Your Agency’s Conflicts of Interest May Be Costing You Money

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The goal of advertising is to make a business money, but conflicts of interest are all too common. Agencies talk a big game about protecting their clients’ long-term interests, but many agencies fail to serve their clients first when their financial incentives don’t align.

As a marketer, you need to know your agency’s potential conflicts of interest to make sure you’re getting the results you’re paying for.

Red Flags

At the root of agency conflicts of interest is a historical payment system based on percentage of ad spends. That motivates agencies to increase their revenue by spending more on paid advertising.

The biggest culprits include display advertising fraud, pay-per-click (PPC) advertising, and commission-based affiliate marketing.

Display advertising fraud

Display advertising fraud is a huge issue. Advertisers devote billions of dollars to online display ads, often purchased “programmatically” or through buying software that automatically places ads on sites that fit a brand’s media plan.

However, at least 36% of clicks from display ads may be fake. So, marketers not only pay a lot of money for worthless traffic, but agencies also have little motivation to fight fraud—they’re compensated on a percentage of spend and want increased volume.

Networks that reduce fraud also tend to have lower available impressions, meaning they often lose the largest buyers’ business.

PPC models

The PPC model also can compromise agency integrity. Many agencies managing PPC on behalf of brands charge a percentage of spend without any tie to ROI, which financially motivates them to continue to spend more on campaigns.

In theory, this model benefits clients and agencies. Clients want large campaigns that generate a lot of revenue, and agencies want large campaigns to increase their percentage of spend yield.

However, in practice, this incentivizes against cost-efficient campaigns. Even if a customer could attract the same amount of revenue with a smaller ad spend, the agency may keep ad spend high to protect its profits.

Affiliate networks and program management services

Finally, affiliate networks and affiliate program management services have a conflict of interest based on their business model. Rather than charge a standard fee for tracking services, large affiliate networks generally earn fees as a percentage of affiliates’ paid commissions or total sales.

What marketers may not realize is that these same networks have publisher development teams that work with affiliates to increase sales and commissions with their advertisers. As more affiliate revenue is generated and higher commissions are earned, the network and the affiliate benefit. It’s like having Google managing your PPC spend.

For example, when Bitly partnered with VigLink earlier this year, there were major implications for many affiliate marketing programs. Bitly, a URL-shortening service, generates 8 billion clicks per month and is used by both bloggers and many companies’ social media departments.

But the new partnership replaced these direct links with VigLink links, meaning revenue from resulting sales went to VigLink and Bitly when a payment normally would not have been issued. Very few affiliate networks, if any, notified their clients because they had no incentive to do so.

In contrast, independent agencies (not tied to the same financial metrics) were very vocal in warning clients about this change and were quick to publish articles and create awareness. Those agencies acted in the best interest of their clients because there was an incentive to do so.

How to Manage Agency Conflicts of Interest

Be aware of these conflicts of interest. Strongly reconsider paying your agency based on a percentage of spend.

Here are three steps you can take to align agency incentives and behaviors.

1. Enter agency conversations with your eyes wide open

Just as you wouldn’t buy a car without researching prices, you shouldn’t accept an agency’s ad spend proposal without understanding where your money is going. It’s up to you to know enough to protect yourself. For example, did you know that display advertising vendors often mark up media buys by 50% or more?

Research will enable you to confidently ask the right questions. Stay up to date on industry practices, and have frank discussions with your agency about how it spends your money and earns its own.

2. Motivate your agency to focus on ROI

The best agencies incentivize employees to treat your money like their own. Your account manager’s pay shouldn’t depend on your ad spend. Rather than pay your agency a percentage of ad spend, look for an agency with a flat fee or “return on ad spend” revenue model.

Paying a fixed fee encourages the agency to increase profits by keeping costs down and ensures you won’t spend more than you bargained for. The ROAS (return on advertising spend) model ties an agency’s profit to hitting growth and efficiency targets, and motivates it to take ownership of your goals.

3. Insist on no kickbacks and request full disclosure

You need to know where your partners make their money.

When companies promote partner products or networks, ethical questions can get murky. If your agency is double-dipping, you could pay the price. Markups and kickbacks should be affirmatively disclosed.

We had a client who left his agency and was approached directly by a provider who had been working through the agency. The provider offered its tool for 25% of what the client had been paying; the rest was a markup.

State clearly to your agency that you don’t want it accepting gratuities from partner companies for spending your money with them. You deserve to know how your money is spent, and a reputable agency will care about decreasing your costs and increasing your ROI.

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Hiring an agency is a smart move. There simply aren’t enough hours in the day to manage your marketing initiatives, and some degree of trust has to exist in that relationship. But if you trust your agency blindly, you could get burned.

Educating yourself will allow you to establish a mutually beneficial relationship with your agency and get better results.

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What Is Bad Data Costing Your Company?

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Each year, sales departments lose approximately 550 hours and $ 32,000 for every sales representative that uses bad prospect data. If a business houses a five-person sales team, the money hemorrhaged in just a single year is enough to purchase two Porsche 911 Carreras, 40,000 boxes of Girl Scout Cookies, or over 150 trips to Disney World.

The magnitude of profits lost to bad data [email required] is detrimental to business growth and unnecessarily demoralizes marketing efforts.

Moreover, bad data funnels in from many fields—wrong phone numbers, outdated physical and email addresses, wrong title or job functions, and misspellings. That information changes rapidly in mimic of the business-world’s dynamic nature.

Two commonly-sourced bad data pools exist for marketers. The first is end-user submitted data, or data that business’ users input themselves. The second is technology-sourced data, or data that marketers pull together from open availability on the Internet.

Neither source is perfect—the former’s accuracy lags with limited utility, and the latter lacks verification methods and access to detailed information. No matter where marketers procure data from, the costs of bad data can be extreme.

Soft Costs of Bad Data

  • Employee satisfaction: Bad data can impact employees in different ways. Professionally, sales representatives’ salaries are dependent upon closed leads, and bad data can lower profitability. Personally, as employees find less business success, their satisfaction rates decrease, and they can easily become discouraged. Often, that impact on morale is invisible until the effects of better data are realized.
  • Time wasted: Marketers spend too much time researching and organizing data that has already grown obsolete. Sales representatives allocate significant hours to sifting through data sources with low yields. In the next hour alone, 41 new businesses will open, 58 business addresses will change, and 11 companies will alter their names.

Hard Costs of Bad Data

  • Missed opportunities: If a business is not connecting with the right people or organizations, it’s directly missing out on opportunities to find prospects and obtain stronger leads. Lacking the proper automation tools and marketing practices, leads are missed across a variety of mediums—digital, direct, and social, for example. Leads with bad data make marketers’ attempt to produce long-term, high-quality business opportunities almost impossible.
  • Time wasted: The opportunity costs of bad leads are both direct and indirect. Hard dollar costs follow expending time with no profitable return, and hypothetical dollar costs are associated with the time better spent pursuing better prospects. As both a hard and a soft cost, the time wasted on bad data is ultimately the biggest payment that marketers sacrifice when ignoring inadequate sources. Here, time directly translates to money.

Stop Ignoring the Bad-Data Problem

The issues with bad data are largely intuitive—it’s why there are so many idioms about it. You’re only as strong as your weakest link. A marketer’s CMR or database is only as good as the data it contains. A whole is only as valuable as its individual parts, and any component can severely limit a marketing strategy when bad prospect data goes unchecked.

This problem’s intrinsic nature is often why marketers end up ignoring bad data. However, marketers need to face the ongoing reality that no organization is immune to bad data. No magical vaccination can eradicate bad data sources, and those inaccurate information wells persist despite marketers’ best efforts to fill the financial drains. However, the problems with data sources are adaptable and will continue to change as industry needs and methods fluctuate.

This viruses’ solution does not come all at once, but rather in a more consistent management of a company’s data sources. Although marketers recognize disparities in their data logs, too often marketers fail to respect bad data’s high costs.

Marketers may find updating their data catalogs cumbersome, but the practice is an effective way to expunge bad data. Business would also be smart to dedicate entire teams to more frequent data management, or to invest in strategically chosen sales intelligence solutions.

When evaluating your own data pool, answer the following questions: Do you trust your data? Is data health a known business concern? Do you have processes in place to diligently update your data? If your answer to any of these questions is no, or if you hesitate to answer yes, it’s time to change something before your business drowns because of bad data.

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