Expertise Beyond the Numbers

The New ANA Template Should Make You Ask: How Well Do I Know My Agency?

In July, the Association of National Advertisers released a new template for contracts between agencies and their clients. The new version is an update of a template originally published in 2016, and the most newsworthy changes concern transparency—the need for clients to know that they’re dealing with an open and honest partner who has their best interests at heart.

This new template includes best practice contract language based on the findings of an extensive 2-year study of the advertising industry commissioned by ANA. Analysts for K2 Intelligence found that agencies commonly markup media purchased through related holding companies by 30 to 90 percent while simultaneously receiving benefits such as undisclosed rebates, just two elements of what the report’s authors call “a fundamental disconnect in the advertising industry about the basic nature of the advertiser-agency relationship.”

In a statement announcing the 2018 version of the contract template, ANA CEO Bob Liodice explained, “While significant progress has been made in bringing more transparency to the relationships between advertisers and media buying agencies, much more is needed. The new contract template is more comprehensive than the original and contains updates that address the current marketplace.” These updates include newly added or amended definitions of terms relating to disclosures and markups.

True agency partners will embrace these increased transparency measures because they know that honesty and trust build success in collaboration. That’s why you should be as aggressive as possible in pursuing the most transparency from your agency. Here’s how.

Good Contracts Build Confidence

K2’s analysts described the fundamental disconnect in the industry as “advertisers expressed a belief that their agencies were duty-bound to act in their best interests. They also believed that this obligation, essentially a fiduciary duty, extends beyond the stated terms in their agency contracts. While some agency executives expressed similar beliefs, others told K2 that their relationship to advertisers was solely defined by the contract between the two parties.” In other words, agencies speak in contracts, so yours needs to account for absolutely every contingency.

Templates like ANA’s are a good start to understanding the state of the market. But as the market evolves, periodic audits can facilitate and maintain the best level of transparency and partnership over time. It’s not enough to make a thorough contract unless you’re able to validate commercial terms, key performance indicators and dig deep into the supply chains, workflow, and expenses that accompany advertising work. Additionally, we all know that turnover happens, and chains of command can change. Effective contract and agency management requires agreements to be revisited and reassessed as those changes take place, to ensure that new stakeholders, both internally and with the agency, are up to speed and aligned.

Tech is Transformative, for Good and Bad

Advertising is so deeply tied to technology that they’re barely separate industries. But you can be sure that whenever new screens and media channels open, agencies will be right behind to capitalize on the opportunity. As SC&H has written about before, the rush to prove untested expertise in new media is a common source of distrust between agencies and their clients. The K2 report showed that, for many years, too few agencies were giving accurate accounts of their abilities or the costs of their tech-based work. To ensure your company never falls prey to unnecessary markups, it’s worth investing in your own staff knowledge and talents for these services. If you know the true cost and value of new advertising media, or even have production or development ability in-house, you can maintain control over crucial parts of the production schedule and budget. Again, true partners will welcome the chance to work with a company who can bring those resources to the project and have a stake in their execution.

The ANA’s reports and evolving contract template show that trust and transparency between agencies and clients remains an industry-wide issue, and if not addressed, these can lead to troubling consequences. Luckily, the industry standard seems to have continued moving in the right direction, with clients requiring visibility into to agency processes and accounting records to ensure the relationship is operating as the contract intended. Understanding as much as you can about your collaborators and your industry is in your best interest— both financially and competitively.

To learn more about how to develop greater transparency, accountability, and trust with agencies and other key vendors, contact us to speak directly with a team member from SC&H Group’s Contract Compliance Audit Services practice.