It Has Become More Difficult To Run A Profitable Advertising Agency – Here Is How To Do It
The marketing communications world started shifting in the 1990s when clients moved advertising agencies from a 15% commission basis to fees; from TV, radio, print, and outdoor to an ever-increasing number of digital media options; a couple of recessions and, well, I’ll stop here. I know this because I grew up in the heady high-profit days and sold my digital agency when it became more difficult to run a profitable advertising agency of any kind.
The Michael Farmer Interview… Michael has advised virtually all of the leading advertising agencies from WPP to Omnicom to you name it to help them grow profits by using smarter agency and staff management. Michael also wrote the book: “Madison Avenue Manslaughter: An inside view of fee-cutting clients, profit-hungry owners and declining ad agencies.” Sir Martin Sorrell wrote the forward.
Over the years, Farmer & Company, the acknowledged expert of Scope Of Work (SOW) management has worked with Ogilvy & Mather, Wonderman Thompson, VMLY&R, The Martin Agency, Saatchi & Saatchi, TBWA, and McKinney to name just a few.
A Bit Of The Interview. From 360 Deliverables To 15,000.
The only true metric in an agency is the profit margin. That’s profit margin by client, which agencies have a hard time doing. And then profit margin for an office and then for a global client. In order to do that, they have to use timesheet data to figure out what their costs are. And everyone knows that the timesheet data is at least 30 to 40% incomplete. And they do not measure and document their scopes of work. When I worked with Ogilvy in the 1990s, they had 50 creatives and they were doing about 360 deliverables, 360 ads. It was all original work, TV, radio, and print. Even then it took us seven weeks to figure out how much work they were doing for each client today. I just did work with a similar office of 50 creatives. Today they are doing 15,000 deliverables for clients because of email marketing, social posting, Instagram, Facebook, you name it.
And, 90% of that work is adaptation work as opposed to origination work. The workload has exploded in volume and diminished in individual importance. Each little thing that they do is pretty small and doesn’t have a big impact on the brand. The agency and clients still don’t know how much of it is. I’ve worked with, Ogilvy, Gray, VMLY&R, BBD, you name it. I’ve worked with them all. I don’t know of a single holding company agency that has yet developed a methodology for measuring the amount of work they do so that they can better negotiate fees and resources with our clients.
Note, I think that this interview is so Important for any agency of any size that I will put the entire transcript in a separate post.
Profitable Advertising Agency Links
Madison Avenue Manslaughter – The Book.
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