Digital Advertising Agencies 2014: A Buyer’s Guide

Introduction

This report was written for marketers and advertisers that are looking for an agency to manage some or all of their digital marketing initiatives. The goal is to help the audience navigate the many choices available and make a more informed decision within the current agency market, including what digital advertising capabilities and services are most important to their organizations. If you are considering hiring an agency for one or more digital advertising channels, this report will help you decide whether or not you need to.

Editor’s Note: The following is an excerpt from "Digital Advertising Agencies 2014: A Buyer’s Guide," published by our sister site Digital Marketing Depot. You can download the report here free.

Digital Agencies: Types and Services

Digital agencies are as varied as the needs of the advertisers and marketers who hire them. At the high end, for global enterprises, are the agency holding companies with hundreds of full-service digital agencies around the world. There are also boutique and specialty agencies that provide channel-specific digital marketing services such as mobile messaging programs, social media marketing, or SEO link-building campaigns. And there are agencies that focus on strategy and professional services, such as branding or web design. Like any organization, each type of agency has its own strengths, weaknesses, and culture.

Digital agencies also can be differentiated by their focus on professional services versus proprietary technology platforms. Agencies that emphasize their professional services capabilities recommend and use third-party technology such as PPC campaign management platforms, SEO tools, and social media management platforms to manage their clients’ data and digital campaigns. These agencies view their role as strategists that can analyze and interpret data to provide actionable results and achieve their clients’ goals.

Agencies that develop and offer proprietary tools view their platforms as a competitive advantage over third-party toolsets that are widely available. The plethora of digital channels has left many advertisers drowning in data. By providing technology platforms that are built and customized to client needs, these agencies believe they are providing unique and critical automation tools that collect, analyze, and optimize data for their clients.

The Benefits of Working with a Digital Agency

Agencies owned by large media or holding companies can provide the following benefits:

  • Diversity of capabilities from co-owned media properties
  • Built-in sister agency relationships and priority referrals
  • In-network efficiencies

Working with a specialty or boutique agency offers unique benefits as well, including:

  • More granular channel strategy and tactical expertise
  • Client access to agency decision makers and top personnel
  • Lower spending minimums

Choosing a Digital Advertising Agency

The decision to hire a digital agency is a significant investment that requires a rigorous evaluation of your business’s and any potential agency partner’s needs, resources, and cultures. The following sections discuss five steps involved in making a more informed and successful choice.

Step One: Company Self-Assessment

Deciding whether or not your company needs to hire a digital advertising agency calls for the same evaluative steps involved in any significant investment, including a comprehensive self-assessment of your organization. This includes answering questions such as:

  • What are the primary objectives we want to achieve? Working with an agency can help advertisers that are looking to scale their digital initiatives but lack enough in-house resources to do so. Find clarity and consensus on what you’re looking to achieve. If your digital programs are falling short of management’s ROI goals, an agency’s expertise may be able to help you improve campaign or channel results.
  • Do we need a full-service agency or boutique? Traditionally, advertisers have hired an AOR to handle all of their advertising needs. But one-stop advertising shops may not represent best-of-breed expertise in every digital channel. Many advertisers hire both AORs and boutique agencies with expertise in SEO or social media, for example. If managing multiple agencies is too cumbersome or expensive, a full-service digital agency may be the right choice.
  • Who will manage the agency relationship? Every successful partnership needs a champion who is invested in that partnership’s success and can pull together the disparate groups that have a stake in the outcome or a role to play. For example, marketers may voice different wants and needs than an IT department, but both may be important to campaign development and execution. By designating a "point person" within the business even before you send out an RFP, you will ensure the steady flow of information throughout the process so that expectations are met.

Step Two: Understand Digital Agency Fee Structures

Agency free structures vary widely, even within client accounts. It is not uncommon for a client to compensate their agency using different fee structures for different types of media campaigns. For example, a common agency fee model for paid media work is percentage of spend. Typically, an agency will be paid 10-20% of a client’s digital media spend on paid search or display advertising campaigns. Smaller clients may pay a higher percentage, while enterprise clients may pay a smaller percentage due to the larger dollar volume of their accounts.

Fee-based or retainer-based models are quickly gaining traction, most often at the expense of commission-based compensation among large brands and their agencies. The Association of National Advertisers’ 2013 Trends in Agency Compensation Survey found that fee-based agreements have grown to 81% of all compensation agreements, while commission-based compensation has fallen to just 5% of all compensation agreements. The two compensation models have been on opposite trajectories since 1994, according to the ANA survey, when commission-based models represented 61% of all agreements, and fee-based models accounted for 35% of agency compensation agreements.

Fee-based models have become more attractive because they provide predictable expenses for marketers and advertisers, particularly on long-term accounts that require ongoing maintenance, such as monitoring SEO rankings or social media content. Retainers may also encourage agencies to test new campaign strategies and tactics, knowing that they will be compensated for their time regardless of results.

Step Three: Begin the Agency Selection Process: Phone Calls, RFIs and RFPs

Once you’ve decided to hire a digital agency, the next step is to develop a list of potential agency partners to contact – whether by phone, request for information (RFI), or request for proposal (RFP).

Many digital agency executives report that the majority of their new business comes from referrals rather than RFPs. Agencies today are becoming more selective about managing their resources and investing their time and talent to pursue new opportunities, according to the American Association of Advertising Agencies (4A’s) and the Association of National Advertisers.

Therefore, before – or instead of – initiating a more formal RFP process, you may want to begin by contacting some of your marketing peers to find out which agencies they are using and why they chose the partners they did. Then call any recommended agencies to discuss your business needs and whether or not they might be an appropriate fit.

Step Four: Choosing the Right Agency

When you have received your RFP responses or conducted in-depth phone interviews with recommended agencies, arrange for face-to-face presentations from each of the "finalists." During these meetings, consider quantitative factors including pricing, channel expertise, and analytics/reporting capabilities; as well as qualitative – or intuitive – considerations such as the agency’s culture, and the chemistry between your staff and the agency’s team.

Step Five: Negotiate Contract Terms

Contract length can often be a sticking point in negotiations. Before signing any contract, you should clearly understand the pricing, contract length, and renewal status. Many advertisers want the flexibility of a month-to-month contract. However, agencies usually want longer contracts to ensure revenue flow. One factor to consider is that many digital campaigns, particularly PPC and SEO programs, take several months to build results. If an agency is offering bundled services with additional built-in costs (i.e., website design, domain name procurement, call-tracking numbers, etc.) then an annual contract may be necessary. Sometimes annual contracts can include a three-month opt-out provision.

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