Digital Marketing DNA: Gotcha’s When Hiring an Agency

This is one of those “hidden” expenses which tend to slip through the cracks when discussing compensation with an agency. Usually the cost per title/person is discussed and negotiated, but overhead is where the agency makes up or adds profit. I’ve seen overhead, etc. 32-52% above the cost per person. The question you should always ask is why am I paying for the electricity when they have a ton of clients…. How is that separated between clients?

Look I’m not beyond saying people shouldn’t get a bonus. But make sure you understand how it’s calculated and the process associated with determining who gets what and the amount. If it’s not coming out of what you’re paying per person, but the agency profit… they can do and should do what they want.

Miss-aligned staffing is a big issue. You have to decide the type of staff you want on the account. But be wary of high dollar agency executives being billed on the account. Are they adding value? Or are they just pressing the flesh? My starting goal has always been to have 40% on executive billings and the rest on lower level staffers – this way the agency gets off to a good start and transitions quickly. Then over time, I like to move the percentage split to be 20-25% over one year for executive management and after one year approximately 15% with the rest being staffers.

Media invoicing usually takes some time to consolidate and validate billing… with some taking 120 days to be completed. However, having the agency NOT bill you for headcount or media on a consistent basis – or not calling out problems with billing is an issue. Monthly you should get a list of invoices not paid and the date of the invoice. If they don’t provide it, make sure you have agreement you won’t be responsible for invoices you haven’t been informed of after 1 year.

This is always the “big issue” in all the negotiations. As clients we want to hold them responsible for everything, and agencies don’t want to be held accountable legally.
My take – they should be responsible for the work product. For example if an employee steals code from another company… the agency should take the hit. However, if the client doesn’t do the appropriate trademark search when the agency wasn’t asked to do so… the client is responsible.
Also, don’t get so hung up on this… use common sense. Remember, your legal department is geared to limit as much risk as possible.

Yes, the big issue… let’s get it out on the table. It’s in the nature of most businesses to add staff to grow. Frankly, I believe that’s the wrong strategy, especially with the agency. You should work to decrease the number of staff by 2-7% per year… this forces you and the agency to get more efficient and eliminate non valuable projects or processes.

You must have the ability to audit at anytime – period. Naturally, you shouldn’t have access to individual employee’s records, but you should have the ability to look at time cards, etc.
It’s a good practice to audit every 18 months – even it’s just a spot audit.
Also, hiring an audit company experienced in agency audits is a plus – they can ask the tough questions, take the heat with the agency, etc. Make sure that’s included in the contract as well.

Quarterly performance reviews are critical!! Sitting down with the agency team and saying “what could we have all done better?”
If you don’t do this on a continual basis, improvement won’t happen and you’ll quickly end up in a “blame the agency” situation. And that usually ends up in an agency review.

Ensure you have a minimum 6 month non-compete regardless of whether you or the agency discontinues the relationship.

Consolidated media buying offers clients the benefits of reduced costs as their buys are integrated with other clients. Here’s the rub… some media outlets will provide additional bonuses back to the media agency buying arm. Some agencies pocket those bonuses themselves, when they should be split and given back to the client. Make sure you get those extra media bonuses back in your pocket!
Make Goods. Ensure your contract includes the use of make goods prior to utilizing your media budget for the same property. You’d be surprised how these can become a surprise.

Digital Marketing DNA