Snatching Defeat From The Jaws Of Victory

Popular belief (mostly clients') is that agencies are bad negotiators, exhibiting softness, and giving up too much in fee negotiations and contracts to marketing procurement executive on the Advertiser side. Yet, this is far from the truth. Actually, agencies, and the people who handle their negotiations, primarily the CFOs, are in fact excellent negotiators. They are very knowledgeable about their "product", labor hours, and they know how to price it. They are clever calculating overhead and indirect multiples, and maximize their margins. They also know where, and how, to hide unbillable expense, and how to structure their incentive in an advantageous way. Procurement executives often are not familiar with agency scope of work (SOW) requirements, and with how many full time employees (FTEs) are need.

Yet, despite starting from a position of strength, agencies usually end up in a much worse position as times goes on. Interestingly, clients have little to do with it. It is self-inflicted. It is a reflection of the agency culture as a service organization, and a willingness to provide many additional services at no extra cost, even after signing the contract.

Instead, to thrive as business organizations, agencies should replace a culture of service with a culture of profit.