6 min Read
An ad agency is a combination of:
As your agency grows in volume, what’s the best way to keep agency business sound financially? By keeping track of critical parameters.
For any professional services firm (including ad agencies), here are some parameters that are tracked regularly for financial reassurance:
◻ Client Billing ◻ Collections ◻ Liquidity
But ad agencies are a special category of professional service firms. Their financial health is based on:
When the advertising operations are so dynamic & flexible, it’s easy to imagine how target margins can be eroded during execution.
Let’s understand how much flexibility agency operations teams need.
Their teams need to ensure that all clients’ campaigns meet their objectives, without exceeding the clients’ budget. (Using platforms, channels, & media which are shared with the competition.)
Most campaigns run on tight client budgets & tighter deadlines. To deliver the outcomes promised to clients, agency operations teams need to be empowered with a lot of flexibility.
Of course, the above could lead to issues of governance & bias, and even require frameworks for dispute management.
Here’s a typical scenario halfway through an ad campaign:
The Campaign has not managed the committed CPL / CPRP / direct-mktg response.
There are 2 ways how the agency team can react:
For option 1, the agency needs to make efforts to retain the original agency margin:
Note: Remember that all the above decisions must be taken almost instantly. Finance Team becomes aware of agency margin much later – during client billing activity.
The agency margin for this campaign is most likely to drop by a few points during execution. In the normal course, the Finance Team will become aware of this much later – after clients are billed, typically at the end of the month. At that stage, corrective action can only be planned for the coming month.
As most agency teams are focused on client deliveries (and rightly so) while staying within the budgets approved by clients. Their primary goals are :
If account management can be alerted to dropping campaign margins instantly, it may prevent this from becoming a routine practice across multiple campaigns. (Which will stop a significant erosion of the ad agency’s overall operating margin.)
The solution is to auto-track Campaigns & Jobs via a central billing system-of-record during execution & raise instant alerts to senior managers for info & corrective action.
Mediaware has been in the forefront of commercial control systems for ad agencies for 3 decades. Our Operations model may soon include complex orchestration of multiple digital platforms along with traditional & offline to provide holistic control. (Awaiting feedback from our clients.)
With increased complexities & consulting assignments, we believe that there may be a greater need to define & ensure target margins, accurate & prompt central billing. We help agencies manage profit margins, commercial discipline. If your agency is running on a sound commercial control model, it can give your team more power to take bold decisions in client meetings & rate negotiations.
Do share your thoughts, suggestions, or just a few words!
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