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Clients Are Studying Agency Billings More Than Ever
By: Digiday
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The National Rifle Association’s lawsuit against its longtime agency, Ackerman McQueen, alleges that the agency hasn’t fulfilled its obligations to show the company backing paperwork on its bills to the NRA.

While it remains to be seen how the lawsuit shakes out — the agency says that the NRA is misrepresenting what actually happened — the issue brings up how contentious the subject of payments and billings have gotten in the industry.

Billings have turned into a contentious issue at agencies. It’s a complicated subject, driven by the mechanics of the agency model, but also the pressures agencies are increasingly under, thanks to in some cases a lack of trust from clients. The result is that how agencies work, manage their businesses and get paid is creating problems of overwork and contributing to what is turning into a fractured relationship.

Digiday spoke to 12 executives for this article, ranging from agency CEOs to agency directors in charge of billing, as well as two more junior level account managers and two chief marketing officers. None of them agreed to speak on the record.

The issue falls into one of two: under-billing and over-billing: Some agencies allege that they’re working very hard and not getting paid for it, because they often over-service accounts and can’t scope projects accurately. Brands say that agencies are actually over-servicing, then handing over bills that weren’t agreed upon. And in some cases, that’s leading to practices of “padding” billings that may not be illegal, but can be considered murky.

For one director at a West Coast creative agency, the issue has come down to procurement. Procurement has become a much bigger part of a pitch process, whether for an agency of record or retainer relationship, or for project-based work. “It’s kind of like, you see these happy, shiny, smiley clients, but before you can get to them, you’re led down this dark hallway where you first face procurement, which forces you essentially to justify your entire existence.”

In most cases, here’s how the process runs. When a project is brought on, there is an equation that needs to be worked out. That should be simple mathematics: Who are the people who do the work, what is the rate for those people, and what hours will be necessary to do the work. (For the last one, some agencies rely on experience, as well as benchmarks set by the 4A’s.)

“It’s really only a place to start. What is the only thing we can be certain of is the outcome at the end will be different,” said the West Coast director.

That’s where the problems begin. Clients can push back, and do so, right at the beginning. But once the initial scope is agreed on the work begins, things change. Sometimes it’s that clients have underplayed what exactly it is they need to be done. Sometimes it’s that the agency itself realizes it’s underestimated the amount of work needed.

In these cases, an agency can go back to the client. Monthly burn reports generally show if an agency is running hot or cold. If it’s running hot, an agency can tell the client, and ask for a change order to essentially re-do the scope. “Clients don’t like to be change ordered,” said one account director. “So instead, we sometimes simply don’t, and eat the costs.”

In other cases, agencies will do the work, losing money in the process, but then present the client with a higher bill — in two cases reviewed by Digiday, that bill was twice the number of hours agreed on at the beginning — with the argument that they had to do this work.

“I’ve seen this my whole entire life,” said one exec who works brand-side now but worked at agencies before. This person said at one point they were in charge of double checking billings, hours, and people assigned. But now that she works at a brand, she has in the past been handed a bill that she simply hadn’t approved. “The problem is, I didn’t approve it, and yet they did the work, so it’s hard to simply say you won’t pay it,” this person said. “But the crux of the matter is, it wasn’t their money to spend. Why did they spend it?” 



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This article was published on Digiday.com.  A full link to the original piece is after the story. www.digiday.com
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