Seven Strategies For Successful Agency Hook-Ups - Pharmaceutical Executive


Seven Strategies For Successful Agency Hook-Ups

Agency Confidential

It comes down to money

The problem with the agency model is that agencies cannot make a profit off senior people. A good, but not stellar, vice president is probably earning about $250,000 a year. Do the math: if this medium bright star is willing to forsake family, leisure, and any other interest, he might manage to do 30 billable hours a week—he cannot charge clients for the time he spends on replacing the low-paid staff who keep leaving; fixing stuff that some college leaver has just screwed up; scheming to get his boss's job or, of course, new business. To make a profit, the agency needs to charge that time at about $550 an hour. His boss needs to be charged at $1,000 an hour if she is to justify her salary, and most importantly, get her bonus. In a well-run agency, someone will have tracked how many hours and how much cash it cost to win your business, and that will have to be paid back over the first year, on top of the expected profit. In a badly run agency, someone will be getting a new- business bonus that comes from the same source.

Most clients in the United States cap billing rates at about $300 an hour. In the old days, the difference could be made up through ad agency commissions (media owners paying 15 percent of the cost of space back to the agency), through mark-ups of out-of-pocket expenses, or through generous retainers.

As the client, your company now employs a purchasing department to make sure that none of these things get slipped into the contract. The only way for agencies to make up the difference is by rationing access to loss-leader senior time and by selling lots of highly profitable junior time. A new account executive might be on $65,000 a year. He has no management responsibilities (and isn't allowed a life) so he might bill 45 hours a week. He becomes profitable if he is billed at $100 an hour. If every hour is rebilled at $150, that means almost $50 an hour in extra profit for the agency. The agency wants lots of those hours.

Is who you see who you get?

At the pitch, you may try to find out "Who will actually be working on my business?" The head of the account group will assure you of her lifelong interest in irritable bowel syndrome. The account director will tell you that—by amazing coincidence—the product he has been working on has just gone off patent so he is ready to commit heart, mind, and colon. The creative director, sipping a prebiotic yogurt drink, will tell you that he has always wanted to work on IBS.

Even if all that is true, economics mean you will usually get to talk to the young man in the back who is inspecting your display cabinet of acne gels. So long as you enjoy working with enthusiastic young people who are willing to learn, you're in luck.


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Source: Agency Confidential,
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