FirmDecisions in the press: Three Ways to Be Sure You Aren’t Being Overcharged by Your Ad Agency
Faced with so much complexity in ad channels and media pricing, bank and credit union marketers may not be checking to be sure that some of their marketing dollars aren't going to 'unbilled media.' That's the difference between what the advertiser paid the agency and what the media vendor actually charged. It can add up to substantial sums over time.
Ever since the Association of National Advertisers (ANA) shined a light on media transparency with its 2016 report, many advertisers have paid more attention to transparency issues, among them the rebates agencies receive from media vendors.
But media rebates are not the only issue that financial advertisers need to consider when it comes to media contracts. Another important issue — often overlooked — is the phenomenon known as “unbilled media”. Simply put, the amount of money that bank and credit union advertisers spend on media via their media agencies and the amount of money that media vendors actually charge the agencies is often not the same.
Where differences exist, they are usually in favor of the agency. In some cases, advertisers can spend up to 15% more on media than ever changes hands between agencies and vendors, which include media owners, publishers, platforms, and sales houses.
Say a media agency promises to deliver a certain volume of media exposure for $1,000. It may in fact only be charged $950 by the vendor. The agency does deliver $1,000 in value to the advertiser, but this is through a combination of $950 actual spend and $50 in unbilled spend. For a single transaction, this difference may seem too small to worry about. Yet many financial advertisers spend millions on media each year across many different deals and vendors, and 5% wastage across a year’s spend could have significant impact on overall marketing effectiveness. Unbilled media balances — the difference between cost in and cost out at the agency — can sometimes be related to foreign exchange rate movements for multinational institutions.
Today’s Media Options Complicate the Issue
Unbilled media is pervasive across all media formats and channels — TV, print, radio, outdoor and of course digital. Indeed, unbilled media tends to be slightly more prevalent in digital because digital media campaigns often involve more, smaller transactions. As a result, unbilled media costs can add up more quickly in digital; more transactions generate more variance than, for example, single-page campaigns in print.
It’s been estimated that unbilled media often accounts for an additional 3-5% of revenue for the major media agency holding companies, which in effect doubles the typical margins they make from media transactions.
In theory, unbilled media should not be charged to the financial advertiser, as it is their commitment to invest in the media placements determined by the media plan that leads to the unbilled spend in the first place. But with so much complexity, volatility, and flexibility in media pricing across the supply chain, too often unbilled spend doesn’t make its way back to advertisers. This reduces the impact of advertising budgets and limits the increased exposure financial brands could achieve by reinvesting unbilled media value in additional media.
Reasons ‘Unbilled Media’ Exists
Agencies can and do argue — with some legitimacy — that vendor invoices could be received some years after the media has been bought. As there’s a statute of limitations for invoices of between six to ten years — depending on the market — agencies maintain that they should hold onto unbilled media for a commensurate period. Unbilled funds can then be used to pay vendor invoices as and when they’re received, meeting the full commitments that advertisers have made for media spend.
In fairness, agencies should never lose out, and advertisers should of course pay for the media bought on their behalf by the agency. But many financial brands change their agency arrangements within a six-to-ten-year period and marketing officers move to new jobs. And so by holding onto unbilled media funds, agencies are likely — eventually — to earn additional income that is not theirs by right.
What’s more, the reality is that media vendors very rarely come back to agencies to claim unbilled media — especially not several years after the media transaction took place. Once media vendors’ auditors have signed off their annual accounts — which will always include an assessment that the right media was invoiced at the right or agreed rates — it’s incredibly rare for vendors to go back to agencies and say, “We forgot to bill you this” or “We billed this, but at the wrong rate”.
3 Tips to Steer Clear of the Unbilled Media Trap
- Tighten up billing practices. Advertisers can and ideally should agree with their media agencies that invoices for media are not issued until all corresponding vendor invoices have been received and formally reconciled against the media plan. This should make the transactional chain transparent and ensure that unbilled media does not accrue to the agency’s benefit.
- Reconcile billings regularly. Advertisers can and should require agency partners to reconcile unbilled media on a regular — say monthly — basis and return unbilled media costs. Again, this process of regular reconciliation should negate the possibility of unbilled media building up in the agency.
- Ensure agency contracts are fit for purpose. It is straightforward for advertisers to include clauses in their media agency contracts that ensure all unbilled media costs are returned to them, and at the same time indemnify the agency if they ever receive media vendor invoices after the point at which invoices have been submitted.
Securing appropriate control of unbilled media is just one of the areas of basic financial stewardship that all bank and credit union marketers should put in place — through regularly-reviewed contracts — to ensure they receive optimal return on their media and marketing investment.
Other housekeeping issues that advertisers should specify in their contracts include: proper client approval procedures, control of subcontractors and approval of the use of intermediaries, cash flow management and account receivables reconciliation.
This article was featured in The Financial Brand.