Advertising Agency Suppliers Beware !

Written By Ted Grigg

Suppliers to agencies, here's a disturbing question for you. When your agency contracts with outside suppliers, will the agency pay your bill if their client does not pay? The agency... right? Wrong.

DMCG Results

In this type of scenario, the agency develops its contractual language to say that it is the supplier's responsibility to collect the funds from the ultimate client in case of default.

Why is this?

Well, over time agencies have evolved what we call an "agency of record" relationship. This means they act on behalf of the client as a purchasing agent. The agency represents the client in every way except they do not bear the financial responsibility for the invoice. The bill goes to the agency, but the agency pays the bill only after their client pays them. If the agency pays before the client, they only do so in full assurance their client will pay for the invoice.

This approach has worked well for many years with mass media. Media companies are structured to go after advertisers who do not pay their bills.

But large volume printers, service bureaus, digital service companies and lettershops no longer accept such agreements automatically. Market pressures have forced many suppliers to resist such arrangements by turning down the work.

What is most disturbing is that many agency service staff are unaware of how this approach stresses their supplier relationships. They often wonder why suppliers don't like to go through agencies thinking this is a client control issue.

It is partly that. But another significant reason for this stress has to do with the vague supplier invoice payment agreements.

My take? As the market improves, I suspect that suppliers will force change with this arrangement. And farsighted agencies and their clients will want to level out the playing field for their talented suppliers.

Dear reader, is this your understanding of the typical agency contracting arrangement?

Ted Grigg

Ted Grigg is a direct response strategist who helps growth-focused companies reduce risk by identifying weak assumptions before they become costly mistakes.

Over the course of his career, Ted has evaluated several hundred million dollars in direct response testing across direct mail, digital, print, television, telephone, and other channels. His work combines direct response strategy, acquisition economics, customer analysis, creative evaluation, offer development, and disciplined testing.

Ted has worked on both the client and agency sides of the business. That experience gives him a practical understanding of the pressures facing executives, marketing teams, agencies, and service providers—and of the problems that arise when activity, media volume, or creative preference replaces a clear economic objective.

His consulting work helps organizations examine such questions as:

  • Are acquisition goals economically realistic?

  • Is the allowable Cost Per Sale supported by customer value?

  • Are targeting, offers, creative, media, and response paths working together?

  • Are tests structured to produce reliable business decisions?

  • Are unproven assumptions being treated as facts?

  • Is the organization measuring sales outcomes rather than convenient proxies?

Ted’s experience includes the development of direct mail and multichannel acquisition programs for insurance, healthcare, financial services, technology, nonprofit, manufacturing, retail, transportation, communications, government, and business-to-business organizations.

For a national direct-to-consumer insurance company, he developed a direct mail format that defeated established controls and helped expand the productive use of compiled prospect lists from less than 10 percent to more than 30 percent of total direct mail circulation within one year. He also planned Medicare lead-generation programs for more than 60 regional and national HMO and PPO organizations, with some programs exceeding sales projections by as much as 60 percent.

Ted founded Wyse Direct, a direct marketing division of Wyse Advertising in Cleveland, where he developed acquisition programs and helped launch a new technology product for Seiko Instruments by generating a predictable flow of qualified sales leads for its national sales organization. As vice president of new business development for the Grizzard Agency, he helped broaden the agency’s strategic capabilities and pursue new commercial and fundraising opportunities.

He is the author of The HMO/PPO Marketing Plan—A Step-by-Step Guide, published by Executive Enterprises, and has written numerous articles and conducted webinars on direct response strategy, testing, creative development, and marketing economics.

Ted earned a Bachelor of Arts degree from Abilene Christian University and completed two years of graduate study at Texas Tech University. He is the founder of DMCG, LLC.

http://www.dmcgresults.com
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