Changing the core of digital marketing consultancy.
Consultancy agencies in general provide services that companies deem too specialist, or too far from their core business to create their own teams for. For the past 15 years, online marketing has been one of those areas of expertise and therefore a lucrative service to develop for specialised agencies. This situation has led to a great number of these to be founded and thrive.
I have worked for two of the leading agencies in the Netherlands. The bread and butter of these companies is formed by the paid search consultancy, where usually dozens of campaign specialists earn for the agency an average hourly wage at around 100 euros at close to 80% billability, creating and managing the campaigns of ads showing up on search result pages of mainly Google.
However, there are three tendencies eroding this business model:
Fierce competition between agencies, as entry to market is low.
Because business was good, a lot of agencies have popped up, increasingly with less overhead and therefore often lower fees, a short time to market and a proposition that is difficult to distinguish from others. On top of that, top consultants would start to work freelance and keep their hourly wage for themselves. With many people doing the same thing, hiring someone with a good network is as good as hiring a good agency.
Advertisers building online marketing teams in-house.
A growing number of people graduate with these skills nowadays, therefore lowering the wages of employees and as a result, clients start building these capabilities in-house. That saves them a great deal of consultancy cost and improves efficiency as communications lines are inevitably shorter. Decreasing demand from advertisers puts pressure on the business model.
Increasing automation in online marketing.
What also puts this business model under pressure, is the fact that the job of the online marketer changes with increasing automation. More and more of the tedious and time consuming tasks are being taken over by automated marketing optimization platforms, like for instance Doubleclick, Kenshoo or Adobe Marketing Cloud.
In these systems data is being run through self optimizing algorithms to cluster customers, target them with personalized messages at the lowest cost available and with an accuracy that would have taken a whole herd of marketers.
As a result of this, marketing agencies in general have not been very enthusiastic in jumping on the automation bandwagon, even though it would have clearly had advantages for the client.
This has put a brake on development in online marketing as a whole as technology companies have seen too slow an adoption of their systems.
New Type of Agency.
I think therefore that a new type of marketing consultancy is necessary and I strive to be an example of that myself with my practice. Cornerstones of this new approach are the following notions:
Data and Technology at the heart of the service.
The next frontier in digital marketing is the automated use of data in marketing optimization technology and any project will have this as a motive, a theme, a means or even an end goal. This means that companies have to beef up their technical and data handling skills and build their knowledge around this. The management of marketing campaigns has been taken over by machines. The installation of these machines, the optimization of data streams and the development of marketing strategy and tactics will be the front and center to most assignments.
Training and mentoring of in-house teams.
While advertisers build their teams in-house, the quality of those teams may not immediately be as high as they are used to from their agency. Knowledge transfer is a core value of my practice, as only by sharing the knowledge can we all grow.
Business consultancy as much as marketing consultancy.
The added value of a media agency is the knowledge about what audience is best targeted where, their contacts at publishers and as a result the lower CPM prices they have negotiated for their clients. With marketing automation taking over both the targeting and the bidding process, the traditional role of the media agency wears increasingly thin. However, the agencies that do not fully embrace automation are doing their clients a disservice and will ultimately lose the race.
Those agency who do make this transformation, will see a growing role as a technology enabler on the one hand, and increasing demand for business consultancy on the other. Assignements will include digital transformation of their clients’ organization into embedding marketing and other data driven technology in the way they run their business. But also on agency side, this transition is not going to be a natural or easy process. A whole new skillset is required, so they will most likely not be able to offer this service with the same workforce.
Options for fee calculation models.
A fair and honest fee calculation model for both consultant and client is always up for debate. Let’s go over a few options that I work with.
As pointed out above, the hourly rate business model has a number of drawbacks: it works counterproductive for technology adoption as more technology means less hours. Also, as demand for their services declines, marketing agencies get involved in a race to the bottom. However, hourly rates is always the easy option, as it is easily understandable and can even include a performance element. As technology adoption is center to my service, there is little chance that it will get in the way of that.
Agencies specialized in programmatic buying have accrued a bad reputation because of the lack of transparency in their business model, which is based on a surplus on the CPM charged by the publisher. These surpluses can be obscenely high, as most of these companies get killer global rates at advertising networks for the volume they do, but fail to give on these rates to their clients. Because however, there’s still a great knowledge gap at advertisers around this topic, these advertisers feel like they have little choice but work with these agencies. On the agency side, they are generally aware that their business model is not tenable for much longer, but at the same time are hesitant to kill off their hen with the golden eggs especially since their other business models have serious drawbacks as well.
In the end, a surplus percentage on top of the marketing budget makes sure that the advertiser’s cost remains scalable, but as the budgets rise and automation takes away most of the work, the total fee needs to stay in line with the performed service.
This option is definitely the most laborious, as the entire project needs to be worked out and described in a project document before the work can start in wording that is as straightforward as possible. For the client this has the added value of a fixed price for the entire project, while for the consultant it means they run the risk of having to invest a lot more hours than they would have if these hours would be payed. However, if less hours are needed, the advantage benefits both, as the client gets their project before and the consultant a higher yield on their time.
Making the fee value based instead of cost based is always a good idea, as the cost for the consultant is linear and payment based on that therefore has little incentive.
A combination of any or all of the above.
Finally if so desired, a combination of any or all of the above can be used, ensuring a base fee with incentives to reach deadlines, a well thought out project plan with guarantees about resources needed and a scalable and transparent cost structure.
Online marketing consultancy is not what it used to be. In many respects! Marketers need to get tech and data savvy and their assignment moves from optimizing campaigns, to managing audiences and optimizing their total experience.
Are you curious as to what that means for your organization? Get in touch today and let’s start working together.