Further thoughts on agency selection|
following are excerpts from an article our editor -- Norm Barnett
-- wrote for a Canadian Business Magazine. While the article covered
a variety of topics, we have extracted and printed the section
that deals specifically with agency selection
Choosing the right advertising agency
is just as important to a small company as it is to a larger one.
The reason is that advertising plays such an important role in the
marketing of a product or service. In a study performed in the U.S.
for Cahner's Publications of Boston, buyers were asked if they were
aware of a product prior to seeing its advertisement. Six out of
ten said no; in a similar study, nine out of 10 said they would
buy an advertised product rather than one that had not been promoted.
With so much riding on public perception, it's important that the
people who create your advertising understand your business and
your goals. Here's how to choose an agency and how to work with
Before you set
out on your search, you should know how much you can afford to spend.
Since there is no foolproof way to predict the effectiveness of
an advertising campaign, deciding on the sum to set aside is one
of the toughest problems you will ever face. Of the many budgeting
methods used, three -- the "what's left" formula, the advertising/sales
ratio and the share of market/share of voice ratio -- are the most
as it sounds, the "what's left" approach is usually the one small
businesses with no advertising experience take. In this instance,
you determine an ad budget by combining the cost of doing business
(goods, overhead, sales force and marketing expenses such as research
and promotion, for example) with a percentage for profits then subtracting
the total from either the first year's sales or forecasted sales.
While not sophisticated, the formula ensures that you won't spend
more than you can afford.
but more quantifiable is the advertising-to-sales ratio, which you
arrive at by multiplying last year's sales figures by a fixed percentage.
The norm is 2%, however it can vary from 1% to 5% depending on business.
More aggressive budgets for, say, a new product launch use the same
formula but are based on predicted, rather than previous year's
The third option,
the share of market/share of voice (SOM/SOV) ratio, depends to a
large extent on educated guesswork. First, you will have to determine
your competitor's SOM.Then you must estimate the amount each competitor
spends on advertising as a percentage of the total ad expenditures.
This is known as SOV. The SOM/SOV ratio should be roughly 1:1. If
the SOV is greater, market conditions are highly competitive and
you should adjust your budget accordingly.
How will you know
your budget is enough to attract a good agency? Most small to mid-sized
agencies say $100,000 is a good starting point. Is that enough to
achieve your sales objectives? "There 's no clear-cut answer, says
Phil Chadwick, president of the Society of Ontario Advertising Agencies
in Toronto. "It depends on your business as well as your goals.
If a company works on a small profit margin and advertising is expensive,
then advertising could be ineffective." Once you know your financial
limits, the next step is to find agencies handling accounts in your
price range. Find out who created the advertising you admire. Look for agencies where your account will be as big or slightly
bigger than the others. Don't be concerned about size: most small
firms are as capable as big ones in dispensing expert advice or
dreaming up a brilliant ad campaign.
Your agency should
also be familiar with your industry. Some firms have earned reputations
in specific products or services, such as cosmetics, pharmaceuticals,
business equipment or transit services. The more an agency knows
about your business, the faster you will get results. If you don't
know who's who in advertising, two publications are invaluable.
The National List of Advertisers includes a section on companies
that advertise nationally, their products, the agencies handling
their accounts and approximate advertising budgets. It costs $47
and can be purchased from Maclean Hunter Ltd., 777 Bay Street,
Toronto M5W 1A7 or by calling 416-596-5970. The monthly Canadian
Advertising Rates and Data (CARD) lists the rates charged
by newspapers, magazines and television and radio stations. it
also contains the names and addresses of advertising associations
across the country. While they won't recommend agencies, the associations
will tell you which firms have accounts similar to your own.
CARD costs $74 and is available from MacLean Hunter at the above
address or by calling 416-596-5912,
you have the names of at least ten likely candidates, send a questionnaire
to each firm. Ask for the range of ad budgets that they handle
and a list of clients, including accounts recently won and lost.
(This will tell you whether the agency is dealing with your competitors
-- not a good idea -- and provide you with a list of references
to check. Ask the agencies to list their most recent and effective
campaigns. And most imortant, have the president tell you why
he or she wants your business. Stress that you want written replies
and set a deadline. Never deal with an agency over the phone;
the purpose of the questionnaire is to put all candiates on an
equal footing. Disregard any replies received after your cutoff
Once you've narrowed
down the choices to three or four agencies, arrange get-acquainted
interviews. Insist that the people who will handle your account
attend the meeting. Too often agencies send in their presentation
team: senior executives with good looks, tremendous inight, vision,
compassion, intelligence and ability. They make a good first impression
but are long gone when it is time to service your account.
On the interview day, briefly spell out why your company is interested
in the agency, then let the candidates do the talking.
Look for a spark
of chemistry, an understanding of your company. At the conclusion
of the interviews, tell all parties that you will make a decision
by a specified date -- and then hold to it!
Sometimes one agency looks as promising as another. Since the
one you choose will have a resounding impact on your future profits,
you might want to invest part of your budget in a creative presentation
-- a demonstration of how the agency intends to present your product
or service to your target market. Offer to pay a token fee as
a gesture of good faith. "If a company's sales are between $5
million and $10 million, a fee of $500 to $2,000 per agency would
seem reasonable," says Lynne Reid, advertising and sales promotion
manager at car manufacutrer Saab-Scania Canada Inc. in Markham,
Before you hire
an agency, it's important that you understand its fee structure.
The form of compensation that has been used the longest is a 15%
commission or rebate from the media. Publishers and broadcasters
But if the bulk of your budget will be spent on advertising space,
the commission system could mean your agency will earn windfall
profits without doing a lot of work; an hourly fee might be less
According to the Association of Canadian Advertisers (ACA) an
organization representing more than 200 corporations, the commission
system is now being used by only 38% of agencies. "In many cases,
straight 15% commissions are no longer adequate," says Keith McErracher,
President of the Institute of Canadian Advertising in Toronto.
"The 15% system was invented in 1918. Since then, the range of
services has expanded and become more sophisticated." In a bid
to stay profitable, many agencies are marking up bills from suppliers
by 17.65% to assure the agency of 15% on gross billings to clients.
ACA President John Foss takes issue with this practice. He prefers
standardized fees for service. "It's up to the agencies, the clients
and the media avoiding the issue altogether by charging the client
a monthly fee or an hourly rate for each person working on the
account. Others combine all three to establish a fee and then
credit the media commissions earned against the total.
When the agency begins to work for
you, give the staff full access to your sales figures and marketing
plans. Tell them your most intimate industry problems. Agencies
need at least three months before they can be truly helpful. And
-- because staff time is divided among many clients -- it may
be up to three years before an agency knows your operation well.
As the agency/client
relationship grows, it's important to assess your progress regularly.
"We review our agencies on an annual basis," says Bob MacNally,
director of brand management at Labatt's
media to get together and establish a fair and equitable system,"
Some agencies are Ontario Breweries. "It's a formal affair rather
than a lunch-time discussion. We discuss compatibility, personality
conflicts, changes in the agency's strengths, our needs. It's
a two-way street. Everybody airs their opinions."
If you've chosen
wisely and treated staff fairly, you will find that your agency
has become an all-important third arm in achieving your goals.