Manhattan Marketing Maven

Agency Pricing & Fees -- Benchmarks Revealed

Money makes everybody crazy. Money makes agency executives especially crazy because they are under constant pressure to close business at double digit margins in a marketplace that undervalues agency services. The magic that agencies make is often considered and bought as a commodity.

In a world where clients  buy marketing, advertising and PR services using the same criteria and the same purchasing professionals as they do for buying raw materials and office supplies, setting prices and extracting fees that have any relationship to value delivered is a source of continuing anxiety. Managing competitive pricing while simultaneously managing doubts about the perceived value of agency brands, agency negotiating skills and agency lead generation and selling skills is the target for the newly released Fees & Pricing Benchmark Report produced by RainToday and the Wellesley Hills Group.

This 80+ page book incorporates survey data from 343 professional services firms in the marketing, advertising, and PR industry mixed with analysis from RainToday, a leading sales consultant to professional services companies. It is loaded with data on rates, pricing, fee formulas and selling tactics.

The data shows that the truths agencies tell their clients are equally true for them. Brand awareness and perception drive demand. Brand leaders can charge more, discount less, earn better margins and more frequently manipulate the pricing/billing models. But accomplishing these things isn't easy even for firms with household names. The report documents an industry-wide insecurity about what clients will pay for services, what is the genuine business value agencies deliver to clients and the worry that agencies leave too much money on the table because they aren't good salesman or negotiators.

As you might imagine, the topics on everyone's mind -- those cobbler's son issues that agency executives whine about at the 4As and other venues -- get thorough coverage in this report. Here are some of the key take-aways:

• Almost everybody pays attention to the "going rates." Clients always give away competitive prices during pitches. Many firms actively scout and watch their competitors
• Fixed Fees are very popular because it gives clients predictability and to a certain extent finesses  client's questions and arguments about time/rate/skill/margin mix.
• Everybody discounts. The average variance from the rate card is 25%. Brand leaders discount less frequently and fewer dollars. Bigger firms discount more because they can.
• There is significant experimentation with value-based pricing. But there isn't common definitions of how to do it and no consensus on how clients measure the business value delivered from agency services. Only a third of firms use contingency or success fees in their billing formulas.

Amid the countless charts and verbatim quotes, the emergent prescription for agencies is:

1. Invest in business development. Get serious about lead generation and pipeline management. Aggressively target clients who you know will be right for your firm.

2. Invest in your brand. Make it different and distinctive to attract new business and substantiate better prices and margins.

3. Learn how to sell and negotiate. Get over yourselves. Stop bellyaching about the encroachment of consulting firms and others. Know when to walk away from a global brand with an inadequate budget. Don't let the bean counters push you around.

When Washington Meets the Internet -- Watch Out

The  Internet, eCommerce and online marketing evolved without much government intervention or interference. But as the digital world morphs, expands and impacts on traditional models it collides with existing law, demands new laws and creates questions and confusions for legislators and regulators many of whom have just a passing understanding of what we do, how we think or what will come next.

Attending the 35th Washington Caucus of the Computer & Communications Industry Association (CCIA), the trade association of choice for the online set, was a clarion call to recognize the need to allocate time and resources to address DC audiences, especially those who could threaten our future.

In presentation after presentation Senators, Congressmen and Commissioners, speaking in life-affirming regional accents, made it very clear that there are knotty, substantive issues on important topics like government spying, privacy, health records, spectrum access and allocation, copyright and patent reform or the fair use doctrine that can't be left to legislators or bureaucrats to decide arbitrarily or politically. They also left me with the feeling that on Internet matters the Congress is mostly clueless and likely to default to the positions advocated by phone companies and cable operators.

Its funny how we all know that Congress is a mixed bag of people from all walks of life and all corners of the nation madly wheeling and dealing for resources, programs, dollars and votes in an adversarial hothouse that sometimes reflects reality but often doesn't. Since the beginning of the republic the politics of Capital Hill have been a source of scrutiny and sarcasm as partisans fight tooth and nail for the spoils that only government can dole out. But rarely do we connect this understanding to the business we are building each day or to the medium we are helping to build out.

Now its time for the bits and bytes people, many of whom couldn't be bothered with the pathology on the Potomac to defensively jump into the fray. Why? Because an awful lot of the laws and regulations on the books are rooted in ideas and technologies that are long past. Few in official Washington have a nuanced or experienced understanding about the online world and the expectations about open access, privacy, user generated content, customer service, fairness or community that millions hold to be self-evident and instinctively consider to be their rights as citizens. Too many important decisions turn on technical arguments presented to newbies or neophytes beholding to partisan or corporate interests.

In some cases there are serious debates to be had about how technology is changing fundamental relationships and kicking over or complicating precedents and traditions. In other cases we barely understand the impacvt of technology now and yet have to project its use and its implications into the future. In still other cases, we need to get the fox out of the hen house and stand-up to entrenched interests and the political allies they've bought and paid for.

The future of of the Internet can and will be determined by decisions, choices and definitions that affect technology, taxation, intellectual property rights, privacy, civil liberties law and investments of government attention, resources and cash.

Why should we look up from our monitors and get involved in DC? Because we -- online companies, online merchants, online marketers -- need to

1.Affect how the rules of the game are written.

2. Influence how the laws are enforced or not enforced.

3. Keep the Congress from politicizing cyberspace and from using online issues to ride political or partisan hobby horses.

4. Increase our visibility on the Hill so that we're heard and considered seriously and so that entrenched interests don't buy our representatives out from under us.

Benchmarking the Online Magic

Every CEO and CFO wants their marketers to benchmark and measure the magic. And with the publication of MarketingSherpa's first ever Online Advertising Handbook + Benchmarks marketers will have a fighting chance.

The lovable geeks, zods and nerds at Sherpa, led by Research Director Stephan Tornquist, have collected 211 pages of data from across the advertising industry including survey data from 577 online advertisers at a wide range of companies of many sizes and sectors.

Anyone who needs numbers to sell in ideas or to justify a campaign or to learn from others' mistakes ought to have a copy of this book. At $497 this fact book is a steal. If you hired a consulting firm to get you this information, it would cost 50 times more and be half as good and much less candid.

These guys aren't afraid of the truth. They write, "online there's a great deal of bad advertising...Where there could be genuine stimulation through interaction there are bad static ads. In a medium that allows micro targeting, there is still mass advertising." They know that only by sharing ideas and information can we collectively harness the real potential of this evolving medium.

Recognizing the infancy of online advertising they have the balls to remind us that online advertising still adheres to the fundamental principles of. advertising. In the executive summary they remind us that branding, placement, frequency, content, targeting plus sight and sound are the critical variables for effective communication and persuasion. And they display, in pedestrian charts, the data to prove it.

Within the extensive data sets there is subtle and not-so-subtle guidance on issues affecting everything from creative units to targeting to media tactics. If I haven't sold you the book yet, consider these tidbits:

• No more than 28% of viewers ever see an ad below the fold
• Display ads earn half the ad revenues of search ads
• 30% of online marketers don't spend a time on behaviorally or contextually targeted ads while another 30% believe these tactics yield the greatest ROI
• Almost 70% online ad analysts say A/B tests yield the best improvements in ad effectiveness
• 53% of marketers think adding pictures make online ads more effective
• 300x250 pixel banners have the best click-thru rates
• 46% of heavy gamers see in-game ads an inevitable
• Without frequency capping you blow your ad exposure too fast on the wrong prospects