Back in 2015, the Association of National Advertising (ANA) hired research firms K2 Intelligence and Ebiquity to investigate and report on the lack of transparency with respect to media buying within the U.S. advertising industry. The investigation revealed a range of questionable practices, including media companies receiving cash rebates and not paying them forward to their clients.
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Fast forward to today, and the FBI is now getting involved. While the exact rationale for the ANA’s decision to include the FBI in this investigation in unknown, one thing is for sure -- the FBI’s involvement suggests this is about more than just ad rebates.
This investigation is a good for any company that works with an advertising or marketing agency because it promotes pricing transparency on the part of agencies while encouraging in-house marketers to hold their agencies to a high standard.
How Agencies Charge Clients for Their Media Spend
All great relationships are built on trust (especially the ones you’re paying monthly for) and nowhere is this more true than the issue of pricing.
There are a variety of ways that agencies can choose to charge their clients for ad spending, with two of the most common being:
A Commission Structure: A form of payment whereby the agency receives a certain percentage of media and production charges.
A Fee System: The agency is paid either a flat monthly management fee or an hourly/daily fee for the work they perform and media spending is billed to the client net of these fees.
Under both of these structures, the agency can choose to either pay for the client’s media spend through a master account and then bill the client, or they can have the client direct pay for their advertising.
The latter option is more transparent, but less common (and is the payment structure we use here at IMPACT).
What Does the FBI Investigation Mean for Agency-Client Relationships?
The FBI investigation is ongoing, so it is too early to tell how widespread questionable payment practices are within the marketing and advertising industry. Nonetheless, it points to the importance of increasing the level of transparency between agencies and their clients when it comes to ad pricing and associated rebates.
One way that companies can protect themselves is to structure their agency agreements so that any ad spending is paid directly by the client, using an advertiser account that they own and control.
Ali Parmelee, IMPACTs Facebook Ad Specialist, had this to say:
“Too often, we attempt to audit [Facebook and Instagram] ad accounts and find that previous advertisers have built campaigns directly from their own accounts. This means that not only are they controlling what you are paying for your ad spend (and possibly marking it up), but also will walk away with all historical data. That is absolutely not how we do it—or the right way to do it. This is something that drives us crazy when we see it.”
If you are thinking of hiring an agency to manage your paid ad spend, here are some questions you can ask them:
Are you going to audit our existing spend and accounts?
Are you going to audit the category in which our business competes?
Are you going to provide me with a blueprint of what you believe the execution of a successful paid media campaign should look like?
Can I take this plan in-house to implement on my own or do you require us to commit to you implementing from the start?
How do we report on the successes and failures of our media spend?
If your current agency (or the one you are shopping) can’t answer these questions, it may be a cause for concern.
The FBI’s investigation will run its course and it may take some time to get any real answers.
In the meantime, there are steps that both agencies and their clients can take now to establish a greater level of trust in their media buying relationships.
If I’ve learned anything from watching this unfold over the last few years is that we, as marketers, should always be held to high ethical standards and you, as a client of any agency, should always want to be involved in the process.