In the financial world, there are two types of financial advisers. The first is often referred to as a broker. A broker gets paid a fee or commission for selling a particular product. A broker has no penalty for recommending a product that serves the broker's interests first. The second type of adviser, which represents less than 4% of the financial adviser market, is called a fiduciary. A fiduciary has both an ethical and legal obligation to recommend products that serve the best interest of the client.
In today's world of advertising, most media agencies deliver the majority of their recommendations whilst trying to serve two masters. The media agency's first master is their clientele. The second master that a marketing agency serves is the shareholder who demands higher margins in order to increase their profits each quarter. This is one of the reasons why digital marketing has seen such a dramatic rise within the advertising agency landscape, specifically with programmatic mediums such as display and online video.
For traditional mediums, like radio advertising and TV advertising, advertising margins are incredibly low, with some marketing agencies lucky to make low single-digit margins at best. Digital marketing mediums on the other hand, can allow marketing agencies to trade this inventory with margins of well over 30%. Advertisers typically have a set budget, however, the marketing agency can make up to 50 times the revenue by moving their budget into high-margin assets.
Over the past couple of months, we have seen many advertisers drastically pull back their digital marketing investment. Some advertisers were investing over 50% of their total budget in digital marketing, as recommended by their marketing agency. However, for many, ROI is not transpiring as promised, hence clients are looking for answers and alternative solutions.
A media agency typically receives the bulk of its revenue from either fees or a commission for selling particular types of advertising mediums. What most clients don't know is that not all types of advertising mediums have the same margin. This is why many media agencies in Australia participate in share deals with TV networks or heavily promote digital marketing through their trading desk, as they can make substantially more profit this way. As media agency owners continually seek to increase profits, it is in their best interest to constantly looking for high-margin products that they can sell to their clients. These products don't always have the best interests of the clientele at heart, however they can tick many boxes on paper when it comes to targeting and efficient audience reach.
Performance Marketing Agencies
Fiduciaries have a financial and legal obligation to only act in the best interest of their clients. This is similar to how performance agencies are remunerated. A performance media agency often has skin in the game and is remunerated depending on the outcome that the agency delivers for a client. These marketing agencies are obsessed by results and are not precious about the advertising medium but rather the outcome that is achieved. If the results are great, the marketing agency is rewarded handsomely for their efforts.
A true partnership involves having mutually aligned objectives. For this reason, it also means that if advertising results fall short of the objective, a performance marketing agency will typically not charge any fees and often pays a penalty fee for under-delivering. Performance marketing agencies look to find, grow and nurture clients into very profitable accounts by helping their to clients grow and expand their business. Media brokers, on the other hand, are solely focused on achieving the highest possible margin out of their client's budget whilst delivering an average to okay result.
If you would like to learn how our performance agency could help your business to increase lead generation and ROI, please feel free to click the below link to arrange a time to talk with one of our performance consultants. Our leading Melbourne advertising agency serves clients throughout the APAC region.