Why the Digital Marketing Agency Game is F*cked

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ve been in the digital marketing game for over 10 years. In that time I have worked at two of the biggest agencies in the world. And I’m convinced that about 80% of the time and energy I’ve spent in my career to date has been on complete bullshit.

I’d say a solid 30% has gone towards commuting, meetings, emails, meetings about emails, and emails about meetings.

Another 30% has gone into client presentations of 70+ slides when the only thing the client gives a shit about is: 1) Did we grow? and 2)How much will this cost to keep going?

Then there are the strategy sessions that give that one guy a chance to hear his own voice for an hour and hold 10 others hostage- that’s another 15%.

Finally, I’d give a conservative 5% to those Friday team bonding sessions- basically a few beers and cheap pizza to convince you that the agency has ‘team culture’ and doesn’t need to pay you a fair wage.

All of this fluff straddles the 20% of the time when you actually do great work, and your client is way better off after having worked with you.

So, why is does it have to be like this? Why is everyone participating in this Festival of Inefficiency?

A clue lies in the business model of most marketing agencies.

How Most Digital Marketing Agencies Make Money

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The main way that digital marketing agencies make money is by renting out their employees’ time to their clients at a premium. They charge their clients 3 to 4 times what it costs for them to employ someone.

There are other sources of revenue, of course. Like earning a commission on a client’s media spend, without much care for whether or not that media spend is actually driving business results for the client.

Or getting free media credits from Google or Facebook for advertising with them, and then charging clients for that media spend anyway.

But let’s leave these highly questionable revenue streams aside for now and focus on the main one: renting out employees’ time for a profit.

The main way that digital marketing agencies make money is by renting out their employees’ time to their clients at a premium. They charge their clients 3 to 4 times what it costs for them to employ someone.

So let’s say Dave is a Search Engine Optimization (SEO) Manager at an agency called Black Hat Digital (BHD). BHD pays Dave the princely sum of $38,000 a year to be a full-time employee. That means BHD is paying him roughly $15 an hour, or $245 a day before tax.

In order to cover the cost of Dave’s salary, their fancy downtown offices and other overheads such as water, electricity, beer and ping pong tables, BHD needs to do a couple of things:

  1. Convince clients to pay 3 to 4 times the cost of Dave’s hourly rate
  2. Ensure as much as possible of Dave’s time is utilized on client work

Step 1- Develop an ‘Edge’ to Justify Your Rates

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Let’s say BHD lists Dave’s daily rate at $750 a day. At this day rate, the client would have certain minimum expectations of Dave:

  • He has at least 2 years of experience across specific areas of SEO that is important to the client (e.g. Technical SEO, On-Page SEO, Link Building, etc.)
  • He is certified/trained up on certain industry standard tools (e.g. Google Analytics, Ahrefs, SEMrush,etc.)
  • He has specific experience/expertise in a client’s industry (e.g. financial services or retail)

But these are just table stakes. BHD knows that there are at least 15 other agencies within their city, let alone about 100 nationwide, that can offer exactly the same kind of talent to their clients (no offense, Dave). And they’ll be willing to do it much cheaper in a dogfight.

So now BHD needs an edge to justify its rates. It needs to dress up Dave’s value, as well as its own by extension. This is where you start to see a flurry of marketing bullshit on websites and creds decks such as:

At BHD, we have developed a unique 4 step methodology called DUPE (TM):

Determine who your target audience is

Understand their needs

Provide a solution to them

Encourage them to tell others about your brand

Translation: We do exactly what every digital marketing agency is supposed to be doing, but we came up with an acronym, and please pay us.

Another one is the ‘Our people are our biggest assets’ angle:

At BHD, we invest in our staff. Our people have access to state of the art SEO training and tools. We also have regular ‘lunch and learn’ sessions where the team gets to learn from each other and external speakers.

Translation: We give our staff laptops, an internet connection, and access to (mostly) free training, which is available to anyone. From time to time, suppliers who want to sell us their SEO technology will bring some Krispy Kreme donuts and pitch us for an hour.

Step 2- Pad Out Your Project Deliverables

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As you can probably imagine, digital marketing projects vary wildly in their size and scope. However, one thing is for certain- the agency is going to try and pad out the project scope with pointless ‘deliverables’ as much as possible.

For our purposes, let’s take a typical SEO project scope as an example. Bandito Bank provides a brief to BHD to provide full SEO services for 1 year. They have a budget of $60,000. They ask BHD to provide a proposal.

Based on the client’s requirements, BHD determines that the project scope should include the following core SEO deliverables:

  • Technical SEO consultancy
  • On-page SEO recommendations
  • Link Building (Outreach) services

However, they calculate that at Dave’s daily rates, a reasonable number of days dedicated to the above 3 deliverables would only amount to roughly $38,000 worth of services.

So BHD tells Bandito Bank to save the rest of the $22,000 for a rainy day.

Just kidding.

Remember, one of BHD’s objectives is to rent out as much of Dave’s time as possible. So they reach for a digital marketing agency’s favorite ‘deliverables’ for padding out projects:

  1. Account Management
  2. Reporting

Account management is a vague, all-encompassing term that covers everything from responding to client queries over email or on the phone, managing the internal team at the agency to deliver against the project, and dealing with ad hoc requests from the client.

Let’s throw in 15 days of Dave’s time for Account Management for the year. That’ll be $12,000.

Now, onto reporting.

Most digital marketing clients use some sort of reporting software on their website, such as Google Analytics, Adobe Analytics, etc. They have access to all the data themselves- so the role of the agency is to provide insights into the numbers they’re seeing.

The problem is that this is usually done on a weekly basis- in most cases, nothing significant enough has really happened over the last week to be worthy of mention on a reporting call. However, both the client and the agency team go through the motions. They will sit on a call for an hour, while the agency reads off stats such as “the bounce rate on page X decreased by 3% compared to last week”.

Cool. What are we supposed to do with that information?

Regardless, BHD throws in weekly reporting calls, monthly Powerpoint reporting decks, and quarterly face to face meetings into the scope of work. Reporting will be $10,000.

Budget utilized.

So Does This Mean Clients Are Happy With Things As They Are?

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Hell no.

A recent survey by DigiDay unveiled the top reasons why clients quit agencies. Predictably, dissatisfaction with the quality of work tops the list. Agencies will probably cite reason number 2 (‘Found a cheaper alternative agency’) as evidence that the marketing agency game is commoditized and clients will simply jump ship if they can get someone else to do the work cheaper.

However, how people make their decisions and how they post-rationalize their decisions are two different things.

I think that more interesting clues can be found in reasons such as ‘Projects frequently delivered late’, ‘Quickly overbilled hours’, and ‘Agency contract had hidden fees’.

The common factor in the above is a lack of trust. Clients don’t trust agencies to deliver quality work, nor do they trust them to be completely transparent with how they make their money.

via Digiday at https://digiday.com/

What’s worse, agencies and clients differ wildly in what they consider to be most important in an agency-client relationship.

In 2019, Setup, a matchmaker for brands and marketing agencies, conducted a ‘Marketing Relationship Survey’. It highlighted just how wide the gap in understanding was between clients and agencies.

For example, agencies often cite budget cuts as the main reason for client relationships ending. “They just couldn’t afford our premium services” they will tell themselves, or their shareholders.

The clients, on the other hand, don’t believe budget cuts are that big a reason for letting go of agencies at all. They disproportionately cite dissatisfaction with delivery, poor strategy, and a failure of the agency to understand their business as the key reason for their relationship ending.

from Setup Marketing Relationship Survey at https://setup.us/marketing-relationship-survey-results-2019

At this point, you might be wondering- why does everyone continue to play this game? If clients understand that they’re not getting full value out of their agency contract, why does this culture persist?

I’m glad you asked.

Why Clients Continue to Play Along

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Sarah is the Digital Marketing Manager at Bandito Bank. She got her degree in Media and Communications Studies- which taught her a lot of communications theory but not many practical skills for a job in digital marketing. Coming out of university she didn’t know her SEO from her PPC.

So, credit to her, she did a few free online courses from Google Digital Garage and LinkedIn Learning, landed herself a marketing internship at Bandito Bank, and worked her way up to Digital Marketing Manager within 4 years.

Go, Sarah.

However, as Sarah has progressed through the ranks at Bandito Bank, she has been stretched thinner and thinner. At first, as a Digital Marketing Executive, she was just responsible for managing the key product pages on Bandito Bank’s website. Then Martha, her manager, left on maternity and decided not to return, so Sarah took on her PPC and Display advertising responsibilities, managing the budget and a specialist external agency.

As Sarah proved herself to be a competent manager of external agencies, she was promoted again, and given the remit to run an RFP (proposal) process to hire an email marketing agency.

And then a web development agency to upgrade banditobank.com.

And finally, an SEO agency to help build long term, cheap traffic to the website.

Now in charge of a $1,000,000 marketing budget, Sarah is on the radar of Senior Management at Bandito Bank. Her calendar starts getting filled with ‘Steering Committee Meeting’ invites.

She has to do a monthly presentation to the board on what sort of return is being generated by the marketing budget. She has to have meetings with the Procurement department to explain how much work Bandito Bank is extracting from its external agencies. She has to meet with Product Managers to reassure them that their products are being promoted properly (and fairly) with the central marketing budget.

With just Gary the Intern and Chloe the Digital Marketing Executive on her team, Sarah is just about managing the 4 external agencies and internal stakeholders.

Junior Clients Get Hand-Held by Agencies

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Sarah doesn’t have time to attend weekly agency reporting calls, so she asks Choe and Gary to cover them and send her ‘a bullet-point summary’ afterward.

The problem is that Choe and Gary have been in the digital marketing game for a combined total of 18 months. So they must rely heavily on the agencies to provide them with the aforementioned bullet-point summary to send to Sarah, who in turn will use it in her presentation to the Steering Committee.

Enter SEO Manager Dave from Black Hat Digital. On Account Management and Reporting time. With the knowledge bombs. Such as:

“48% of the visitors to the website this week were female”.

Or “the keyword ‘mortgage calculator’ moved from position 18 to position 14 in Google this week”.

This circus will continue for weeks on end, and Chloe and Gary will continue to forward bullet-pointed trivialities onto Sarah. Until one Steering Committee Meeting in the fourth quarter of the year, when the new Head of Mortgages John, who has a background in digital marketing, asks Sarah what the return on $45,000 SEO spend so far has been.

A Storm is Brewing

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“How many new customers have we brought into the ecosystem through SEO?”

“How has our search market share increased compared to our competition?”

“Should we not be visible in search for our brand keywords anyway?”

Sarah calls an emergency meeting with her SEO agency, BHD. She asks them to prepare a detailed report to answer all of John’s uncomfortable questions.

BHD management tells Dave he should cancel his weekend plans. They take over the main meeting room, order Thai, and strap themselves in for a deep dive into Powerpoint hell.

Fast forward to the end of the final quarter, and Sarah breaks the bad news to BHD. “Thank you for all your hard work. But we’ve decided to go in a different direction”.

Sarah tells the Steering Committee that unfortunately, BHD did not meet Bandito Bank’s expectations as an SEO agency and that she has hired a new agency- JADA (Just Another Digital Agency).

BHD got their $60,000 for delivering half that value. Sarah’s job is safe for another few quarters. Everyone breaks for the holidays.

And the cycle continues.

So Are Agencies Completely F*cked? Is There Any Hope For The Future?

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As long as dysfunctional corporations such as Bandito Bank exist, there will always be a market for marketing agencies. However, due to the low barrier to entry, the market is only going to get more and more competitive. And more commoditized.

Clients are going to be more reluctant to sign long contracts and retainers. They will look for more flexibility. They will look to bring more resources in-house, and bring in agencies and contractors as and when required.

In order to survive, and even thrive, agencies will need to adapt. And in order to adapt, they will need to ask themselves some uncomfortable questions such as:

Do we really need that downtown office? Or can we work remotely?

Is it better to have a smaller full-time workforce so we’re not making short-term decisions due to financial pressures?

What services do clients really value? How is busy work diluting our ability to produce that value? How do we convince clients to pay us for our expertise rather than our gruntwork?

If an agency owner can find meaningful answers to the above, they have hope. They may even thrive in the new environment.

Otherwise, they’re f*cked.

Marketing Agency Survivor

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