State of the industry: Why we believe in pay-for-performance compensation

 
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State of the industry today:

How do digital media agencies make money today? They buy low and sell high maximizing margins where they can, sometimes on top of agreed upon commissions. Historically an advertiser has agreed to pay 15% or less commission on their media spend. However, if you analyze the P&L of an agency, there is no way that margin works operationally for the agency or the best interests of the client. It simply doesn’t work, if you deploy the right resources that we believe are necessary to do the best work.

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This has led agencies to look for incremental profit margins behind the scenes deep inside the technology platforms. These additional margins can come from ad serving, data costs, etc. Ultimately, this is a problem manifested by the advertiser believing that paying less is good for their P&L and will get them more.  An antiquated model from the traditional media buying standards of practice being applied to new technology enablement.

 

We believe with the evolution of technology; the compensation model needs to evolve as well. We need a reset of the agency compensation model. The reset should come with proper alignment of shared accountability and performance, where the advertiser’s budget is managed like an investment portfolio, and the money manager’s profit (agency) is a direct result of their performance yield (hitting and exceeding KPIs). This then puts all the incentive and opportunity for delivering the best results into the hands of the agency partner, and properly aligns them with the same interests of the advertiser’s objectives.

Where things are going; unchanged for the most part:

What also has to change is the notion that humans and technology are scalable and made more efficient by technology alone. This is simply not true; this is not a zero-sum game where all people and media buying are the same. Technology has made the opportunity to create a better more meaningful investment strategy and execution possible, but it takes way more work than in the past.

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The old saying “you get what you pay for” has never been as relevant as it is now. Cheap talent and cheap fees equal low-cost resources, effort and results. The idea of paying strictly for the time to execute campaigns or media buying is short-sighted. It can take years to develop the talent to execute successful campaigns using today’s digital media buying technologies. Yet the current typical agency financial model does not support this level of talent or requirements.

 

This ultimately means that talented and skilled resources that are given the freedom to create and execute media buys and campaigns for the optimal best outcome, instead of a set number of hours to do the best work, costs much more than relying on a platform to optimize your campaign with minimal human involvement. The equivalent performance of more hands-on human engagement with qualified talent yields better results.

 

As advertisers and procurement attempt to negotiate lower fees, they are just hurting themselves. It looks good on paper but doesn’t translate into successful executional outcomes. A good analogy would be trying to hire the lowest salaried and least experienced CEO or CMO for an organization. Is it logical to expect them to produce the best outcomes? When you have the right talent in place and outcomes are tied to compensation, everyone wins.

The paradigm shift moment:

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Implementing the vast array of technology advancements, with the same old operations model and fee structure has made no sense to us. Automation introduced the paradigm shift that digital media buying no longer required negotiating with an ad rep, signing an IO and sending your ads for them to do all the work. On the surface it sounds like a simplification and an improvement. While it offers both those benefits, what it doesn’t do is replace the need for human engagement and intelligence with decision making.

 

New technology and automation still require daily hands on management to maximize performance and ROI, ROAS or whatever metrics you are measuring. Today’s technology provides access to deep levels of data, requiring digital marketers to analyze hundreds if not thousands of rows of data, and make intelligent investment and campaign optimization decisions based on empirical facts, experience, and campaign nuances. No question, machine learning and algorithms help the process, but they should not be relied upon 100% for decision making.

 

This realization came as a result of building a Programmatic media company and looking under the hood of the technology to understand what we could do differently. What we identified as we won new business and transitioned accounts over to our campaign management teams, was that 50% or more of the tech stacks were not being fully utilized or were being used very poorly. Poorly executed tech stacks, i.e. incorrect data and analytics tagging, lack of tagging, or myriad other campaign execution issues; all lead to sub-optimal campaign performance often fueled by limitations of allowable time to work on such business.

 

Everyone is using many of the same tech stacks, the difference lies in how they are implemented and how the data is being analyzed and used. Ultimately for us, the question came down to ‘why’ would we launch a programmatic media company in an already crowded space controlled largely by the big agency cartels.

 

Our ‘why’ became the primary reason for this journey. We set out to build something totally different. We created a solution for brands to address what we felt was missing in the industry. We set out to totally reinvent an aging business model, and more important than anything else; we committed to create something that we could be proud of and that would deliver the best results possible for managing advertiser investments. Ultimately what we knew the promise we had to deliver on was to provide an experience that seemed ordinary and expected, like Deja Vu… but opposite, which is literally why our company name and brand is called Vujá Dé.

Why our model works better:

Our difference is simple. Our philosophy and operations model allows our stakeholders to leverage technology to its fullest extent and capability, they are the most talented and skilled specialists, who are given whatever time needed to execute and achieve the best campaign performance possible - with no limitations except their own curiosity and passion.

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How did we do this? We did this by throwing out the traditional media buying methodology around metrics that no longer mattered. We also modified how we would be compensated for delivering actual business results, not media placement results. To do this, we had to transform the compensation model from a fixed percentage to a variable percentage based on performance earnings that ranges from 0%-35%.

 

Yep, you read that right…we could take on business and earn 0%, and in that case; it meant we did not perform to our promise and don’t deserve to be compensated. All the risk is now on us, however; the upside earnings make it worth the risk to do the best work possible. The higher percentages also allow us to incentivize our teams differently than just putting in their time and collecting their salary. This requires long standing relationships to recoup our sweat equity investment upfront, while the campaigns begin to show their performance that enable us to earn our compensation.

 

Team members become stakeholders in the company outcomes. The dynamics of accountability, passion and curiosity all change; and as a result, so do the outcomes for the investments we manage. Over the last 5 ? years this model has been put to the test with some of the biggest brand advertisers to some of the smallest. Each one, carefully executed with a hand-crafted strategic approach, unique to their business objectives. We never use a templated approach.

 

Our engagement and commitment is driven by senior talent and executives on the team; who not only make the promise, but also execute on it.  Our senior talent have their fingers on the keyboards watching the data, and making the most critical decisions day in and day out. We never rely on machine learning or an algorithm to make final campaign optimizations.

 

Our model gives brands a more seasoned hands-on team, with all the motivation and freedom to produce the absolute best results. This is in contrast to common scenarios where slim media fees mandate a less skilled team, who have a set number of hours to do what they can to manage campaigns. This is only achievable with as much reliance on automation as possible to handle to most volume. Is this the machine you want managing your investments?

 

Traditional fee model agencies have to get as much out of each person and account as possible to remain profitable with the tiny margin they have negotiated to win the business. It has necessitated many traditional fee agencies to look for and create incremental margin behind the scenes, many times masked in tech fees and other ways the advertiser would never know.

 

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Fortunately for us, taking the approach of performance first and the compensation will follow, has proven a successful approach over and over again. Each and every time we get to enjoy making the promise of achieving performance for earned compensation, and both the brand and we as the agency, win. We’re not interested in just charging a media fee for placing messaging. We know how to create a winning scenario for both the brand and the agency, in this new dynamic and changing agency and brand compensation relationship.

 

We are up for the task. In our opinion, as performance marketing experts; the current model is not sustainable for advertisers looking to measure every dollar invested and only compensate for performance. We expect to see more compensation models moving in this direction, and some consternation for those not able to pivot to our dynamically changing industry. If you want to talk or try our new truly pay-for-performance model; please get in touch. tjuneau@vujadedigital.com or info@vujadedigital.com