Six Pixels of Separation - The Blog
November 20, 2013 2:32 PM

How Much Does It Cost?

Let's talk about money.

The marketing agency business is a strange bird. Brands are strange birds too. It's a complex web of relationships that is often confusing, evolving, thrilling, beautiful, painful and more. As the marketing industry evolves, we have all experienced massive shifts in how the business is won and done. First, there is the procurement component. More and more, the procurement department is leading the charge not only in the negotiation of fees, but in the running of the bidding for the business. That, in and of itself, is book-worthy content. For the moment, let's put that aside and look at a more predominant and frustrating component of pitching. Let's talk about when there is no budget allocation.

Why would anybody pitch on a piece of business without a budget?

It happens all of the time. Agencies will be given these massive RFPs (Request For Proposals) or RFIs (Requests For Information) that take days, weeks and more to complete. These phases in agency new business are not only disruptive to the work flow (because agencies never know when they are coming in and then have to divert resources to make a run at this new piece of business), but cost a tremendous amount of money to complete. It's amazing - after all of these years - how brands fail to understand the simple business model of the marketing agency (which is this: agencies charge more for a human unit of time than they pay for it). From there, it has been well-documented that these requests for proposals or information are usually littered with unreasonable requests (like providing strategic and creative direction for a particular problem with no promise of compensation). As a brand, to not afford the agency the courtesy of knowing and understanding the budget that is being laid against the request demonstrates a complete lack of understanding as to how this business works.

Harsh? But it's true.

I have been in the marketing business since the late eighties. I've worked on the publisher side, the brand side and the agency side. From a brand perspective, this all makes sense. They can milk and bilk as much free information out of as many agencies that are willing to play along and then choose one, while still benefitting from the knowledge and insights of many. Smart. From the agency side, this is another story. This is why organizations like the American Association of Advertising Agencies (aka 4A) exist. It is also the reason that they have an extensive resource section on their website with documents like, Best Practice Guidance: Ownership of Agency Ideas, Plans and Work Developed During the New Business Process. Sadly, all of that hard work goes mostly ignored when there is an opportunity for a brand to grab a bunch of ideas off of agencies who are doing a ton of comp work on the front end to score the business.

What is the prize?

Most RFPs and RFIs have a section titled, budget. Sadly, in the past few years there has rarely - if ever - been a true, formal and final number assigned to that part of the document. More often than not, you will see language like: "we're looking for a best-in-class solution and are open to defining the budget once we see the thinking and costing based on the agency's work and ideas." The unspoken truth here is simple: if a brand tells an agency how much they're willing to spend, the agency will spend that entire amount (and maybe a little more). And, while that may have been true in the past, the argument could also be made that agencies simply want to know what the potential business reward will be against the amount of time, effort and cost it will take to complete the RFP or RFI in an effective manner.

Why else does money matter?

Here are some other reasons why allocating a firm budget to a piece of marketing business matters:

  • It demonstrates that the brand is serious and has committed the financial wherewithal to make it happen. 
  • A budget also gives the agency "rails" to work within. In a world where no budget exists, the brand will get a myriad of responses that are all over the map and will not allow them to compare apples to apples.
  • A budget demonstrates the brand's knowledge of the space. When a brand doesn't know how much something costs, it is an early indicator that they are not sophisticated.
  • A budget allows an agency to better understand if this is the type of client that they can work and grow with. I recognize that this may be a contentious issue, but it's true. There are many agencies that are scaled to operate a certain way and budget is a prime indicator in relation to fit.
  • Budget is a two way street: in as much as the brand is trying to find the right agency, the agencies are also trying to find the right brands. Budget is a major factor in this.
  • How much is a house? Without a budget, you may as well be asking a contractor, "how much does a house cost?" It depends on the location, value of real estate, how big of a house, how many rooms, how many floors, what the needs are and beyond. If a brand doesn't know what kind of house they want (in terms of the raw info) along with what they're budgeting against it, what is the point?
  • Brands will get what they deserve. I've seen this happen time and time again. You have inexperienced agencies willing to lose money on the upfront to win a client, so they can add the brand logo to a PowerPoint deck slide to impress others, and the brand winds up getting cheap work with minimal (if any) impact.

It sounds like bitterness, but it's really about transparency.

This isn't about procurement or sour grapes, it's about a healthy and transparent partnership because that's what the best brand/agency relationships look like. If you're hiding what the true value of the work is from the beginning, the relationship starts out in a deficit. This is the marketing business. In business, all parties should be clear on how the process will unfold, who the participants in the competition are and what the prize will be for the winner at the end. This shell game of fishing for ideas, creative and strategy with no commitment to following through on the mandate is a thorn in the side of the marketing industry that doesn't need to be there. Things have, sadly, progressed to the point where agencies are putting weeks against a competitive pitch to only uncover that the project has been shelved, budget wasn't allocated or the brand was simply kicking some tires to see if a better solution was out there.

Brands may think that this makes them smarter at the marketing game, but look at the overall results and costs for that effort? Sadly, this strategy seems like a lose/lose for all parties.

By Mitch Joel


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