Negotiations can be difficult things, especially when either party is speaking a different language. And believe it or not, marketers and their agencies often speak a different language, which is why these negotiations can become protracted and frustrating.
While we always recommend that advertisers or their procurement team should lead the negotiations, we offer to support these negotiations, providing our industry knowledge and, more importantly, our Verificom Agency Rate Benchmarking database and our Verificom Agency Fee Calculator, which we have used to assess the agency remuneration proposal (if it is a pitch or new contract negotiation) or the current remuneration (if it is a contract review).
An interesting observation is that many marketers and advertisers mistakenly believe that the negotiation will be straightforward and that they do not need this support. Although in a few cases, this is true increasing agency remuneration and the associated negotiation process have become a lot more complex.
Here are a few of examples of how the process can go hopelessly wrong.
1. The goalposts keep shifting
At the end of the pitch process, we used the client’s scope of work to prepare the agency templates for the short-listed agencies to complete. We then compared the agency proposals to the benchmark resource levels, the resource mix and cost.
The final report provided not only the analysis but also recommendations on what needed to be negotiated with any one of the three final agencies, depending on which one the client ended up choosing. The mistake we made is possibly making the next stage look too straightforward as the client, saying they wanted to save money, decided to take on the negotiations themselves.
Three months later, we heard the negotiations kept changing as the client team kept wanting to add additional work into the scope of work and yet were not offering any additional remuneration. Each time the scope increased, so justifiably did the agency fee. It seems that you cannot get something for nothing, except a whole lot of wasted time.
2. The data keeps changing
An advertiser contacted us because they could not resolve the latest round of agency negotiations. They wondered if we could help. Always wanting to provide a helping hand, we asked for all of the agency proposals and negotiation notes to date. It was clear from the pile of PowerPoint documents (the preferred agency format for remuneration proposals) that this had become a protracted process.
We also asked for a copy of the current agency contracts. Something was missing from all of the documentation, and that was an agreed set of remuneration fundamentals. This includes an agreed overhead and profit multiple and billable hours per annum. Pretty much all of the variables you will find in the Verificom Agency Salary and Rate Calculator.
It was clear that without these agreed for both the retainer and the production rate card, the costs would be a moving feast. In fact, it appeared that the agency and client team were using different fundamentals, which goes part of the way to why they could not reach an agreement.
3. The process gets derailed
The fastest way to derail a negotiation is to change the players. The most obvious way is to change the marketing lead on the client side, as this will often lead to a change in the agency as the new broom sweeps out the old agencies. But possibly the most interesting derailment was when the finance director left the agency for a competitor.
On his announcement, the agency marched the departing Finance Director off the premises that day. The client was in the middle of their annual negotiations, and the agency CEO had left all of the work to his finance counterpart. It also appears that the Finance Director had planned, and no one at the agency could find the documentation.
But it could simply have been a stalling manoeuvre as the agency faced a major downward adjustment in their fee due to a major cut in the marketing budget and a corresponding cut in the scope of work. It took almost 12 weeks for the new Finance Director to come on board and complete the negotiation.
Getting the results you need when you need it.
Regarding negotiations, we believe excellent value for money is delivered when the desired outcome is achieved quickly and completely. This means investing time upfront in getting the negotiation strategy right, including a going-in point, negotiation position and a walk-away point and having this agreed upon by all stakeholders.
Once this is complete, it is simply a matter of engaging the agency in the process. From this point to completion, the negotiation typically takes less than a week. The preparation can take several weeks, but the actual negotiation is usually complete in this relatively short time.
Yes, we follow Abraham Lincoln’s advice and make sure the axe is sharp before cutting.
Transcript:
Darren Marketer:
We need to get the costs down.
Darren Agency:
So how are you planning to do that?
Darren Marketer:
Well I thought you might do what you are currently doing for less?
Darren Agency:
Oh, I see, so what, you want us to be less strategic? Or maybe less creative? Or maybe just less friendly?
Darren Marketer:
Now don’t be like that.
Darren Agency:
Sorry, yes, of course, we love working for you so much we would do it for nothing.
Darren Marketer:
Really?
Darren Agency:
No.
Darren Marketer:
It is just half an FTE less.
Darren Agency:
So what, a headless account lead or should I just cut the arms off all of the account team?
Darren Marketer:
Now you are just being difficult.
Darren Agency:
You’re the one butchering the agency team.
Darren Marketer:
Okay, well then maybe just lower your overhead then?
Darren Agency:
There you go with the decapitations again.
Darren Marketer:
What? I’m just under pressure to cut costs.
Darren Agency:
All right, so we can cut 0.3 from account management, and 0.125 from creative, but I need to add 0.2 to strategy and digital is up 3.5
Darren Marketer:
What? That doesn’t add up?
Darren Agency:
Hang on. I have cut 10% off the overhead
Darren Marketer:
Oh, good.
Darren Agency:
But we need to consider a production commission.
Darren Marketer:
Okay. Let me think on that and I’ll get back to you.
Darren Agency:
But we are already six months into this year.
Darren Marketer:
I thought we were negotiating next year?
Darren Agency:
No, we never finished last year’s negotiation.
