Why the Outcome-Based Model Is the Only Logical Route for Agencies


Holding groups are under pressure. Their business model has been questioned and undermined by everyone over the past 12 months – from trade-press hacks, to auditors, to client bodies, to grandstanding FMCG CMOs.

The relevancy of the agency function has never been under such intense scrutiny. Professor Galloway predicts hundreds of thousands of agency job losses in the coming years, as clients move more digital ad spend to the Facebook-Google-Amazon axis.

So, is the agency model finished? Absolutely not. Despite the veritable shitstorm it has endured in recent years, there has never been a bigger opportunity for it to rebalance the lopsided relationship it has with brands.

From the outside looking in (full disclosure: I have never held an agency role), the business relationship between the agency and client always seemed flawed. The race to the bottom, as agencies undercut each other to secure brand spend, has led to an unsustainable business model.

In an attempt to make their operation economically viable, the agency has been undertaking some questionable short-term practices: hidden fees, kickbacks, and contracts with questionable middlemen vendors.

There is only one logical route for agencies: go all in on an outcomes-based model. The model should be solely based on performance – and how you impact the client’s bottomline.

In this ‘ten easy steps’ guide, I outline how to pivot, face down angry objections, and build a sustainable model.

1. Move to an outcomes-based model – quickly

The situation agencies currently find themselves in is a product of their own inertia. Failure to truly understand how marketing has moved to performance-based metrics has resulted in marginalisation. In-housing and fee-cutting seem to be the order of the day. Account reviews are more frequent than ever before. It’s too difficult to make margin on managing client spend anymore. Procurement is cutting them to the bone. The push-back by agencies on fees has been forceful. But clients are not interested. Why? Because the agency does not deliver outcomes. Time to pivot – aggressively.

2. Make programmatic the key agency capability

Agencies were quick to seize the opportunity of programmatic. All of the holding groups spun out trading desks off the back of the ad net margin. Beyond retargeting, much of it was outsourced – either to vendors running service teams or specialist programmatic ad nets. Time to bring that all in-house and make it the key differentiator. And apply it to traditional channels. Agencies need to live and die by the programmatic outcome.

3. Break up the ‘old boy’ trading deals network

For as long as I have been in this industry, the global trading deal has been the coveted arrangement in media. If you reached a certain threshold of spend, you were summoned by the agency trading teams to do a deal. The agency men and women who brokered these deals are now the stuff of legend in the media world. It mostly suited agencies, as it locked in price – but any savings made went mostly back to the client. For those on the other side of it, a trading deal really only meant a vague commitment to spend. There is no margin in it for agencies – and there is no upside for media companies. It’s just an unnecessary complication, particularly in programmatic. Time to put the trading team out to pasture.

4. Embrace future buying and de-risk your client

Transparency is important. How you spent your client’s money is a legitimate question. When you are not forced to deliver anything tangible, people have the right to question. What if you de-risked your client, and only got paid on outcomes? And instead of using client money to buy media, you used your own? What if you bought media ahead of time, paying publishers upfront? What if you agreed KPIs? And what if you told the client what you bought and how you bought it? And you had to deliver? How could a client question your margin ever again? The reason they don’t go after Google and Facebook is because they deliver on (albeit questionable) outcomes.

5. Push independent measurement and attribution to differentiate from Google and Facebook

To counteract any misgivings clients might have about this process, agree to their own attribution and measurement models. Nobody should ever mark their own homework. Be the best at optimisation. Own the execution. Don’t give clients the excuse to in-house. Always deliver.

6. Make friends with procurement and the brand CFO

While I think it’s important to schmooze with the Pritchards of the world at the wonderfully confused Cannes festival, it’s almost vital to have solid relations with the CFO and procurement leads. You should love these people. They will be your champions within the brands. If you deliver – de-risk their media investments – you will have no problems winning spend. Sure, brand building and creative are very important – but the most important thing is selling product at a profit.

7. Show them everything – and always deliver

What’s worked for successful programmatic ad nets is transparency on media execution. Show all your programmatic ‘workings’ to clients. Itemise all gross spend – and allocation. And what is performing. Ultimately, your client relationship is based on your ability to deliver. Live and die by the that philosophy, and you will succeed.

8. Regain the narrative from consultancies

This should be a relatively easy task – simply because consultancies don’t like execution. Creative is a nice area for them – as you can charge big premiums and still hide behind lots of intangible metrics. Agencies can easily wipe the floor with consultancies if they move to outcomes-based models. Consultancies are very much risk-averse.

9. Buy programmatic ad networks to bulk up your capability

Agencies would be well served by hoovering up the talent in the ad networks and bedding them in their organisations. The smartest traders and salespeople are in these programmatic ad nets. I listed a number of potential acquisitions here. Use all the talent within these organisations, including the sales teams. They can sell your solution into clients.

10. Bring your CFO and procurement partners to ATS London

ATS London has always tried to shape the agenda for the past nine years – and 2018 will be no different. We believe the outcomes-based model is the only viable future for service-layer companies. It will dictate who wins and loses in the coming 12 months. With that in mind, we will be hosting a panel specifically on the outcomes model at this year’s event. This panel will be made up of senior procurement professionals, who will provide an insight on the outcomes-based model.