Agency Negotiations are critical to the success of marketing initiatives. I’ve done a number of negotiations over my career. Here are a few things I’ve learned. The below are some thoughts… you are responsible for anything you implement, I’m not responsible for anything you do.
- Negotiate each price piece separately. You need to understand the exact costs you will be charge for each function.
- Salary’s — you do NOT have the right to see the agency’s staff salaries. But you can identify the salary bands.
- Identify the definition of each salary band and the number of staff members who will be in each band. Not the names.
- Determine the exact number of people on the account — full time, part time, as needed, etc.
- Provide the agency with a very clear statement of work. They can’t tell you the cost if you don’t tell them the work.
- Thus, the statement of work will help determine the resources and allow you ensure you have the right level of staff.
- Take a look at how Executive salaries and time are applied to your account. These salaries are higher so the more time on the account the more the cost. Are you going to be engaging with them that much? And what type of engagement? Is it a check in? If that’s the case, I’d question whether you should pay anything.
- Overhead — the hidden costs. Understand every single piece of overhead for each office, geography, etc. Here’s my thought… there are overhead fees which need to be paid, but you should pay your fair share. Larger clients usually cover a larger portion of overhead vs. smaller clients just based on shear overall billings. Watch these expense carefully.
- Rebates. As I’ve blogged about earlier you must clearly state what your position is with rebates. Do it in the contract so you’re not dealing with this issues later.
- Data security and privacy. You don’t think of this one until either your company data is leaked or your customer data is leaked. Make sure you are clear as to who has access to your company marketing data. And I always want my agency to have the same strict data privacy and security rules for any customer data they might possess. Anything less will probably cause heartburn.
- Media Rates — are you paying a percent of media only, which covers everything? Or are you paying a media rate and also a fixed fee for staff. Or something in-between. This can get very complicated. I always like to look at it from different options and see what makes sense — both cost and support wise
- Individual Media Rates — check out all of the rates for each media type. Digital, search, TV, etc. Negotiate them all individually if possible.
- If you can cut to the chase and get everyone to sing from the same hymnal… get agreement with the agency for a set a profit percentage. If you get to this, then you need to work on reporting and quarterly adjustments as appropriate, etc.
- Setup quarterly reviews with the account team, etc. Discuss performance. Identify what and how any issues will be dealt with and a correction plan. these will be carried out.
- Set the rules — sounds easy right? Do the advertising, place the media. But what about entering your ads into award contests? How about paying for tickets for your staff? All without your knowledge? Put some parameters around some of the big areas. You won’t get them all, but everyone will know your intentions. Also, make damn sure your staff is aware as well to avoid the “didn’t know syndrome.”
- Bonuses. Just like your employees, bonuses will probably be a form of most agency staff compensation packages. This one gets tricky… is the agency responsible to pay for this out of profits? Or, should it be something which is worked into the overall compensation you pay the agency. I’ve done it both ways.
- Clearly identify the business performance metrics and apply these to the agency’s performance metrics. Get the scorecard defined, agreed upon by all and put in the contract.
- kick backs or added fees preferential vendors
- Always have the right to audit every single dollar and invoice which flows through your account. Get the agreement on how many times an audit can take place, but the circumstances, scope, if any costs will be applied for doing an audit.
- Procurement. Have them lead any negotiation, but for God’s sake, keep the pitfalls at bay. This should not become so intense that you and your agency questions whether they should actually have this relationship.
- Don’t get carried away. You’re not going to get everything you put on the table. Make it clear with Procurement what you can and can’t live without. And make sure you understand what Procurement can and can’t live without. Usually indemnity gets dicey.
- Structure. Lay out your agency organizational structure ahead of time. This can be an addendum, etc. But get something down on paper so you understand what/who is being hired, for what positions, who they report too, etc.
- International aspects. If you’re an international marketer, check to see if they have translation experience. Cultural knowledge is key. Knowing the media within the market. Don’t get the typically “yes we do that” — get examples, speak to clients.
- What will constitute past due billing for the client and what the agency will charge you. Again, they are not your bank. Pay them on time. Don’t play the “float” game after you’ve negotiated the time for payment to be received.
- Make sure the agency is paying it’s vendors on-time for your business. At one point, media company’s wouldn’t buy media for me, because the agency had not processed previous payments due to them.
- Professional Agency Negotiator. This might be a good idea if you or your procurement team are new at these types of negotiations. Agencies are different than your typical vendors and you need to understand this prior to going into negotiations.
- Scope of Work — make the scope of work the agency is responsible for very tight. Make it clear, understandable, with notes and examples.
- MSA. Align your statement of work as close as you can to that of your normal contracts. One note, media agencies are shelling out a great deal of money to media companies, so pushing the agency’s payment to 60 or 90 days is unrealistic. I prefer 30 days… an agency is not your banker.
- How to add in other work. You want a control point for moving additional work product under an agency. Hopefully, you’ve already negotiated the pricing, but allowing your entire company to move business around without a control point is problematic. It’s not that you’re telling people they can’t move the business, but rather, you’re making sure you know what the agency is doing… as this can impact service levels and the like.
- Indemnity. I wish I had a lot of input on this delicate topic. Basically, who takes the blame and is legally responsible. Experience has taught me this is a mid point type of discussion. Be smart on what the agency is fully responsible for, but also realize you have responsibility as well.
- Do NOT have any work start before negotiations are completed and contracts are signed.
- Don’t screw them — come on, they’re not in business not to make money. And this is down right stupid.
- Administration — how solid is their accounting/billing function… how about legal?
- Meet the entire staff — everyone who will be on the account.
- Have your finance/accounting department meet with the agency to determine strength in billing function.
- Legal — same for your legal team… understand if they experience in particular advertising based legal research… and what will be the split between responsibilities.
- Industry experience — is it important they have it or a nice to have
- Determine if they are going to bill you for the pitch. And frankly, you might want to offer to pay each agency a certain amount to offset their costs… it will show a partnership spirit.
- Find out the exact date that the billing starts — I’ve seen arguments start at the beginning of an agency/client relationship over this very question.
- Ensure a cultural fit between the client team and agency team.
- Make it clear when the metrics for performance start… and ensure the agency has the numbers/criteria, etc. And of course make sure everyone is in agreement on these areas.
- References — speak to the ones the agency gives you, but research others or past clients and try and connect with them as well… let’s be honest, everyone doesn’t always have a bad experience… but, finding out the warning signs at least gives you heads up when you need to course correct.
- Don’t be an asshole during the negotiations… respect is critical all around.
- Set a schedule of when and what you want done during the first 90-120 days. e.g. when all staff will be on-board, when media is transferred, when international operations will start, when the first campaign will launch, etc.
- Determine what you own, vs. what the agency owns as it relates to IP, research, modeling, data, creative, etc.
- Make sure you feel comfortable with account management, research, database marketing, and other disciplines… I always like to have the client teams meet with the agency teams to get a feel of strength/weaknesses, etc.
- Conflict of interest. This one is difficult with large holding company’s. I just like to make sure any of the agencies working on the business do not have a conflict.
- International culture experience. Sounds simple, but having those people in country to advise and work with your country teams is imperative.
- Working with other agencies/vendors. Make it clear that everyone will play in the sandbox nicely. This is your responsibility. The statement of work needs to be clear, and ensure one agency doesn’t play the blame game.
- Technology — do they have the proper tech to service your account… how about servers, a Digital Asset Management system, the right statistical modeling software? And if they don’t, list out your expectations, and find out if you’re responsible for the cost.
- And speaking of a DAM — make sure YOU own the content on the DAM. And make sure you own any and all work product.
- Who’s the “one throat to choke” — you’ll need to know who it is, trust me on this. And I mean the very top… meet them, know them, etc.
- What’s the agency’s employee policies as it relates to background screenings, etc. Make sure they are similar to yours… I once had an agency employee who’s background was flagged by our security team when we did our checks given they were going to be on-site. You don’t want that stomach acid.
- T&E — I like to match them identical to the company’s. Reason? There isn’t any bitching by your staff when they see an agency person sitting in first class, having a top end hotel room, etc.
- Define your competition and product categories. Determine if the agency is in anyway working with those you consider competition. And if so, are you willing to live with it.
- Qualify if the agency can pitch others in your category. There is nothing worse than being dumped by the agency because they went fishing for a larger client.
- Put in place a time period in which the agency can not work with those in your competitive set. And make sure this applies to the actual people who have been on your account.
- Ensure that agency staff must sign confidentiality documents on your specific account information, etc.
- If the agency resigns the account, determine the time period they will need to continue to manage the account, until a subtle agency is found to replace them.
- Determine how you will notify the agency of a dispute, the time period associated to fix the issue and ramifications if it’s not fixed.
- Check if the agency’s holding company is working with a competitor and what your stance will be. And again, put it in writing.
- Make sure you inform the agency of special circumstances… the one I always had to deal with while at HP, was agency staff coming into the building with a Dell or Apple PC.
- New skills — how does the agency staff on top of new skills, products, etc. For instance do they really understand SEO and social media and the like. Make sure this is specifically called out and defined.
- Clearly identify the fee schedule for everything… I mean everything conceivable. Document everything.
- Identify when you’ll have discussions on compensation in the future. Face it, inflation happens and your costs will probably go up at some point. If you can limit this contractually, all the better.
- International agency alignment — in Japan, more than likely you’re going to work with either Dentsu or Hakuhodo… their the biggest players. Make sure BEFORE you sign the contract what those terms are so you don’t have to negotiate again. And ensure that your primary agency is responsible for and manages that work with the international agencies.
- Currency buying — ensure you know if the agency is hedging currency for media buys. And make sure you don’t end up having to pay the price if they hedge incorrectly. Frankly, I don’t like this practice…
- Is you're working with an agency who is part of a holding company, it’s probably a good idea to get agreement that the rates you negotiate are applicable across other agencies in the holding company.
- These are just a few thoughts, check with the ANA and the AAAA for more information and thoughts on agency negotiations.
- Finally, this should not be “us vs them” — it really should be a discussion of the needs of each side of the equation. Respect should be key in all of these discussions.
Good luck.
Scott
