Agency contracts: What kind of animal are you?

Dragon, dinosaur, unicorn or sardine: which persona does your brand project? Your marketing agency contract says a lot about your brand — and sometimes, it’s not the message you really want to send out.  Are you unwittingly inviting suppliers to manage your budget in a way that puts their priorities first, rather than yours?

In business, as in nature, systems evolve behaviours that support their own best interests. The greater the slack in the system, the more freely the system tends to exploit the opportunities opened up. Nowhere do we see this more graphically illustrated than in the financial management of brand budgets by marketing agencies.

Timely marketing contract compliance audits deployed by savvy brand teams are a great way of detecting and beating back the onset of financial entropy!

But first, it has to be said: many agencies do run a very tight and professional ship. Their internal systems and business practices, honed over years of collaboration with financially sophisticated brand management teams, can be pretty much relied on to handle your budgets as carefully as you would. Well, almost — no system works perfectly all of the time! Even soundly-built ships need care and maintenance, and you can’t fix what you don’t know is broken. Timely marketing contract compliance audits deployed by savvy brand teams are a great way of detecting and beating back the onset of financial entropy!

It also has to be said that a significant number of the agencies we’ve audited haven’t been particularly shipshape. They’ve often been leaking profusely at the seams, their captains and crews seemingly inspired more by Long John Silver than by best financial practice. These leaks are, of course, your marketing budget being managed in ways that do not necessarily serve the best interests of your brand’s bottom line. Take a look at some of the anecdotes and analyses in our marketing contract compliance blog for some of the workarounds, run-arounds and ingenious merry-go-rounds we’ve unearthed over our years of auditing marketing contract compliance for global brands.

Send out the right signals

In our experience, the signals you send out through your agency contract are all-important. They project a clear message to your agencies about your brand’s financial management style:

• Red light brands: A strong agency contract and a history of auditing your agencies, routinely and regardless of size, sends out the best possible message: “Guys, we know how we want this to work, and we expect our agencies to get firmly on board. Compliance in markets small and large is something we expect, audit for and are prepared to act on. Let’s all pull in the same direction.”
• Green light brands: A weakly-worded contract with woolly clauses and vague terms is almost as bad as having no agency contract in place at all. It gives the green light to your agencies to manage your funds in their own best interests. A weak contract gives you precious little audit traction and says: ‘Do pretty much what you see fit, you won’t get found out’. As for a non-existent contract… well, it’s carte blanche, virtually the proverbial blank cheque.
• The amber zone: 
Many brands find themselves in the amber zone, somewhere in between the tight controls of red and ‘just bang in your invoice’ of green. Amber triggers very strong alarm bells in our auditing team: the presence of a ‘soft’ agency contract unsupported by regular compliance audits can lull both parties into a misplaced sense of freedom (agency-side) and security (client-side), leaving financial and operational loopholes wide open.

There are some clients who appear to be Dragons that may be treated more like Dinosaurs because they have no history of auditing their agencies…

Out on the street, brand reputations amongst agencies are perceived based on strong, weak and in-between projections of these signals.

• Strong reds aka ‘Dragons’: Large multinationals, usually having teams of specialist negotiators to agree the strongest possible contract, and the firepower to audit compliance with the agreed terms. The ‘reddest’ of these clients will be ones who audit their agencies across the globe, even in smaller markets.
• Large greens or ambers aka ‘Dinosaurs’: Large national advertisers who may not be fully bringing their negotiating power into play to get the strongest contracts. Often this is because they are unaware of the sorts of areas that modern agency contracts should be covering and don’t perceive compliance audits as essential, out of concern that they might damage their agency relationships.
• Smaller greens aka ‘Sardines’: These are smaller clients who often lack the negotiating power or expertise to negotiate the strongest contracts. Neither do they have the financial firepower to audit their agencies regularly or even at all. This means that they don’t pose much of a threat to an agency.
• And then there are those beacons of hope, the small reds aka ‘Unicorns’, who punch above their weight in agency circles. They’ve taken the trouble to negotiate strong contracts and audit their agencies and, as a result, they get treated with the financial respect otherwise reserved for much larger clients.

There are some clients who appear to be Dragons that may be treated more like Dinosaurs because they have no history of auditing their agencies — or are known to only audit their largest agency in their largest market. This sends the message to agencies that, although the contract requires them to behave in a certain way, there’s little chance that they will be penalised for being ‘financially creative.’

So which animal are you? Send us a signal via our contact form and we’ll help you ensure your brand really does have teeth.