Let Your Media Agency Contract Do The Talking!

Does your current media agency contract protect your interests?

During my time as media auditor to many of the biggest advertisers in the world, I found that their overall media performance greatly hinged on their contract with their media agency. The bigger the advertiser, the higher the chance of media success, largely due to the existence of Procurement, and Legal and Marketing departments that review and validate said contracts.

Today, as co-owner of a media consultancy, I aim to empower small to medium size global advertisers with media management best practices. Our work helps our clients significantly improve their return on advertising media spends using our proprietary media transformation program.

Part of what we do is to review media agency contracts. We are certain that a highly successful relationship between an advertiser and its media agency is based on an iron-clad agreement. If your firm doesn’t have in-house media experts, we can help you look out for loopholes, such as the ones below.

Top 5 Overlooked Matters in Media Agency Contracts

Among the numerous agreements we’ve come across, these five were the most common missing provisions. Adding them in can elevate a contract from satisfactory to mutually beneficial.

1. Transparent Media Agency Remuneration

How are the agency fees calculated? If you don’t have this information, you should wonder how much profit margin is already included in the base fee. That too before any bonus scheme is added on top.

In the spirit of transparency, I recommend including these details in your media agency contract:

How many agency people would be servicing you?
What is the job description of each one?
How many hours will they commit to working on your account?
What is their seniority level and average annual salary?
Can they provide details of overhead costs?
How much is their profit mark up?

In the current media agency landscape, the law of supply and demand is such that highly talented individuals are scarce, and they are in high demand. As a consequence, agencies may be tempted to under-resource your account to make it more profitable for them.

If you have been struggling with the quality of service of your media agency, and if you believe you ought to be receiving more for the professional fees you have been shelling out, then it’s time to review your contract.

Don’t get me wrong. I am not an advocate of squeezing agency remuneration to the bare minimum. But fairness and transparency are the ingredients to a successful and long-lasting advertiser-media agency relationship.

2. Effective PRF Scheme with a Malus Mechanism

I am also a strong advocate of performance-based media agency remuneration, a.k.a. PRF (Performance Related Fee).

Nothing motivates a media agency more than when a percentage of their fees hangs on a thread of results that can be measured. It inspires them to deliver the best media inventory and prices as well as their best people.

And on your end, the PRF is a safeguard mechanism against low-quality service or under-delivery on pitch promises. Include a malus scheme within the PRF as well, which you can apply as a financial penalty on underperformance or reneging on engagements.

The PRF also allows your media agency to earn a bonus when they perform above and beyond your expectations.

In my experience, a media agency contract with a PRF clause consisting of both the malus and bonus mechanisms results in a win-win end: advertisers get what they pay for, and media agencies earn their clients’ trust and respect.

3. Agency Commitments

As an advertiser, how can you ensure that your media prices, media quality, and agency volume benefits will stay competitive throughout the term of your contract?

You need to have agency commitments clearly outlined in the document. These are a set of KPIs (key performance indicators) that your media agency has guaranteed to deliver in their pitch or during your contract negotiations.

For clarification, agency volume benefits (AVBs) are incentives, usually in cash. These are offered by media owners to media agencies as incentives to spend more of a client’s media budget on their properties. Such deals are also called agency volume deals, cash rebates, and media kickbacks, for obvious reasons.

4. Detailed Reporting Clauses

The media planning and buying process does not stop with a raised Purchase Order (PO). Post-campaign reports are equally important, especially as a springboard to the next wave of your advertising campaigns.

Without such reports, you wouldn’t be able to ascertain if your just concluded media campaign was a success, or otherwise. Those reports, which necessarily include key learnings from the previous campaign, are your directional signs on how to move forward as well.

You, the advertiser, must clearly state your reporting requirements to the media agency and before both parties sign on the dotted lines. This obligation should be reflected in the media agency contract as detailed reporting clauses for every single campaign.

5. Media Agency Acting Purely as an Agent

What is the difference between a media agency acting as an Agent versus an agency acting as a Principal?

In the media buying setting, there are three actors: the client (Advertiser), the agency (Buyer/Agent), and the vendor (Media Owner).

Scenario 1: The Agency as an Agent

A client sends a media buying request to the agency through the media plan presented by the latter and approved by the former. Based on this, the agency acquires the media from the vendor. Then, the purchased media is transferred to the client.

Due to the nature of media ownership in this setup, the agency is obliged to disclose all prices and discounts to the client, and to pass through all the AVBs received from the vendor. The client’s auditor will also have the opportunity to review the inventory and financials.

Scenario 2: The Agency as a Principal

Agency acquires the media directly from the vendor, including discounts and AVBs, effectively being the owner. The client purchases the media from the agency on an “as-is” basis.

Because the agency owns the media in this case, disclosure of real prices, discounts and AVBs is no longer mandatory, and they hold the right to refuse audits. It likewise gives them the opportunity to greatly improve their margins before passing the final cost to advertisers.

For these reasons, a media agency contract must stipulate the agency as a middle entity acting on behalf of the advertiser. Otherwise, the advertiser loses out on most of the media transparency and audit rights.

My Recommendation

Most of the media agency contracts we reviewed were designed by the agencies themselves. It is quite a common practice, albeit an inequitable one.

But you can use a media contract template which was designed for advertisers using best practices. Control the provisions to ensure that it promotes your best interests, delivers genuine transparency, and provides you with audit rights.

So, does your current media agency contract protect your interests?

If you don't know or you're not sure, well there is a simple process you can follow which delivers amazing results.