{"id":9374,"date":"2023-02-24T17:10:43","date_gmt":"2023-02-24T16:10:43","guid":{"rendered":"https:\/\/www.observatoryinternational.com\/?p=9374"},"modified":"2023-03-09T18:12:28","modified_gmt":"2023-03-09T17:12:28","slug":"marketing-agency-compensation-in-difficult-times","status":"publish","type":"post","link":"https:\/\/www.observatoryinternational.com\/en-uk\/our-insights\/marketing-agency-compensation-in-difficult-times\/","title":{"rendered":"Why it is important to implement appropriate marketing agency compensation terms"},"content":{"rendered":"

Remuneration timescales need to be more realistic otherwise the agency partners that brands need to be able to rely on will struggle. Stuart Pocock<\/a>, Co-founder & Managing Partner of The Observatory International, explains why implementing appropriate marketing agency compensation terms in difficult times is so important. <\/strong><\/em><\/p>\n

\u00a0<\/strong>You don\u2019t need me to tell you that money is tight for all at the moment. Not just the man in the street, but for big businesses too.<\/p>\n

Everyone is struggling \u2013 from families trying to put food on the table and keep their kids warm, to large corporations facing increased energy and fuel costs as well as the knock-on effect of rising costs from suppliers. They remain determined, however, to keep prices competitive in the marketplace.<\/p>\n

So, whilst it\u2019s going to continue to be a difficult time for all, some businesses are going the extra mile to ensure their position is shored up, often to the detriment of others.<\/p>\n

Appropriate compensation terms<\/h2>\n

None more so than Keurig Dr Pepper \u2013 which recently declared that it was looking for 360-day payment cycles from its communications suppliers and, when criticised, rejected the idea that it was in anyway capable of being accused of corporate bullying. Whilst this position may be extreme, there\u2019s no question that payment terms are getting drawn out, and we constantly observe agencies trying their damndest to push back against ever-longer terms of payment.<\/p>\n

Most agencies look, not unnaturally, to a reasonable 30-day payment cycle \u2013 but we see from the recent WFA and Observatory International report on Global Agency Remuneration Trends 2022<\/a>\u00a0that payment terms are now, on average, 60 days.<\/p>\n

Given that this is on average,<\/em> that means that for every client who\u2019s adhering to the agency\u2019s payment requests, it\u2019s safe to assume that a similar number are taking longer than 60 days to pay \u2013 and very often it\u2019s the bigger, more powerful players who are doing the latter.<\/p>\n

Add to that evidence that POs are late arriving (yes, we know it says in the contract that a job shouldn\u2019t start until a PO is received \u2013 but try telling that to a CMO who needs the work yesterday) and it becomes obvious that even a 60-day payment cycle is, in reality, often much longer.<\/p>\n

The argument, of course, is that the first role of business is to stay in business. So having longer payment terms is highly positive because it enables advertisers to develop healthy cash-flows as their financial outgoings are delayed while their incomings remain the same.<\/p>\n

Impact on the supply chain<\/h2>\n

But it shouldn\u2019t go unnoticed that agencies are businesses too \u2013 so their needs are much the same. Not all of them are large organisations \u2013 many are effectively SMEs with the traditional focus on cashflow that comes with being an SME.<\/p>\n

To go down another level, many of the suppliers to agencies aren\u2019t media monoliths either \u2013 the vast majority of suppliers to agencies are small businesses or one-man bands \u2013 photographers, illustrators, researchers and freelancers (the latter being in higher demand than ever at the moment due to the pressure on talent).<\/p>\n

Agencies can\u2019t afford to lose these people \u2013 unlike their clients, they need to adhere to appropriate payment terms \u2013 otherwise key people won\u2019t be available when they\u2019re needed again by advertisers.<\/p>\n

There are few mid- and large-sized companies that don\u2019t have ethical standards including agreed behaviours on payment, which should be applied to their advertising supply chain. Sadly, these are often overlooked when it comes to negotiating payment terms.<\/p>\n

Asking agency suppliers to act as \u2018virtual banks\u2019 or lines of credit is unacceptable but until legislation is further revised \u2013 or indeed properly implemented, things are not going to change.<\/p>\n

And that means that agencies\u2019 cash flow restrictions can have significant impact on talent retention and acquisition in a rising market \u2013 with the inevitable detrimental effect on the clients business.<\/p>\n

The country is not in great shape right now. It needs money to be flowing rather more quickly through the system \u2013 not just to struggling businesses but right down to that man or woman in the street trying to feed his or her family \u2013 rather than sitting in large corporation\u2019s deposit accounts.<\/p>\n

\"Marketing<\/p>\n

First published in The Drum<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Remuneration timescales need to be more realistic otherwise the agency partners that brands need to be able to rely on will struggle. Stuart Pocock, Co-founder & Managing Partner of The Observatory International, explains why implementing appropriate marketing agency compensation terms in difficult times is so important. \u00a0You don\u2019t need me to tell you that money … Continued<\/a><\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[65],"tags":[265,74,78],"class_list":["post-9374","post","type-post","status-publish","format-standard","hentry","category-blog-en-uk","tag-agency-compensation-en-uk","tag-procurement-en-uk","tag-remuneration-en-uk"],"acf":[],"yoast_head":"\nMarketing Agency Compensation - The Observatory International<\/title>\n<meta name=\"description\" content=\"How to implement appropriate marketing agency compensation terms and support your agencies in todays difficult economic climate\" \/>\n<meta name=\"robots\" content=\"index, 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