Most Ad Agencies Fail at Negotiating for New Business

ad agencies like lambs led to the slaughter

When it comes to negotiating contracts and service agreements, agencies are terribly naive, like lambs led to the slaughter. 

My friend, Peter Levitan, ran business development and marketing at Saatchi & Saatchi Advertising Worldwide in New York and London, and bought and sold three of his own agencies (including Portland’s Citrus).

Peter has written the most complete ‘how-to-book’ on ad agency pitches I’ve ever read,“The Levitan Pitch. Buy This Book. Win More Pitches.” It’s the definitive how-to guide for every advertising, design, digital and PR agency that wants to increase its odds of winning new accounts.

One of the most insightful sections of the book is Peter’s comprehensive interviews with 14 industry experts, which addresses the art of negotiating agency compensation agreements.

In one of the interviews, Peter asked Gerry Preece, a marketing procurement consultant, if agencies were good negotiators? Gerry’s answer was eye opening:

“In 95% of the cases, agencies are babes being led to the slaughter. Terrible. Naive. Wishful. It’s generally a bloodbath.”

The value of creative services isn’t easy to determine or prove the true value of ideas. It’s critical to understand the art of negotiation is an important part of business development.

I’ve pulled together some of the key insights from the interviews conducted by Peter on Negotiations, Compensation and Procurement:

  • Know the client’s compensation plan before you begin to pitch for their business. Most agencies don’t get into a serious compensation and negotiation discussion until after the pitch.
  • Agencies should mention their own attention to financial detail in the RFP and in the pitch, even if the client isn’t asking about it. You should proactively manage the message that we spend every dime thoughtfully, carefully and professionally.
  • Negotiations is a word that strikes fear into agency executives. Agencies have a lot of power and a lot at stake, but incorrectly think they are impotent.
  • Agencies approach negotiations thinking they are terribly weak, in part because they think the other side has all the power.
  • While agencies are focused on “principled” (win-win) negotiating approaches, procurement people are schooled in “positional” negotiating strategies and tactics, (win-lose), and positional beats principled every time.
  • Agencies tend to prefer win-win approaches to negotiation because we hate conflict and we want to live in harmony.
  • Most agencies don’t do any formal negotiating training for their staff.
  • Clients are much better negotiators than agency managers.
  • Agencies are up against professional negotiators and they tend to put into the negotiation process their unskilled (in negotiations), nicest, most accommodating people. They get beaten.
  • Most agencies don’t understand the role of procurement in agency selection.
  • Work on winning procurement over. Don’t just complain about them.
  • Agencies are walking into a negotiation with what they would like to have, but don’t plan out what they actually intend to get out of the meeting.
  • We train our buyers how to treat us and we’ve done it for years, but we don’t train them how to treat us differently.
  • Agencies need to establish a lead negotiator, the person who is going to run the negotiation – it’s not always the CEO.
  • What makes agencies weaker in negotiations? It tends to be their excitement around the creative.
  • Creative directors need to be taught if they give something away, they need to get something in return.
  • In negotiations, prepare well and prepare as a team. Prepare the team who will be there and then the others who may get called in after the meeting. This way you don’t inadvertently give something away that you did not intend to trade.
  • You gain power in your negotiation if you are the one out of the gate with the first proposal.

Do you have the right formula in negotiating winning contracts for your agency?

The negotiation process is the the most critical time in the client/agency relationship. During this time you are given the chance to define whether the relationship will be profitable or unprofitable account. Unprofitable client accounts are usually a result of the initial agency compensation negotiations.

Peter states,

“It is baffling to me that I never took a course in negotiation. Why I didn’t try to learn how to negotiate is crazy given the agency industry’s need to wrestle every percentage point of margin out of our deals. The only thing that makes me feel better about this deficiency is that I’m clearly not alone.”

I highly recommend Peter’s book,“The Levitan Pitch is designed to deliver one master benefit: You will win more new clients.” I have no doubt this book will become an indispensable resource as your develop a dedicated pitch management system but that will greatly improve your chances of winning more new business. It will also provide insights and resources to further develop your skills in winning in negotiations.

This is the kind of book that should be priced at $100 or more. It is a bargain at $11.75 on Amazon or you can steal the Kindle version for $3.99:

I’ve purchased at least 10 of the Kindle version as gifts for clients. I hope you’ll read it and return to share your thoughts in the comment section below.

Peter runs Peter Levitan & Co., an international advertising agency new business consultancy. Connect with Peter via Twitter @PeterLevitan.

Join in the agency negotiation conversation by share your answers to these questions in the comment section below:

How well does your agency fair in client negotiations? What resources have you found that were helpful? What kind of training do you provide your negotiating team?

photo credit: foxxyz Silence via photopin (license)

About Michael Gass

Consultant | Trainer | Author | Speaker

Since 2007, he has been pioneering the use of social media, inbound and content marketing strategies specifically for agency new business.

He is the founder of Fuel Lines Business Development, LLC, a firm which provides business development training and consulting services to advertising, digital, media and PR agencies.

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