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Marketers are spending upward of $1 million on agency reviews. Here’s why.

The news: The cost of agency reviews has been a topic of contention lately. A study by the American Association of Advertising Agencies (4A's), ANA, and Advertiser Perceptions finds marketers are spending on average $408,500 for agency searches and account reviews, a figure that drops slightly if the incumbent agency is involved.

  • The data is quite revealing. The average total cost of a review for marketers and agencies (assuming three non-incumbent agencies participate) stands at over $1 million, increasing to $1.2 million if the current agency is included.
  • Factors influencing the selection of an agency include reputation, which was cited as critical by 45% of procurement respondents, and performance, which half of the brand marketers indicated was the key reason for putting an account up for review.

Are reviews worth it? The process itself is lengthy and burdensome, with at least two months required when an incumbent agency is involved and more than three months for new agency selections.

  • Reviews can cause declines in productivity, with disruptions in daily tasks and delays in new campaign launches reported by one-third of marketer respondents.

What clients want: The concern lies in the transparency, or rather the perceived lack thereof, in agency fee structures.

  • Agencies often use a 'multiplier' method to charge their clients, which some marketers find opaque, leading to uncertainty about the real value being provided.
  • The escalating costs are causing significant disruption in the brand-agency dynamic, leading some clients to reduce their business with less transparent agencies.

Our take: The rising costs and disruptions are no doubt a significant concern. However, it's crucial to view the issue in its broader context. Agencies are dealing with increased overheads after the “Great Resignation” led to a talent shortage and higher salaries. Higher costs have led agencies to invest in AI capabilities to defray their expenses, but savings (and productivity gains) may take time to be fully realized.

  • Transparency remains a must: Agencies should strive to communicate their fees better and justify the costs to their clients.
  • Given the high costs, the study suggests avoiding reviews unless absolutely necessary. Alternatives could include establishing an agency/client relationship management program.
  • The multifaceted issues around agency reviews require collaborative solutions from clients and agencies to ensure beneficial relationships and positive outcomes.