Chances are, in 2020 your advertising budgets were slashed in response to your organization’s fiscal response to COVID-19.
Further, if you’re like most, those budgets aren’t likely to bounce back in the near-term. According to WARC Data’s latest study on global advertising trends, even if the ad market rises by the expected 6.7% in 2021, it will only “recoup 59% of 2020 losses.”
Downward pressure on ad budgets certainly is creating a need for organizations to optimize marketing resource allocation decisions. Yet, given the nature of the ad industry and its complex, layered, often non-transparent supply chain, advertisers may not have ready access to information needed to support these efforts.
As a corollary, in our contract compliance and assurance practice, we have found that those advertisers who do receive timely, detailed, and accurate financial reporting from advertising agency partners benefit greatly – however, most client/agency financial reporting relationships often do not meet this standard.
What is the “one thing” that marketers can do to improve the effectiveness of their advertising investment and to simultaneously mitigate risk? Implement a structured and consistent agency financial reporting (AFR) and monitoring program.
The AFR program’s core element is a finance (client) to finance (agency) relationship and a set of standardized templates to be completed quarterly by each agency partner. AFR submissions include both detailed and summary quarterly and year-to-date activities, and includes at a minimum:
- Aged work-in-process summary
- Billings by job and summary, including associated client purchase order, SOW or MSA
- Out-of-pocket expense & travel by job and summary
- Budget status by job (approved, spent, balance remaining, job close date)
- Actual agency hours incurred vs. planned (tied to each staffing plan) for each retainer and out-of-scope fee jobs, including the reasoning for variances
- Agency fee projection (trend vs. plan)
- Unbilled media summary
Reporting templates and submission deadlines should be standardized across agencies, managed by client finance (non-Marketing) personnel, and shared cross-functionally within the client organization. AFR details can also serve as inputs to formal, broad-based “Quarterly Business Review” meetings that should routinely take place between client and agency.
The client finance team should take the lead in administering the AFR process, review agency submissions, and have a direct line of communication and relationship with agency finance personnel.
When assisting in implementing these programs, our experience has shown that once an AFR program is pushed out to an agency network and client stakeholders have been through the cycle for two or three quarters (receive agency reporting, review for completeness and reasonableness, perform variance analysis and engage agency finance personnel in Q&A) then ongoing maintenance of the program becomes more routine, engrained, and time commitments decline.
More importantly, advertising ARF monitoring and oversight will mitigate risk, will boost agency reporting accuracy, and will increase shared confidence between client and agency when it comes to financial management and future resource allocation decisions.