Did you know that the average agency-client tenure is less than three years?

For clients on the brand side, finding a marketing firm and making the wrong selection is an expensive business mistake - yet most agency-client relationships end in failure and frustration. There's a reason for that.

In the United States alone, there are over 120,000 marketing agencies. Whether they're classified as a digital marketing agency, full-service marketing agency, or public relations firm, each of these agencies has their own set of capabilities, industry expertise/focus, cultures, experience, etc. A client looking to find the right marketing agency for their brand can feel a lot like finding a needle in a haystack.

Many clients do find an agency that checks all of the boxes of their requirements on paper... that still doesn't guarantee an ideal long-term business relationship. That's because finding the ideal marketing agency partner is 50% capability and 50% chemistry.

How can clients avoid the pitfalls of starting and ending agency relationships, while getting the most value for their business in the long run?

It is expensive for brands to switch marketing agencies - yet most agency-client relationships end in failure and frustration. Choosing the right marketing agency can result in a revenue windfall, but choosing the wrong one can result in wasted spend and job insecurity for those who made the selection. 

Planning for a marketing agency is essential to making wise, informed decision throughout the marketing agency selection process. Additionally, putting in the work upfront often reaps rewards in the form of better creative and marketing performance.

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So you want to find a marketing agency... why? 

Before jumping into the agency selection process, it’s important to map your marketing objectives, which includes an assessment of your organization’s marketing goals and a full inventory of the capacity and capabilities of your in-house marketing team.

This process highlights gaps and helps you determine whether adding additional headcount is necessary or whether it makes sense to start looking for a marketing agency.  It also ensures that you have a full understanding of where your department stands relative to your brand's marketing objectives.

There are a few reasons why you would want to hire a marketing agency...

Typical Reasons for Engaging a Marketing Agency:

Clients have missing capabilities on the in-house marketing team:

• Strategy and guidance

• Missing skill set (digital marketing, email marketing, social media marketing, mobile, etc.)

• Emerging digital marketing trends (virtual reality, artificial intelligence, or other digital services)

• Specific targeting of groups and/or industries (Hispanic marketing, healthcare sector, etc.)

In-house team of clients lack capacity to execute on marketing work:

• Internal team is stretched too thin to take on an initiative

• Short-term need/project like a website revamp or app. development

To replace or fire an existing marketing agency. Typical reasons for firing an agency include:

• Communication problems

• Agency lacks understanding of the brand

• The relationship between the brand and agency has become stale

• Agency capabilities do not match client needs

• Disputes over fees, change orders, and/or budget

• Agency isn't generating results and/or reaching objectives

• Agency has a conflict of interest (e.g. working with a direct competitor)

• Brand leadership personnel changes

Whatever the reason, when clients make the decision to hire a marketing firm, the process typically begins with an assessment of business marketing goals, marketing strategy, and a full inventory of the capacity and capabilities of the in-house marketing team. This process highlights gaps and helps you determine whether filling those gaps requires bringing on additional headcount or starting the agency search.

NOTE: Hiring a marketing company instead of another full-time employee won’t necessarily save you money!

Once the full inventory of needs is established, the type and role of a potential agency partner becomes more clear.

General considerations for mapping marketing objectives

• Industry | Does your industry demand heavy marketing involvement?

• Company Growth Stage | Is your company a startup / small business or an established player in the market?

• Target Audience | Have you clearly identified your target audience(s) or are you still figuring it out?

• Competition | Do you need to spend at a specific level to keep up with competitors?

• Product / Service Growth Stage | Are you selling a completely new offering or are you focused on selling an established product or service?

• Profit Margin | How much budget does your margin support?

• Competition | Do you need to spend at a specific level to keep up with competitor's advertising?

• Percentage of sales | Do you have a formula to calculate what your marketing spend should be? Does it include a line-item for bringing in an outside marketing company?

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At a minimum, marketers need to have a ballpark budget range in mind before they seek help from a marketing agency to ensure that the right size agency is ultimately selected. Providing an appropriate budget range (1) level-sets expectations, (2) keeps all parties accountable, and (3) leaves room for change orders as new priorities arise.

What are change orders?  A change order is a document outlining changes/additions to the scope of work agreed to by an agency and client in the initial statement of work (SOW).  Change orders can occur when aspects of the existing marketing environment are overlooked and/or when unanticipated challenges arise. 

The Different Cost Structures of Marketing Agency Relationships

As the client, you will need to decide which type of financial arrangement is the best fit for the kind of partnership you plan to have with your agency. Depending on the scope of the project, there are a few ways to price agency fees:

Project-Based Agency Fees

• What it is: a flat fee based on a project with a specific, well-defined scope.

• How it works: Agency assembles an ad hoc team to work on the project until it is completed.

• What it's used for: Project-based fees are perfect for projects that will not require ongoing support. If there is a need for additional support after the completion of the project, there is no guarantee that the same team will remain available to provide that support.

• Example: A brand needs an agency to design five email templates.

Put your marketing agency on retainer

• What it is: A (generally) static, monthly fee that you pay an agency for a given marketing service.

• How it works: You purchase a bucket of monthly hours and the agency assembles a consistent team that works on a set of priorities with those monthly hours. The brand has the power to shift priorities on a monthly basis, so long as the hours do not exceed the monthly hours allocated to the client.

• What it's used for: Retainers are typically used for situations that require ongoing agency support, when the brand requires a consistent team with institutional knowledge of the brand, or when brands use agencies as an ongoing extension of the internal marketing team.

• Example: Brand outsources entire email marketing strategy to agency. This includes ongoing list management, their monthly newsletter, and weekly promotions.

Time & Materials Cost Structure

• What it is: Typically an hourly rate with a general estimate of the projected hours it will take to complete a project. The actual work may require the agency to go over or under the projected hours quoted in the estimate.

• How it works: Calculated one of two ways: (1) based on a rate card (each agency role has a different hourly rate), or (2) a blended rate (an average of the hourly rate of each role).

• What it's used for: T&M billing is used when there are unknowns about the level of effort needed to complete a project.

• Example: A brand needs an agency to help them with a website redesign that will involve a complex discovery phase and unknown deliverables for execution.

Performance-based Agency Fee

• What it is: Agency compensation depends on the outcomes of their work. If the outcome exceeds expectations, the agency gets additional bonuses.

• How it works: Both parties establish an agreement that ties compensation to a performance metric. It works like commission.

• What it's used for: Projects that can be tied to a specific performance metric.

• Example: Marketing agency gets paid a commission for every qualified lead they generate for the brand.

Agency fee tied to media spend

• What it is: The agency is paid a management percentage fee based on the total media spend.

• How it works: The agency is paid a percentage of the spend that is tiered based on spending levels.

• What it's used for: This cost structure can be used for any form of media buying: pay-per-click (PPC), TV spots, programmatic buying, etc.

• Example: 12% fee for spend under $500K; 10% for spend above $500K and below $1M; 8% for spend over $1M.

Bonus agency budgeting tips:

• When a client receives bids from multiple agencies, it is common to ask for clarification from outliers (i.e. agencies that provide estimates that are much higher or lower than the others). Often, if an agency’s estimate is significantly outside of the norm, there is a disconnect in expectations.

• If your brand can potentially bring a lot of clout to the agency’s portfolio, you may be able to negotiate a lower price.

• If an agency makes a mistake in their upfront project estimate, they should not request a change order. They should instead let that mistake eat into their margin.

Questions to ask yourself when creating a marketing budget:

These line-items are not necessarily a part of every marketing budget, but thinking through this list while mapping your marketing campaigns may be helpful in creating your company budget:

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What's in the rest of this guide:

Setup can help you find a marketing company across any discipline:

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