“We’re creative people, not numbers people”

Nowadays, some of the freshest, sparkiest, outside-the-box thinking springs from the boutique creative shops. So what are the gotchas and the watch-outs when it comes to tracking spends and monitoring contract compliance with small, independent creative and below-the-line agencies?

It used to be that every major brand had its ‘agency of record’ (AOR) — typically, a global or very large lead agency responsible for the strategic direction and rollout of the brand’s marketing. The AOR did all or most of the branding, creative and servicing legwork associated with your account, either from within the agency’s internal departments (brand strategy, creative, media, etc.) or by managing any specialist external resources required to deliver the mix.

Having an AOR made sense for everyone, it seemed: a single point of responsibility, a single voice for the brand and a nice meaty chunk of business for the agency chosen to channel very large budgets. Lots of responsibility, lots of long-term thinking, lots of focus and managed results.

(Lots of accounting opacity, too — with a complex tangle of fees, commissions, rebates, ‘surplus pots’, mark-ups and reconciliations that’s led to marketing and media transparency coming into very sharp focus. But that’s another story!)

Although the AOR/lead-agency model is still widespread, the rise and rise of digital has generated a bow wave of disruption that’s rocked the boat of many classic monolithic agency arrangements. In its wake comes a whole new creative and production ecosystem, featuring new technologies, new tools, new media opportunities and new creative specialisms, from a host of small, intensely creative agencies and content-producers. These new guys on the block will often be innovating directly with your brand team, bypassing your AOR.

Which brings a whole bunch of challenging issues for the marketing procurement team.

New! Exciting! Unmissable! — apart from the ho-hum bits

These cutting-edge creative and BTL agencies can be dramatically more agile, innovative and responsive, but watch out for the potential downsides.

For a start — or should we say start-up — these businesses will, almost by definition, be very new; their trading record may go back no more than three to five years. Their core strengths are in the creative, tech and marketing-niche brilliance of their founding team, not in their commercial chops. In our role as marketing contract compliance auditors, what we’ve uncovered inside businesses like these ranges from the merely untidy to the hair-raisingly precarious.

Things like:

• Inadequate financial management expertise in-house
• Weakly defined, naïve or poorly followed financial processes and practices
• Account directors and brand managers ignoring contractual terms and agreeing their own working practices. Almost a case of now we’ve got the dull contract preliminaries over with, let’s get down to the nitty gritty of how we’re actually going to work together.
• Scope-of-work definitions — if these even exist — not being reflected in matching job structures within the agency’s systems. This makes it much harder to track and control predicted vs actual distributions of expenditure. The separation between agreed agency fees and third-party costs can become blurred; underspends, overspends and job-level costs are generally harder to understand.
• High dependence on a major client — which could be you or, perhaps more worryingly, not you! — even in agencies turning over several millions, which could leave you very exposed.

Bear in mind that you could be dealing with several such businesses at once, stretching your procurement resources to the hilt.

It’s not us, it’s the system

The project-centric rather than relationship-centric nature of these specialist-agency activities also brings inherent challenges and promotes certain mentalities. For instance:

• Lots of small projects, often awarded by roster and pitch, spells uncertainty for agencies. It can mean that their focus will be wholly on winning and impressing at the project-output level — a good thing, you might feel, until you realise that it’s at the expense of investing in robust and mature management resources within the agency.
• Project-based fees can disincentivise agencies from committing the right number of full-time staff to the account or project. Using freelancers can become more attractive. At the same time, some legacy contract clauses can effectively penalise agencies for using freelancers, restricting their ability to make money and further complicating agency behaviour.
• More freelancers and fewer permanent staff can translate into less agency resource for ‘non-core’ activities like job tracking and reconciliation.

 It’s not me, it’s you

With these fast-moving projects, we often see that it’s not just the agency that’s failing to perform to contract. Brands can and do behave poorly. For example:

• Poor-quality project briefs fostering correspondingly poor contract compliance across the life of the project
• Changes to project scope or specification occurring after prices are agreed — perhaps taking advantage of the competitive tensions inherent in project-based working, which can discourage agencies from highlighting poor client practice. Missing POs, for example: we’ve seen seven-figure exposures left dangling right to the end of the project, leaving small agencies effectively funding a client’s work, putting them in a precarious position.

Going forward

So what can a marketing procurement professional do to avoid pitfalls like these?

We find that clear communication is key. At the start of relationship or contract year, sit with financial professionals from each agency you deal with — or have us do that for you — and work through the key operational aspects of the contract, what your expectations are, and the process you’d like to follow to verify their compliance. And make a tough choice: either write a contract that defines how you will work, or change your contract terms to reflect ways of working that actually make sense for both parties.

For a more in-depth look at the issues and opportunities associated with working with specialist creative and below the line agencies, do get in touch with us. We have a lot of experience with small agencies — in fact, we might be numbers people ourselves but some of our strongest advocates are creatives.