agency for a lower fee than they had been paying. After eight months the same thing happened. The client tried to go back to the original agency and offered a higher fee - it was at that time an independent - and refused to do business with the client. You do get what you pay for most of the time.

  4. Every client deserves the advertising that it gets.

  5. Nice piece. The next wave is even more alarming: large clients who consolidate their brands and then go to holding companies demanding bespoke teams, lower costs, and higher output. Essentially, building in-house agencies without the overhead. It is a ruinous model. It works great for the type of ignorant client that has become all-too prevalent: the ones that endeavour to be champions of frugality, who think data trumps creativity, and who don't place enough value on strong relationships. For them, these "cluster models" are a godsend. What they don't internalize is that agency people want to work for agencies, not for clients. And since the clusters rarely if ever share a P and L, every project is a jump ball between different agencies who all fly under the same banner but have different capabilities, cultures, and business needs. It's a zero sum game that creates winners and losers within the same "agency." Simply mushing together agencies and expecting them to all rally around your business and play nice is not how you get good work. Unfortunately, the importance and recognition of good work is in decline.


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