Electromagnetic Marketing delivers value and ROI to our clients with complete transparency and open communication. We give our clients clear and easy to understand reports on campaign results, accounting related to ad spend, and any compensation that we receive from ad networks and other 3rd parties.
We forego financial incentives except for the compensation that our clients give us in exchange for the services that we provide. When we receive payment or credits from advertising networks, software vendors, or other 3rd parties, we credit these funds to our client’s account or donate it to the charity of their choice.
One of the most common things that I hear from friends that own businesses is “I don’t understand how your business works.” The accounting for marketing and advertising agencies looks a lot different than accounting for landscape companies or manufacturers. The lack of clarity on how agencies operate leaves a lot of gray area in the agency/client relationship.
Ken Auletta describes these problems in “Frenemies”, his book on agency/client relationships. He tells a dramatic story about the Association of National Advertisers Convention on March 4, 2015. Industry insider Jon Mandel played the role of whistleblower, taking the stage to deliver a keynote address that exposed a system of kickbacks and payments that he characterized as “criminal extortion”.
We are small potatoes compared to the agencies at the ANA convention, but we have seen similar problems. I have observed 3 primary areas where small and medium-size agencies are not always transparent with their customers:
Accounting for ad spend
Compensation from 3rd parties
Here are some of the ways that transparency and accountability get off the tracks in those areas.
The things that have come up consistently over the years fall under something I created called “Jamie’s Laws.” For example:
Jamie’s Law of Programmers
All programmers truly believe they are more experienced than they really are.
If someone says they are a mid-level programmer, they usually are an entry-level programmer on the programming skills ladder.
The law that is relevant to measuring results is:
Jamie’s Law of Analytics
If you look hard enough, you can find a positive story somewhere in the campaign results.
Modern marketing generates so much data that there is always something somewhere trending in the right direction.
Even marketers that have integrity and the best intentions spend less time talking about the negative aspects of a monthly report because it’s so much easier (and more comfortable) to talk about the positive ones.
This works for a while, but eventually, clients realize that all of this data doesn’t seem to be related to improvements in their bottom line. At this point, they are usually disillusioned and ready to move on to the next agency with big ideas and promises of ROI.
Electromagnetic Transparency Strategies
We have 2 strategies to help us avoid the temptation to report only positive numbers and minimize the negative numbers.
We determine the metrics that we are going to measure in advance. It’s really that simple. If we tell you what we are going to measure next month and the month after, we limit our own freedom to mine the data for anomalies that seem to tell a positive story. If we identify new metrics worth measuring, we let our clients know what we hope to see in this data in the future and then add it to our reporting routine.
We work closely with our clients to identify the metrics that deliver true ROI. We love metrics like ad impressions, but impressions don’t automatically turn into sales. We identify a broad set of metrics that are affected by the campaign AND directly contribute to our customer’s sales and revenue goals.
Ad Spend: A Wretched Hive of Scum and Villainy
Ad spend is at the heart of a lot of questions that can erode the relationship between agencies and clients. I have seen a number of problems over the years.
Problems reconciling the exact amount of advertising purchased relative to the amount budgeted
Kickbacks from ad networks give agencies incentives that might conflict with a client’s best interest
Credits, bonuses, and incentives from advertising networks get applied to the agency’s bottom line instead of the client’s account.
In the spirit of complete transparency, I will say that I have struggled in this area. My intentions have always been good, but my disorganization has made this a real challenge. That is why Scott Elliott has been such a game changer for Electromagnetic Marketing. It seems that Scott is good at all of the things that I am not. He has transformed our accounting from top to bottom. This gives us a level of insight into ad spend that I couldn’t have imagined.
Because of the work that Scott has done in QuickBooks, we are now able to provide ad spend reports that are up to date and more accurate than ever before. These reports include any kickbacks, grants, bonuses, or incentives that we receive from the ad networks. This gives me peace of mind, and it makes me proud to look my clients in the eye when we meet.
3rd Party Services: Keys to Success or Kickback Machine?
We use a lot of software tools for tasks ranging from ad spend management to email marketing. Some of these software vendors pay a commission or offer different kinds of incentives. For example, Constant Contact compensates agencies for the accounts that they manage. This can include incentives for new accounts, rewards for revenue growth, and a percentage of recurring revenue. For the record, we don’t really think that there is anything wrong with this.
As long as it is clear to the client.
We believe that clients should know if and how we are compensated for the services we recommend to them.
For example, many 3rd party tools use variable pricing depending on the size of the account. There are frequently times when we include an amount like $400 in a budget for a 3rd party tool but only end up spending $200. When that happens we let our client know so they can decide where they want to spend it. They can choose to use it to fund additional advertising, or we can donate the savings to a charity that they choose.
So This Is Us
This is who we are and how we operate. We are a business that is growing in revenue, and we want to feel great about every penny that gets credited to our bottom line. We believe that we will be more successful in the long run because of that.
Our success depends on healthy long-term relationships with our clients. Why would we want any incentive other than our clients’ success?
What do you think about this transparency pledge? Does this resonate with your experience with agencies over the years? Do you have stories about agencies that handled these things well (or agencies that didn’t)?
We would like to hear your story so that we can continue to look for new ways to improve our transparency and our client relationships. Contact us, or click here to schedule some of my time for coffee or a discussion.