The crucial importance of auditing regularly
Traditionally, contract compliance auditing for media and marketing services has been managed on a two-yearly cycle. Most clients audited 24 months of activity in one go. This rhythm was established when compliance auditing services were new to the marketing sector, when client teams had less experience in this area, and when the media business wasn’t experiencing such a rapid period of digital transformation.
This cadence was also often linked to the expiry of contract terms rather than a more regular, optimal contract compliance schedule. Auditing so far in arrears didn’t do advertisers any favours in terms of future planning, however, as audits often delivered learnings two-and-a-half or even three years after investments were made.
With so much innovation and change taking place in the increasingly-digital marketing ecosystem, such a distance between investment and review poses significant risks. Brands routinely miss out on new solutions and opportunities for enhanced ROI simply because their processes for contract compliance auditing lag so far behind investment.
The first area that demonstrates the growing importance of a more frequent cadence for auditing is inventory media. Inventory media is media that agencies and agency holding companies buy upfront and at their own risk and then sell on to their clients. The promise is that, because agencies buy inventory media in bulk, advertisers benefit because it is cheaper than if they’d attempted to buy it directly from publishers or platforms themselves or via their agency.
On the flip side, however, inventory media is only available to advertisers if they agree to wave audit rights – their rights to know how much it cost and how much it’s been marked up – although though they can still get sight of KPIs and delivery data.
Inventory media has grown significantly over the last five years, but it has been pushed particularly hard by network media agencies in the past three years. Although it is more common in English-speaking markets, it is now available in more than a dozen markets and territories. While it is true that inventory media can present advertisers with excellent cost reductions, to do so it needs to be well managed with clear and regular oversight – in terms of approval, processes, and spend caps.
We strongly advise that brands should put a percentage limit on inventory media, by campaign. What’s more, if brands only audit every two years, they’re effectively giving agencies carte blanche to invest in inventory media for 24 months with little rigour or testing
Another area which rigorous vigilance and greater frequency of auditing is necessary is unbilled media. Unbilled media is media for which advertisers pay their media agency partners but for which the media agency does not get billed – or has only been billed in part – by the media supplier. This is particularly important in the UK, where most agencies bill to estimate and only reconcile invoicing later.
This means that, for clients with large budgets, there is often a significant delta between the invoices they receive and the bills media owners send to agencies for their inventory. These are not always reconciled and very rarely on time. More frequent contract compliance audits help to manage, streamline, and return cash to advertisers in timelier fashion.
Many advertisers operate large and complex media budgets, often covering several brands spread across different markets. These budgets may be centrally-managed, but because they’re spread across multiple territories and suppliers, there are many more financial parties and approvals in the transactional chain to verify. This makes it challenging – particularly for limited marketing procurement teams – to reconcile spend properly.
In situations like this, it’s just not possible to wait a year or two to audit. ‘Always on’ audit is much more suitable for complex budgets, an approach that manages the process monthly or quarterly.
By outsourcing verification to an external contract compliance auditor, advertisers truly can make their complex budgets work harder. This works hand-in-hand with a yearly audit, as the ‘always on’ approach deals with the billing cycle, while the billing verification used in the yearly compliance audit process can ensure that such activity doesn’t create unnecessary double work or cost.
Using the more recent past to guide future investment
Inventory media, unbilled media, and complex budgets all demonstrate the importance of shortening and managing the cadence of contract compliance audits. More regular audits help to return cash that’s due from agencies to advertisers, tighten up the processes, and ensure that agencies are compliant with contractual terms and conditions. The most important outcome, however, is that auditing closer to investment allows brands to use learnings from past spend to improve ROI from future investment in a more timely fashion.
Learning sooner enables advertisers to improve processes quicker, manage engagements better, and formalise approvals and reviews faster. Closer cooperation and understanding the impact of investment closer to the moment of investment allows brands to refresh and update their agency relationships – and the contracts that govern those relationships – without significant cost or lost opportunities. Not only can this approach deliver significant upsides in the ever-changing media environment. It also creates stronger, healthier bonds between advertisers and agency partners.
Depending on this size and scale of media investments, I believe brands have two options.
- Large budgets
For advertisers with large media budgets – with spend fragmented across multiple brands and/or markets, managed centrally – the ‘always on’ approach is the best way to manage unbilled media, which is often the biggest issue. Such an approach helps resources in the marketing team, returns cash when it’s due, and manages financial processes closer to real time. An ‘always on’ or quarterly-in-arrears cadence makes for the best, forward-looking solution.
- Medium to smaller budgets
For brands with smaller billings, a more concentrated media mix, or fewer brands, the best approach is to run an annual audit and in this way manage unbilled media. This will also enable advertisers to learn, implement, and process new ways of working that ensure new opportunities are implemented without risk.
Both of these approaches will help to drive positive ROI and better financial processes, as well as accelerate the application of learnings to achieve optimised outcomes from new media innovations. They will also strengthen agency relationships. In today’s new media world, increasing the frequency of audit and bringing audits closer in time to actual expenditure both allow learnings to be implemented with more impact.
Doing this regularly – little and often – makes it become a habit. So, although it threatens to be more work in prospect, in reality, the additional time and resource required will be more than outweighed by the savings and learnings acquired along the way.
This article was featured in Accountancy Today.