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Ms. Joanne Davis

What Is the Cost to Switch Agencies?

After Tom Finneran sent the 4A’s Accounts in Review report, it made me think again about the cost of new business for both the client and agencies. So many clients immediately think a new agency will solve all of their problems. So many agencies love the headlines of being an agency finalist and, ultimately, a winner.
 
The cost to switch an agency makes me question the ROI for clients and agencies, versus working harder to repair the relationship or switch the agency team.
 
There are significant “hard costs” and “soft costs” for an agency to pursue a new client.
 
Agency Hard Costs: research, travel, production materials, freelancers, leave behinds, etc.
 
Agency Soft Costs: time of staff
 
TOTAL AGENCY COSTS: I remember a 4A’s study that averaged the hard and soft costs at $100K per pursuit.
 
What about quantifying the client cost to switch an agency?
 
Client Hard Costs: travel, briefing materials, consultant (sometimes), honorarium for finalists (sometimes)
 
PLUS: termination cost for incumbent agency—even though the terminated agency is technically supposed to work through to the termination period, we all know there’s a wind-down.
 
Client Soft Costs: time of staff
 
PLUS: disruption costs to existing programs, delays in marketing, time spent on incumbent wind-down
 
TOTAL CLIENT COSTS: can equal more than 15% of a client’s annual marketing budget
 
Considering that a review averages three months, the client is effectively without a functioning agency for 25% of the year. The “ramp up” period for the new agency is also three months—or another 25% of the year. Sure, the marketer will shift money to the new agency’s campaign, but the client costs to switch can be even greater.
 
It might be a good idea to quantify the client costs yourselves and use that as a mantra to find better client-beneficial solutions to keep your clients.

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Comments

Note to CMOs: Fix the relationship, don't ditch it

Joanne's post on the high cost of agency switching is spot on! Marketing execs everywhere should take a deep breath before taking that "fire the agency" plunge.

Changing the agency isn't a guarantee of better performance... and in a world where CMO tenure is only around 24 months (per Spencer Stuart), what new CMO has the luxury of the 3-6 month (or more) time and business distraction that a review costs?

Better to fix the relationship. In most cases you can.
Posted by Mr. Stephen Boehler (Sunday, February 01, 2009 2:06 PM)
 

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