OPINION22 May 2017

What do the best agencies do differently to outperform others?

Financials Opinion UK

There are a number of factors that top performing agencies have in common and Tom Lewis shares the insights that the IPA has gathered from researching its agency base.

Top performer competitive edge_crop

Top performing Institute of Practitioners in Advertising (IPA) members have an average revenue per head figure that is more than double that of the weakest. If currently, you’re only really selling units of time, rather than the value you can create for clients, then read on.

If you’ve ever walked away from a negotiation wishing you’d handled it differently, then read on; if your main commercial negotiators are your client teams, and you wonder why you never strike the best deal, then read on.

The IPA has researched the behaviours of the top-performing agencies in its membership to identify what best commercial practice looks like and what the top performing agencies do differently from the weakest – and these findings are relevant to all forms of knowledge-work consultancy, including market research.

IPA findings on commercial behaviour

  • A key difference between the best-performing agencies and the weakest is owning the commercial challenge; top agencies are more than twice as likely to own the commercial challenge as the weakest.
  • Top agencies are significantly less likely to shift the blame for their commercial performance onto clients’ procurement departments; like Olympic swimmers, they know that getting wet is just something they need to do.

Good commercial performance does not start on the balance sheet; it is in the thoughts, beliefs and behaviours of individuals, of real people.

The financials act merely as a score card, validating business decisions taken at some earlier point. Before a review of the financials, before negotiations and deal-making, before preparations or the lack of them for a deal, before investments in commercial training, business performance starts fundamentally with a belief that commerciality is the agency’s responsibility alone.

At its most basic, motivation can make up for a lack of talent in a way that talent alone cannot make up for a lack of motivation.

The best-performing agencies start by owning their own commercial destiny; once they have accepted this responsibility, the rest is down to hard work – how much effort they are prepared to put into good commercial performance.

Talent is merely the ability to identify the key drivers of good performance and focus on these.

What do top performers do differently?

Top-performing agencies are significantly more likely to own the commercial challenge: 80% of top performers acknowledge their own responsibility for their agency’s commercial performance compared with only 30% of the weakest performers.

  • Agencies that don’t perform commercially are significantly more likely to shift the blame for poor commercial performance onto others, notably procurement for aggressive buying tactics.

Top-performers are more likely than weak performers to:

  • Manage costs against revenues by keeping agency resource levels consistent with client fees and considering the complexity of the client relationship when setting fee levels
  • Regularly map out their portfolio of clients and assess both the attractiveness of each client and the agency’s relative commercial bargaining strength
  • Understand the range of potential pricing models from inputs-based cost-plus to outputs-based/outcomes-based value pricing and consider pricing to be a core agency discipline
  • Consider marketplace factors like level of agency differentiation, competitor conflicts and the client’s buying power
  • Walk away from business that does not make commercial sense.

In addition, the top performers also do the following:

  • Ensure that they have the right person making pricing decisions (i.e. not someone whose job relies on keeping the client!)
  • Push back on pricing challenges and defend their pricing with justifications
  • Look to charge a premium for new products/services, high-end staff or guarantees of delivery date/output/outcome.

Of course, knowledge is not the same as understanding. If you really want to take control of your business performance, you need to own the responsibility, refuse to shift the blame onto anyone else and start taking positive steps to improve your agency’s commercial performance.

Our revenue maximisation guide is coming soon; in the meantime, here are two things the IPA can offer that are not specific to advertising: IPA’s Business Growth Conference 2017, Our Shop. Our Rules, will look at how you can take control of your business success; my latest business growth thoughts in the Commercial Acuman column.

Tom Lewis is finance director of the IPA.