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Want to maximize the return on your paid media? Look at your agency’s business model.

It’s important to look below the surface to identify areas of value-loss.

Many marketers I speak to share a common goal: maximizing the return on their paid media investments. This aim varies by objective, industry, size, and business life cycle – but the central focus remains consistent. A recent Gartner study found that 71% of CMOs believe they lack the budget to meet business targets, maybe this is why it seems like such a critical problem to solve.

It makes sense then that the question we help CMOs and VPs answer most is: “How can I get more from my media budget?” While there are several strategies and tactics (which we’ll explore in future articles), one key area to review is examining your agency’s business model. Oftentimes marketers are quick to focus on media issues like ad fraud or balancing brand and performance. However, it’s just as crucial to understand how your agency is deploying your investment in terms of partners, technology, and inventory.

Understanding your agency’s business model and principles is essential. There are numerous practices in the media agency sector that could be diminishing your investment’s impact. Today, I’ll discuss four major concerns and offer guidance on things to look out for to ensure your budget is being deployed in a transparent and unbiased way.

Navigating Volume Deals: Gaining Transparency 

Volume-based deals or quotas are common in the industry. In these arrangements, an agency allocates a certain level of spending to a particular publisher, technology provider, or partner, and they commonly benefit from reduced rates. This approach can be advantageous, especially when there is clear transparency in the agency/advertiser relationship and any savings are returned to the advertiser (or to the agency, if the client agrees). Nonetheless, it’s essential for you as an advertiser to be aware that such arrangements can introduce biases into the media planning and buying process, potentially compromising the quality of the outcomes. It’s crucial to avoid scenarios where your agency’s efforts to meet certain minimums with a publisher result in a media plan that lacks diversity or relies too heavily on one partner. Such situations are more common than you might expect.

Things to look out for:

  • The same vendors hitting media plans without sound rationale
  • Resistance to using certain media vendors that have performed in the past   
  • Inconsistency in the media format / tactics against the brief or audience 

Questions to ask your agency: 

  • Do you mark up any media? 
  • Do you receive media rebates from vendors? 
  • Have you investigated other vendors who can offer similar impact? 

Unveiling Partner Programs: The Bias Beneath the Badge 

Over the past 5-10 years many technology companies have introduced what’s called a Partner Program. These programs are used as a growth tool for the companies, leveraging an agency’s portfolio of clients and position of trust with you by incentivizing them financially or with reciprocal leads. Some partner programs can also provide deeper training and support to agencies as well, which can be beneficial. 

One of the most prolific and effective Partner Programs is this one by Shopify which promises referring parties a whopping 20% commission on referred subscriber fees. Agencies, many with depressed margins, use these programs to bolster profits and generate recurring passive revenue streams. 

Who wins in this equation though? The tech providers win new clients. The agency gets a new lead and referral source. But do you get an unbiased recommendation on the best technology partner to go with? Maybe not. This is not to say that working with agencies who are an official Partner is a bad thing, or that Partner programs offer no utility – you should just be aware of the way the ecosystem works. 

Things to look out for: 

  • Lack of due diligence on a technology recommendation 
  • A focus on one technology partner without sound rationale 

Questions to ask your agency: 

  • Are you part of a partnership program where you receive financial incentives?

Ownership of Supply Chain: Beware of ‘Double-Dipping’

When agencies hold stakes in the supply chain, including proprietary technology tools like DSP’s or measurement/forecasting tools they actively recommend to you – a conflict of interest is introduced. This arrangement can obscure the agency’s impartiality, prioritizing its financial interests over your campaign efficacy. As agencies continue to focus on increasing profits, many (and in particular on the large agency side with available capital) are buying parts of the supply chain that they recommend to you. This means that you are paying them to procure and buy the media or technology and then paying them again in the format of advertising or ad tech spend. Again, this is not to say that an agency’s owned media or technology cannot be advantageous, but the need for transparency is paramount. 

Questions to ask your agency: 

  • Do you or your holding company own a publisher that you are recommending we buy? 
  • Do you or your holding company own technology or a platform that you are recommending we buy? 

The Media Commission Billing Model: Focus on Outcomes Instead

The conventional media commission billing model, where agencies earn a percentage of the media spend, is something that should be reassessed. 

This model inherently misaligns agency and advertiser interests, potentially encouraging inflated media spends over strategic, cost-effective campaign management. In many cases (especially within digital media) increased spend does not mean increased time. When you incentivize your agency on spend and not outcomes you’re simply not positioning them to act in the best interests of your business objective. 

A shift towards performance-based or fixed-fee models promises a more symbiotic agency-client relationship, aligning compensation with campaign success and fostering a transparent, results-driven partnership.

Things to look out for: 

  • Engagements on a media commission.
  • Recommendations to increase budget without proven performance or sound rationale. 

Questions to ask your agency: 

  • Would you lock a portion of your compensation up in hitting business objectives? 
  • Why do you offer the media commission model?

Concluding Thoughts

The intricacies of an agency’s business model, its operational discipline, and billing practices are pivotal in shaping the value you derive from your spend. 

In today’s increasingly opaque advertising ecosystem, the call for transparency, accountability, and efficiency from agencies needs to be louder than ever. Advertisers, especially those steering the marketing helm of mid-market and small enterprises, must demand transparency on volume deals, rebates, partner program incentives, supply chain ownership, and billing models.

Before you assess the media – remember that the media is invested by a partner you have chosen – so it is critical that the partner is providing you with sound and unbiased advice which allows you to yield the best returns.