Client Procurement Depts. Ad Agency Friend or Foe?

July 15, 2009

ProcurementWhen you make mention of the client’s procurement depart to ad-agency people, their eyes automatically role to the back of their heads and they invariably let out a groan of frustration. It really does not have to be like that. Let me share with you why.

Whether we like it or not, I can assure you that client procurement departments are going to continue to become more and more involved. This is especially the case in difficult economic time’s when companies are trying to better manage every cent of expenditure. Their focus is not necessarily lowest cost, but more often than not best value for their company. They will pay a reasonable fee for acceptable perceived value. If you approach the relationship understanding this, you actually have a good chance of making them your friend versus your foe.

Inherent within the ad-agency business are legacy practices that tend to be “like a red flag to a bull” to most procurement professionals. Ignoring this fact and trying to “pull one over them,” is counterproductive and will only make your life more difficult. Put yourself in their position and consider what approach would be best from their perspective. Here are some suggestions:

  • Focus on the value you deliver first and then move on to fees. Just because you put in the hours does not mean you should be paid for them. Most procurement people perceive paying for hours as nothing more than an incentive for you to spend more time than necessary. Start by documenting the value you bring and the results you deliver. Then move onto to fees.
  • Know your audience. Spend some time in advance researching what is likely to be important to them, both from a company perspective and individual perspective. What company initiatives are top of mind? What is that particular person’s hot buttons? Forewarned is forearmed.
  • Share industry information. The procurement person you are dealing with may not be very familiar with our industry. Most of the job may entail purchasing products and materials. Take the time to share with them industry information and common practices etc.
  • Be confident, prepared and stand your ground. That does not mean be arrogant and demanding. Rather exude a quiet confidence, know your facts and have back up at your fingertips. Do not cave to intimidation in the early stages. Quite often they are testing you to see just how much conviction you have.
  • Simple, easy to read and no hidden extras. Procurement people are born skeptics and are always looking for the trap. Make sure your proposal is simple, clearly laid out with adequate explanation, and does not contain ambiguity or other misleading items.

What you want is a procurement department that is just as comfortable with you and confident in the partnership as the client marketing team. They can in fact end up being one of your best allies as opposed to you biggest foe.

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Agency Compensation. Haggling over scope and cost!

June 29, 2009

Why does it always seem that agencies end up haggling with clients, like vendors in an oriental market, in order to be paid for the work they have already done?

I was looking at various video uploads on YouTube the other day when I came across this clip. Initially I laughed my head off because it was such a good spoof on how we as agencies struggle to be paid for our work. Take a look at it and you will see what I mean. This is really funny.

 I emailed the link to a few close agency friends, but then started really thinking about the message and the ludicrous situation we find ourselves in. No other business that I know of would accept this type of customer relationship, yet I believe that we only have ourselves to blame.

The answer to the question I am certain that you are asking yourself as you read this is, “Yes, there are clients who have no conscience and take the opportunity to nickel and dime agencies whenever possible. Most however, are prepared to pay for the work if they believe that they are getting relative value from the agency.

It all starts with the fact that we as an industry will gladly spend thousands of dollars of our own money on a speculative basis to pitch a new client account. With odds that can start out as large as 35-1, or at best end up being 3-1; we invest our money, our time and our best talent. In turn, the clients have learned that they can engage the best talent in the agency business at no cost to themselves, and only end up paying for the one they want. And to top it all, some clients even specify that all speculative work becomes their property, whether the agency is selected or not. We taught clients that this was possible.

Our laissez-faire approach continues into the day to day work with existing clients and on projects. At the first sign of an opportunity, most of us rush head long into starting the work with very little up front thought and due diligence. Instead of asking the right questions or taking the time to consider the circumstances influencing the situation, we make assumptions and before we know it we have invested more into the assignment than it’s worth to the client. Sound familiar?

Here are a few things to consider the next time before getting started:

  • The relative strategic importance of the initiative. Is it a key part of the strategy or just a quick tactic to address an immediate issue? The more tactical the assignment, the less important it is likely to be and therefore it will probably not come with a generous budget. Allocate resources, time and effort accordingly.
  • Who initiated the assignment? How often have you gone down a road based on an idea or brief from a junior person, only to have it die an unceremonious death when more senior client team members got involved? Guess who eats that cost.
  • Ask questions up front and listen. If you are not absolutely clear about the client’s expectations, budgets, timing and anything else go ahead and ask. Often we are too scared to ask in case we don’t like the answer. We believe that if we go ahead and do it we will be paid for it anyway. Not!
  • Client focus and expectations. Make sure that you understand what the client expectations are and what outcomes they are expecting. I have seen a brief for a quick and simple direct mail letter that should cost no more than $1200 turned into a Ben-Hur production costing ten times as much. No surprise that the bill was not paid.
  • Clear and detailed client contact reports. Whenever you are requested to initiate, change or re-do an assignment, the request should be clearly documented in a clear and concise contact report sent out within 24 hours of the meeting. It makes everyone’s life easier and often avoids the ensuing conflict.

While you will never avoid these situations you can minimize them. I think you might be surprised just how much more profitable that client account could be.

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Agency Compensation… How You Start Out Is How You Finish!

June 23, 2009

Stingy agencyUnprofitable client accounts usually start out that way as a result of the initial agency compensation negotiations. We are usually so excited about the new client opportunity and so overly anxious about alienating the client in the negotiation process, that we tend to give away the farm at the outset!

This is without doubt the most critical time in this new client/agency relationship. It is during this period you have the opportunity to define whether this is a client relationship that will be profitable and add value to the agency or whether you are going to set yourself up for what is commonly referred to as a “nightmare client!”.

If you ignore the warning signs and hope they will solve themselves, believe me when I tell you they will not. In fact that will only escalate into larger issues that will ultimately help cause the demise of the relationship. You have to have the hard conversations at this point rather than even more onerous one’s a few months down the line.

Now there may be some clients that your agency covets so much that you make a conscious decision to lose money just to have them on your agency roster. If that’s the case remember why you made the decision, especially a few months down the line when you are reviewing client profitability reports. No need to execute the account team.

On the other hand, if your intention is to make a fair profit on this piece of businesses, then make that a priority from the start and negotiate accordingly. If your financial projections assume a certain level of profitability this is the time to set yourself up to make those numbers.

 Here are some tips to help you through the process:

  1. Establish the real spend/budgets. That way you can budget and resource accurately
  2. Discuss client expectations. During these discussions you will soon know what you are in for and if you are going to be able to make it work.
  3. Define the Scope of work expected:
    1. Client service levels
    2. Suitable blend of resources to adequately support the account
    3. Timing, seasonality, continuity of work, planning cycles etc
    4. Metrics, measurement and anticipated results. (Cost per lead, cost per customer, cost per sale etc.)
  4. Briefing procedures. Documentation, process, sign offs etc
  5. On boarding costs. What is the on-boarding process and who will cover the costs of that? How much is the agency expected to contribute to get up to speed?
  6. Agency review schedule and approach. How often, what format and who will attend? Will there also be a client review portion of that review?
  7. Blended rate? Rate card? Assumptions and triggers for change. What fee basis are you going to be working against? What work does it cover? When might additional work revert to rate card etc?
  8. Fee plus bonus? Are you able to negotiate a retainer fee to cover your costs plus an agreed profit level, and will there be a performance bonus too?
  9. Travel & out of pocket costs. What are acceptable, approvals, claim procedures, disputes? etc.
  10.  Errors and omissions. In the case of an error or omission how will it be handled? What compensation is reasonable and how do you both determine what’s reasonable?
  11. Liability insurance. What level of cover is required and are there any specific risks that need to be addressed? Running sweepstakes and games is a perfect example of this.
  12.  Regional, franchisee support etc. Is this required, how it is coordinated, who approves the costs incurred and how are they billed?

 

These are just a few of the questions and issues you need to address at the outset of a new client relationship. Failing to do so, or worse still, avoiding them will only lead to a self fulfilling prophecy. You are setting your agency up to fail!

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