The following is a guest article by Adam Turinas of healthlaunchpad.
“Are you crazy?” you may ask.
And that would be a reasonable reaction, especially as I run a marketing consulting and services firm. But there is method to my madness.
Am I literally suggesting that you fire your agency and hire a new one every 90-days? Partially. I am advocating that you and your agency partner treat every 90-days like a trial period, where your agency earns the right to continue in that role for the subsequent 90-days
And why am I recommending this? The client-agency model has lost its way and I believe both client and agency are better served by a model that focuses on making an impact as quickly as possible. I will go into my beef with the current model below.
What the heck do I know?
Well, for 25 years I worked for several leading agencies in New York, London and Texas, running programs for Fortune 500 companies, managing 200+ agency professionals with a $40 million book of business. After this, I spent a few years assessing agency relationships for multinationals and advising agencies on how they could improve their performance. I then became a client, both as the CEO of a healthtech firm and latterly, as a fractional CMO. Last year, I decided to put all this experience back to work and started healthlaunchpad, a specialist marketing consulting and services firm focused exclusively on the healthtech business.
In my view, the current client-agency model, especially in B2B and technology marketing, is not designed to help clients grow their business.
The model I am referring to is where clients are locked into long-term retainers and pay a recurring monthly fee for a set list of deliverables. Or worse yet a retainer based on man-hours
This model has commoditized what agencies do for clients and diminished the contribution that agencies make to a client’s business.
And by the way, this is not entirely the agencies’ fault.
Well, How Did We Get Here?
Until about 25 years ago, agencies were compensated by taking a 15% of media spend. This was a very profitable model for the agencies but never made much sense as compensation was a factor of spending not performance or quality of service.
In the 80s, clients moved to a retained fee model, where agencies were paid for the staff provided to deliver services with a long-term contract. This was a better model than the prior one but still less than ideal.
In the 90s and 00s, client purchasing departments became increasingly involved in agency management. This had two impacts. First, the agency compensation model became increasingly based on deliverables. Many clients moved from retainers to project-based relationships. Second, as purchasing departments were masters at driving the unit costs of deliverables down, agency margins were squeezed. This has made it increasingly hard for agencies to hire and keep great talent.
In the last decade, the model that has emerged is the long-term deliverables-based retainer. The basic premise is a bit like SaaS, where you agree on a monthly set of deliverables, a recurring fee and a long-term agreement, often 12-months long. This has been perfected by the new’ish breed inbound marketing agencies like Impact.
Full confession, I ran a very large and profitable relationship like this in the 2000s. The client required it and while we fought against is to start with, we became expert at managing this and it was very profitable for us. But…
…It is a flawed model.
Wrong Focus and Wrong Incentives
The problem with this increasingly SaaS-like model is the focus of the relationship is on publishing the highest volume of deliverables for the lowest price. The focus is on outputs not results.
Contracts can be long – often 12 months.
This model is good for producing a high volume of deliverables at a low price. The promise is that by investing in content and SEO, over time you will build a sustainable marketing engine.
This can be fine when business is stable and growing predictably but when the business climate changes, problems can occur.
Many agencies don’t have the ability to adapt well. Their delivery model is designed for a predictable relationship not for a changing environment. And in many cases, agencies don’t have the strategic firepower to help you meet your new challenges.
Imagine for a minute that your market just hit the skids
Your boss has told you to throw out the current game plan and present a new strategy. And your budget is frozen until further notice.
Two questions:
- Can your agency adapt quickly and make a significant contribution in developing a completely new strategy?
- Can you put all agency and third-party marketing spending on hold until a new strategy is approved?
If your answer is yes to both, congratulations. If you are unsure or the answer is no, it’s time for a re-think about how you work with your agency.
Let me propose a different model.
90-Day Performance-based Contracts
“Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.” Samuel Johnson
What I am recommending is that you have a 90-day agreement with your agency. At the outset of the 90-day agreement, you and the agency agree on goals for the upcoming 90 days. I like Google’s OKR framework to do this.
The agency develops a scope of work designed around meeting those goals and presents a fee with two components:
- Baseline fee to cover costs with a reasonable margin
- A bonus based on meeting the agreed goals
At the end of the 90-days, you and your agency meet and review performance against goals. If your agency is doing well, they will get a bonus and you will want to renew for another 90-days. If the agency is not performing, it’s either time to replace them or give them another 90-day agreement with clear parameters on what they need to do to be successful for you.
As a client, you and your agency are focused on outcomes not deliverables and you have the flexibility to adapt every 90-days. As an agency executive, you are focused on the right thing – results and you avoid nasty surprises. If things are not going well, you can see it coming and prepare.
Many agencies will give a million reasons why this model won’t work but one thing I guarantee, is the agency leadership will be focused on performance and ensuring goals are met. And 90-days is long enough to make an impact but short enough to give you flexibility.
Putting My Money Where My Mouth Is
My firm healthlaunchpad is a young firm. We have tried a few different models and now all we do is 90-day performance-based agreements or short-term 1-off projects. It isn’t easy but we are focused on the right thing.
In the words of the great David Ogilvy “We sell or else”.
Let me know what you think on LinkedIn or via email at adam@healthlaunchpad.com.
healthlaunchpad is a HITMC partner/sponsor/advertiser.
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