The cost of executing digital campaigns
"The high-volume, low-dollar, high-complexity nature of digital programs makes it the most labor-intensive medium in the advertising industry."
This quote is from the 4As (American Association of Advertising Agencies) 2009 report, "A Marketer's Guide to Understanding the Economics of Digital Compared to Traditional Advertising and Media Services". In that report they estimated that digital marketing campaigns may actually cost around 12 to 15 percent of the media plans to execute. According to Google, "Managing display ad campaigns can take up 28 percent of the budget in overhead, compared to 2 percent for TV. Technology provider, Nextmark recently conducted a multi-agency study and concluded that digital campaign execution is about 10 to 12 percent of spend.
And these numbers do not include agency markup. Agencies are allowed to make some profit, right?
The complexity has only increased over the years. What's really pushed this issue to full steam is the rise of self-service media buying platforms. Until recently, most media planners purchased impressions, traffic'd ad tags to publishers, and called it a day. The expectation now is that agencies should be using these direct buying systems which offer the promise of low-cost, highly targeted impressions for their clients. For example, Facebook's PPC self-service platform now runs more display media impressions than any other single publisher.
But someone has to physically manage that media. And it's more than just Facebook. It's Twitter. It's LinkedIn. It's a bunch of new Demand Side Platforms (DSPs) and trading desks accessing billions of display banners, mobile banners, and online video ads. There are even digital-out-of home platforms, radio ad buying platforms, and the trend is that this buying tactic is growing and growing. You can't just hire kids out of college and expect great results. You need experienced analysts to handle these big budgets and complex technologies. I can confidently say that this is the future of our industry.
There has been a lot of industry reaction to the trading desk fees. Industry pundits have cried foul over what they see is double dipping. Although I'm sure there have been some disreputable practices (what industry doesn't have any bad apples), what these critics don't seem to grasp is that bypassing the middle men and legacy red tape, the ability for agencies to provide more value for their clients has increased.
John Bauschard, president and CEO of industry leading technology, MediaBank, (a guy that talks to as many agencies and advertisers as anyone I know) commented to me on how clients should be evaluating these costs:
"Focus on outcomes, not on direct costs. Many of the new tools are incredibly cheap, when compared with their true impact on the client's objectives. But a focus simply on the costs doesn't allow them to make the comparison."
If your agency is scared to bring up the discussion of costs with you, then you could be missing out on some very powerful marketing. They could be so fearful about how a fee discussion might negatively affect the current relationship that they may go on buying over-priced media that they could be buying more efficiently because the more expensive, legacy way of doing things won't get questioned.
Unless you evolve the conversation and demonstrate that you're eager to talk about the value behind these fees, you could really be missing out on some truly powerful opportunities.
The previous four points are not the only ways to evolve the agency and client relationship -- they're just four steps I humbly feel are in the right direction. I'm absolutely certain that there are many of you out there that have great relationships with your partners and don't experience any of the pain points I've identified. The fact remains, however, that you can always evolve any partnership discussion in other ways. What's most important is that neither side feels pressured to hold back from doing great work because of simple issues that can be solved with a better and more effective dialogue.
Josh Dreller is VP of media technology and analytics at Fuor Digital.
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