Marketing Math Blog

Feb 01
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Is There Gold on Oak Island? Or in Programmatic Buying?

By Ad Fraud, Media Transparency, Programmatic Buying No Comments

money“The Curse of Oak Island,” History Channel’s long running TV show chronicles the Lagina brothers search for buried treasure on a remote island off the coast of Nova Scotia. After eleven seasons, the brothers and their team have yet to find a horde of gold, the holy grail, or the ark of the covenant all which legend suggests were buried on the island.

In many respects, the plight of the Lagina brothers can be likened to advertisers and their search for advertising “gold” through the use of programmatic buying. With the promise of greater efficiencies, better targeting, and improved effectiveness programmatic buying has yet to deliver on those aims. To the contrary, a multi-layered, often opaque supply chain, increased intermediary fees, lack of measurement standardization, and persistent fraud have negatively impacted advertisers’ investments in this area.

Yet 55% of ad spend is going toward digital media with a preponderance of that is being place programmatically. Further, most marketers know little about how those investment decisions are being made on your behalf.

According to the Association of National Advertisers (ANA) recent “Programmatic Media Supply Chain Transparency Study” of the estimated $88 billion in open web programmatic ad spend “around $22 billion is wasteful and unproductive.”

If you are alarmed by that number, you may want to engage your media team and agency personnel in dialog around the questions suggested by the ANA in their report. Below is a sampling of the suggested queries:

  • Ask why Made for Advertising (MFA) websites are utilized, as they are largely useless for growth-oriented strategies.
  • Ask why they “spray and pray” across 44,000 websites per campaign when less than 5,000 will probably be sufficient.
  • Ask whether the agency is acting as principal or agent. If they are acting as principals, are your brands getting the best media deals possible?
  • Ask why they have not already embraced log-level data, a principal pathway to more effective decision-making with programmatic media.
  • Ask if they are fighting fraud optimally. Or better yet, ask if they know where to look for fraud and how to fight it when they find it.

The stakes are too high for advertisers when it comes to their continued and escalating investment in this complex area. In the words of twentieth-century American scientist, Alan Perlis: “Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it.”

Now is the time to “turn up the heat” as it relates to advertiser demands of their media supply chain partners and the need for greater accountability around the issues plaguing their programmatic investments.

Dec 05
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Are You Spending (Wasting) Too Much on Programmatic?

By Ad Fraud, AdTech, Digital Media, Programmatic Buying No Comments

RiskAccording to Statista, global programmatic ad spending will reach $617 billion in 2024, growing over 20% year-over-year.

The unabated growth of this sector is quite amazing when one considers the findings from the Association of National Advertisers’ (ANA) recent study on the programmatic supply chain. Consider the following observations from their research:

  • Only 36% of a programmatic dollar invested via a DSP effectively reach a consumer.
  • 29% of each dollar goes to cover DSP and SSP fees.
  • Nearly 35% of every dollar is spent on fraudulent, non-viewable, MFA or non-measurable traffic.

Ironically, the ANA study is not revelatory in nature, rather it has reaffirmed what the industry has known for several years… this sector of the media market is fraught with risk and inefficiencies for advertisers. Yet programmatic accounts for nearly three-quarters of digital media spend.

While there is no silver bullet to cure these ills, the ANA made two key recommendations that advertisers may want to consider:

  1. Reduce the number of SSPs utilized – The study found that media teams were utilizing between 9 and 53 SSPs. The report authors stated their belief that 5 to 7 SSPs would be optimal.
  2. Cut the excessive use of programmatic partners – Researchers found that the average number of websites purchased averaged 44,000 per campaign. The report authors recommend reducing that number to 75 to 100 “trusted programmatic partners” to provide media buying teams with access to the premium inventory they seek.

According to the ANA, implementing steps such as these could result in “savings of up to 25% the media dollars spent using ad tech on the open web.”

One thing is clear, considering the ANA’s report… media buying teams will need to consider altering their approach to mitigate advertiser risk and boost the return on their programmatic media investment.

 

Nov 30
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Blind Trust Puts Advertisers at Risks

By Agency Holding Companies, Client Agency Relationship Management, Featured, Marketing Accountability, Marketing Agency Network No Comments

Trust“Trust without inquiry is a compass pointing toward deception.”

The advertising industry was founded based upon the trust between stakeholders in what was once a compact supply chain. Much has changed since the early twentieth century as the industry has evolved into a complex, rapidly changing business sector that has significantly diminished the level of trust among advertisers and their partners.

In our experience there are a handful of factors related to this metamorphosis that have created financial risks for advertisers:

  1. Holding Companies Have Come to Dominate the Agency Landscape – Since eschewing the full-service agency model in favor of multiple specialist agency partners, holding companies have greatly expanded their portfolios through acquisition to include dozens of agency brands, data companies and technology firms. Publicly held, these organizations’ primary responsibility is to their shareholders, not the clients that they serve. The transition from full-service agency partners has impacted advertisers as well, causing their agency networks to expand often beyond their marketing teams’ ability to effectively manage each of those relationships.
  2. The Advertising Supply Chain Has Dramatically Expanded – The number of intermediaries that provide service to and or transact portions of the creative and media services funded by advertisers has grown significantly. Importantly, each of these intermediaries, with their own financial self-interest, takes a cut of an advertiser’s investment to compensate for their services. This has reduced “working” ad dollars and dramatically limited advertiser transparency into the disposition of their ad funds at each phase of the advertising investment cycle.
  3. The Principal Agent Model Has Been Breached – Long the basis of Client/ Agency relationships, advertisers historically could take comfort in the recommendations and actions of their agency partners knowing that they had their interests at heart. The basic tenet of this model is that the agent is obligated to make decisions and take actions that are always in the best interest of the principal which, in turn, achieves the highest possible degree of accountability and trust. However, a conflict has arisen with the advent of principal-based media buying and non-disclosed transactions between agencies and their related entities, whereby advertisers can no longer rely on agencies always having their best interests at heart. In a recent Forbes article on misaligned client/ agency financial interests, Arielle Garcia, former Chief Privacy and Responsibility Officer at UM Worldwide summed it up well: “Advertisers can’t trust their media agency partners to always act in their best interests at the moment when the agency’s best and economic interests diverge.”
  4. The Estimated Billing Process is Outdated and Ineffective – Billing advertisers in advance of service delivery and or media activity based on estimated costs in the hope that third-party vendors will be paid on-time and that those estimated billings will be promptly and accurately reconciled to actual expenses do not serve the interests of advertisers. Presently, agency “final/reconciled billing” does not include copies of associated third-party invoicing and many agencies often do not reconcile costs until 120 to 180 days after a job/ campaign closes, and in some outlier cases, not at all. This severely limits advertiser visibility into what happens to their funds once they pay an agency invoice. Consider a recent study by OAREX for MediaPost which found that nearly 50% of digital media invoices were paid late and that over 20% were underpaid. According to OAREX, while causal data was limited, their analysis showed that “the demand-side overall is keeping its cash close to its vest.” If an advertiser is paying its agency within 30 – 45 days from the receipt of an invoice, what is causing the problem? Which demand side entity(s) is hanging on to the advertiser’s cash?

There is an obvious, cost-effective method to address these risks… agency contract compliance and financial management audits. Notably, most client/ agency contracts afford advertisers this right and require agencies to fully support their billings to the client. These reviews encompass all transactional data between client and agency and the agency and all affiliates and third-party vendors, providing comprehensive feedback on the age-old question; “Did we get what we paid for?”

These projects are conducted with the support of agency finance personnel and do not interfere with the day-to-day activities of the advertiser’s marketing team and agency staff responsible for service delivery. The costs are miniscule relative to the learning and financial benefits gleaned from such reviews. And the trust earned from these audits can go a long way toward eliminating uncertainty and building relationships.

As it has been said, “When you trust someone blindly, it only proves that you are actually blind.”

Oct 31
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Interesting. But How Will It Affect My Fees?

By Agency Compensation, Agency Fee & Time Management No Comments

contract signingIn theory the fees that agencies charge their clients are based upon a combination of direct labor costs, an overhead allocation, and a desired level of profit.

Agency operating expense, which is the combination of direct labor and overhead costs can vary dramatically from one organization and one market to the next. While there is no standard for overhead rates, which are often expressed as a multiple of direct labor costs, advertisers and agencies largely agree on the components of each of these categories. Direct labor consists of payroll and related payroll expense. Overhead covers indirect labor, space and facilities, some categories of corporate expense and professional fees.

Since most advertisers, according to the Association of National Advertisers, utilize fee-based compensation schema and many of those are direct-labor based engagements advertisers engage in dialog on each of these components to gain an accurate view of agency costs and to establish mutually agreed upon guidelines. Once aligned, the parties will negotiate full-time equivalent standards, the treatment of temporary employees and freelancers, overhead factors (typically expressed as a multiple of direct labor costs) and profit margins.

Over the course of the last three years there have been several interesting developments that directly impact an agency’s operating costs. These include, but are not limited to the following:

  1. Increase in the number of agency employees working remotely.
  2. Higher percentage of freelance personnel that compose an agency’s workforce.
  3. Consolidation of agency brands, offices, and shared services.
  4. Emerging technologies and their impact on the number of labor hours required to deliver a scope of work.

These trends have certainly resulted in a higher level of operating efficiency for agencies. The question is: “How have these efficiencies impacted the fees agencies charge to advertisers? In our contract compliance practice, where we review agency staffing plans and fees, the answer appears to be fees have adjusted little if at all. Consider the following marketplace dynamics considering these trends.

Post-COVID 19 many agencies have not mandated a return to the office for their employees, certainly not on a full-time basis. Further, as part of an effort to attract and retain talent, many organizations have implemented a hybrid model that allows employees to live and work remotely, spending fewer days (if any) at the office. In addition, agencies have embraced the concept of flexible workforces, comprised of an increased mix of freelancers to supplement their full-time employee base. As such, agencies, have been able to reduce their real estate footprint, develop location-based salary guidelines to reflect the variances in talent cost by market for remote workers and reduce the cost of onboarding, training, and compensating employees by using freelance personnel. Actions such as these can lower both direct-labor and overhead costs.

Many of the agency holding companies have begun to consolidate agency brands, eliminating duplicative resources, and sharing back-office personnel and platforms to reduce operating costs and drive efficiencies. Recent news for example has profiled WPP’s reorganization of its media operations (GroupM, Mediacom, Wavemaker) and its plans to merge VMLY&R and Wunderman Thompson into the “world’s largest creative agency.”

AI will most definitely expedite an ad agency’s ability to complete tasks, requiring fewer employees and hours. While there are advantages to be gained by both advertisers and agencies, many in the industry have raised concerns about AI’s threat to the direct labor-based billing system or more specifically, the agencies that employ this mode of compensation. According to Forrester Research “Some 33,000 ad agency jobs, or roughly 7.5% of the current total agency workforce, will be lost to automation by 2030,” At a minimum, agencies may be more open to considering outcome or performance-based compensation models to counter AI’s potential impact in reducing billable hours.

All successful client/ agency partnerships are predicated on mutual respect, a shared perspective, and a fair agency remuneration program. That said, advertisers should be cognizant of the forces that are underway to reshape how their agency partners organize and the resulting impact on their operational costs when negotiating fees.

Oct 03
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3 Key Reports Every Marketer Should Review

By Client Agency Relationship Management, Marketing Accountability, Marketing Budgets No Comments

Keys to SuccessWhen it comes to budget management no one likes surprises, least of all marketers.

The process around initiating advertising creative/ production jobs and media campaigns is typically sound. Plans are reviewed and approved, statements of work prepared and executed, purchase orders issued, agency invoicing is generated, and work commences.

Unfortunately, the process for tracking jobs once work has begun is less well defined in most organizations. This can pose challenges in an industry that relies primarily on estimated billing and has become accustomed to elongated job / campaign closing timelines that often run 120+ days following the cessation of activity.

To address this situation, it is incumbent upon marketers and their agency partners to closely and regularly monitor spend levels and pacing vis-à-vis approved budgets. In our experience, there are three key reports that every marketer should ask their agency partners to generate on a monthly basis for review and discussion between stakeholders within each organization.

Job Cost Detail Report – For each job or campaign initiated, require the agency to summarize progress from both a fee and expense perspective relative to estimated costs. These reports should identify approved funds by category and project-to-date progress compared to the actual time and cost incurred.

Fee Burn Report – Tracking agency time-of-staff investment and fees earned at both a retainer and project level provides a clear indicator of resource utilization. Understanding agency staff utilization relative to the percent completion rate for an annual retainer or individual job is critical if marketers and their agency partners are to effectively manage performance in this area. Importantly, if hours are running higher than anticipated, both parties can make the necessary adjustments to mitigate the potential for time or fee overages. Similarly, if projects are proceeding smoothly and the potential exists for coming in under budget, marketers can either redirect agency time to other projects or identify potential credits that could be due back upon job closing. As well, this type of tracking often becomes the basis for estimating future work, especially if job types are reoccurring.

Unbilled Media Report – It is imperative for advertisers to track the cost difference between media funds approved and prepaid for relative to the amounts billed by the media seller and paid by the agency for media placement activity. Unbilled media occurs across media types but can be most acute in digital and can run in excess of 12% of total media spend. Most client/ agency agreements contain language regarding this area and guidelines around the timing of media cost reconciliations, the return of unspent media funds to the advertiser and the indemnification of the agency as it relates to latent media seller invoicing. 

While generating and reviewing these reports is helpful, scheduling recurring monthly meetings with each agency partner helps expedite job/ campaign closings and reconciliations and significantly mitigates the risk of budget overruns or unused funds not being returned to the advertiser in a timely manner. In the words of American architect David Rockwell:

“Every project is an opportunity to learn, to figure out problems and challenges, to invent and reinvent.”

Sep 06
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4A’s Position on Payment Terms

By Marketing No Comments

4A'sAdvertisers should never expect an agency to cover media costs or other third-party expenses. Payment terms should ensure that an advertisers funds are on-hand at the agency to satisfy all third-party vendor payment obligations in a timely manner. Further, there are two aspects to the payment terms discussion:

  1. When the advertiser pays the agency.
  2. When the agency is to pay third-party vendors.

These payment terms should be discussed, agreed to, and incorporated into the client-agency agreement … Read More

Sep 05
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Relationship Risk: When Actual Practice Deviates from Contract Terms

By Client Agency Relationship Management, Contract Compliance Auditing, Marketing Agency Network No Comments

RiskContract: A formal, legally binding agreement between parties defining what each party will do and the terms that will govern the relationship.

Virtually all advertisers have formal contracts in place with their advertising agency partners.  Most of these organizations have reviewed industry association contract templates and engaged outside legal counsel to review and customize agreement terms and conditions to satisfy their expectations.

All well and good, and while having a solid agreement in place is an important safeguard in any business relationship it doesn’t eliminate risk. As relationships evolve and personnel on both sides turn over, knowledge of the terms of the contract and their intent often wane.

This dynamic can result in agency relationship managers with little knowledge of the binding agreement that adopt practices which deviate from contractual guidelines, opening the door for potential legal and financial risks.

The good news is that these risks can be easily addressed by adopting the following three processes:

Regularly Review & Update Client-Agency Agreements:  Schedule annual contract review sessions for each agency contract.  These sessions, involving authorized representatives from marketing, procurement, and legal should be scheduled 2 to 3 months prior to the start of the new fiscal year. Reviews should include discussions surrounding client-agency relationship changes, regulatory, and or industry related issues that may pose legal, financial, or operational risks. Proposed contract language enhancements, addendums, and annual Statements of Work should be shared with each agency partner at a time and in a manner that allows for dialog and the execution of the updated agreements prior to the end of the current term.

Periodically Audit Agency Contract Compliance: It is an industry standard that advertising agencies must be able to support their billings to clients. This includes fees, out-of-pocket costs, and third-party expenses. Fortunately, most client-agency agreements incorporate “Record Retention and Audit” language that further clarify an advertiser’s rights in this area. However, few advertisers act upon these audit rights to review agency compliance to contract terms and financial management performance. Conducted at two-to-three-year intervals, with each agency partners, these audits can provide valuable feedback to both parties and help to ensure alignment between contractual intent and relationship management practices.

Implement a Cross-Functional Agency Oversight Model: An organization’s agency network is a corporate resource consisting of multiple marketing services agencies that provide valued support to the profitable growth and advancement of a company’s brands. Developing and nurturing these strategic relationships requires a commitment to involve representatives from across the client and agency organization. Securing the involvement of client-side procurement, finance, and internal audit personnel along with agency financial representatives in addition to marketing and account management personnel brings diverse perspectives that contribute to meaningful ongoing dialog around relationship management and performance dynamics. Through a combination of monthly budget and performance discussions and quarterly business reviews both parties and their resulting relationship will benefit from such meaningful interactions.

Experience suggests that such steps require less time and money to advance client-agency partnerships than is necessary to repair deteriorating relationships or to replace a marketing services agency that has fallen out of favor. As Hugh McKay, the Australian scientist once said: “Nothing is perfect. Life is messy. Relationships are complex. Outcomes are uncertain. People are irrational.” Aligning relationship management practices with contractual terms can address these realities.

Jul 04
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Advertisers: Are You Insulated from Supplier Bankruptcies?

By advertising legal, Letter of Agreement Best Practices No Comments

RisksThe current advertising ecosystem is fraught with risks as the number of intermediaries servicing advertisers and their agencies continues to grow. The recent Chapter 11 bankruptcy filing of demand side platform MediaMath serves as a subtle reminder of these risks. At the time of its bankruptcy filing, MediaMath owed several hundred of its creditors between $100 million and $500 million.

To protect their investment from the impacts of this type of event, U.S. advertisers should consider implementing the following two contractual safeguards:

  1. Incorporate a “Sequential Liability” clause into agency/ intermediary agreements.
  2. Require agency/ intermediary partners to secure sequential liability protection in agreements with all third-party vendors.

Beginning in the 19th century, the advertising industry operated on the principal of “Sole Liability.” Where agencies acted as principals, buying media and reselling that to advertisers for a 15% commission. Advertisers in turn would pay their agencies for the authorized/ ordered media. Agencies were solely liable for payments to the media… regardless of whether a client paid them or not.

This approach began to evolve in the 1970’s following the high-profile bankruptcy filing of ad agency Lennen & Newell, which closed their doors owing a few million to media sellers. What precipitated the change? CBS, which had been unpaid by Lennen & Newell sued one of the agency’s clients to recover their funds, even though the client had paid the agency for the media ordered. While CBS ultimately lost the lawsuit, it set the stage for robust dialog among industry stakeholders about “who” was ultimately liable for payments to the media.

Enter the concept of “Sequential Liability,” which is endorsed by both the 4A’s and the ANA. In short, the agency is liable for payment to the media if and only if they have been paid by the advertiser. In turn, if the advertiser has paid the agency, they have no further obligation to the media seller.

Thus, for advertisers, establishing sequential liability as it relates to third-party vendor payments protects them from the failure of any agency or intermediary when it comes to paying their vendors, for which that intermediary has already been paid by the advertiser. In short, advertisers are only obligated to pay once.

However, advertisers must also require their agencies and intermediaries to provide notification of any third-party vendor that will not recognize the principal of sequential liability when transacting business on its behalf. By way of caution, media sellers (for instance) often incorporate “No Sequential Liability” or “Joint and Several Liability” clauses into their agreements or purchase orders with agencies which contradicts or disallows this important advertiser protection.

While properly screening agencies and intermediaries in terms of their financial health can dramatically decrease an advertiser’s risks, these contract clauses will offer an additional layer of protection.

 

May 01
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Does Commerce Media Work? How Should Brands Fund This Investment?

By Marketing No Comments

mediaGood article in Digiday on what is a unique challenge for clients as they assess overall marketing budget allocation.

In the ever swinging pendulum of power between retailers and brands, large retail organizations, with retail networks can certainly leverage their position to secure brand investments in this area.

The question for brands is at what expense? Can they reduce their trade promotion investment to fund such initiatives? Will they shift dollars from brand building to support their RMN investment? And, in the end, does an investment in RMNs correlate with the potential to drive retail sales? Or does increased spend in this area risk diminishing brand strength in the long-term? … Read the Article Here

Apr 26
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Who Should Be Responsible for Agency Performance Management?

By Advertisers, Advertising Agencies, Marketing Accountability, Supply Chain Optimization No Comments

Assurance CollageAgency performance management is an essential element in building an effective, highly productive network of marketing partners that includes an advertiser’s media, creative, experiential, shopper marketing and PR firms.

While important, agency performance management is sometimes an afterthought for many organizations. Structured properly, a formal performance monitoring and evaluation program can yield meaningful and actionable results on a range of critical topics:

  • Contract Compliance & Financial Management
  • Audience Delivery & Measurement Validation
  • Brand Safety Guideline Adherence
  • Regulatory Compliance Verification
  • Billing & Fee Reconciliations
  • Scope of Work Completion Assessments
  • Agency Compensation & Staffing Reviews
  • QBRs & Annual Performance Evaluations

With an advertiser’s agency partners managing tens if not hundreds of millions of dollars on their behalf, too few organizations have implemented the appropriate controls and processes in this area. Experience suggests that without effective verification controls, advertisers rarely have a clear understanding of how well their advertising investment is being managed.

To achieve this end, it is essential that an organization assign responsibility and allocate a budget to conduct proper oversight of the performance of its agency partners. Some organizations are fortunate to have marketing operations teams or experienced marketing procurement peers and or engage external specialists to consult, audit and improve financial effectiveness in this area. However, this type of structure or process is not employed as often as they should be given the material nature of marketing spend. As a result, most advertisers simply leave the management of their agency network to the marketing team.

Why could this be an issue?

First, marketing’s primary responsibility is to build brands and drive revenue, which is how most marketing departments staff and develop their internal teams. With finite resources, adding marketing personnel with the requisite experience or skills to handle financial, compliance, regulatory, and operational oversight may be a luxury. Given that the average tenure of a CMO is 40 months, the lowest rate in a decade (source: Spencer Stuart, December 2021) it may not be reasonable to expect senior marketers to care too much about monitoring below the line agency performance details or to conduct financial compliance reviews. As an aside, CEO’s have an average tenure of more than two times that of CMOs… 85 months.

Second, despite the level of budget allocated to marketing, conforming to corporate governance standards in this area has not become a priority in many organizations. Without the financial leadership team applying appropriate pressure and installing a strict requirement to improve transparency and accountability regarding a firm’s marketing spend, agency performance vouching simply does not receive the necessary attention. Often procurement, finance or internal audit have an interest in engaging outside support to undertake independent reviews of agency performance or to verify compliance in these areas but, they typically do not have the budget. They in turn must secure the buy-in and funding from their peers in marketing, which heretofore has not been required to comply with such initiatives. In fact, often, marketing will often block or defer any such attempt to review agency performance or compliance with the organization’s desired controls citing concerns regarding timing or available funds or signaling that everything is under control.

One solution to the current quagmire is for organizations to adopt the mindset that a company’s ad agency network is a corporate resource, deserving of cross-functional support. As such, budgets should be established to formalize strategic supplier performance reviews of those agency partners and the appropriate responsibility for monitoring financial, legal, regulatory, and operational performance should be established. Such an approach would allow marketing to remain focused on brand building and demand generation, while engaging qualified personnel (i.e., procurement, finance, internal audit, external specialists) to help establish the desired controls and to monitor agency compliance with those guidelines and processes. This would yield millions of dollars annually per company in the form of reduced ad budget waste due to fraud and process inefficiencies, while also yielding future savings.

In the end, all stakeholders both corporate and agency will benefit from a formalized performance oversight program that aligns all parties’ interests… optimize the client’s return on marketing investment. As Benigno Aquino III once said: “With proper governance, life will improve for all.”