Why the pandemic means holding agencies to account matters more than ever

AVBs are the bonuses agencies receive from publishers and other vendors in the supply chain after reaching spend thresholds throughout the course of the trading year.

The ongoing coronavirus pandemic is posing serious challenges and accelerating decision-making for the world’s brands. The world’s two biggest consumer goods business are looking to ride out the looming recession – with P&G increasing and Unilever maintaining 2020 spend plans – but they’re the exception not the rule.

A recent study by the World Federation of Advertisers found that most global plans to cut spending are deeper and longer than initial indications had suggested. The 13 May poll reported that 89% of large multinationals have deferred marketing activity in the first two quarters of 2020, with 52% of them planning to freeze spend for six months or more.

In this context of a market scarred more deeply than in any previous economic downturn, one of the decisions advertisers should most definitely accelerate is to hold their agency partners to account – by ensuring that they’re sticking to the terms of their contracts, by ensuring their performance is in line with guarantees. As marketing belts tighten right around the world and CFOs are under increasing pressure to manage every penny, time and resource spent auditing agencies can deliver real and meaningful returns.

Any kind of audit is, by its very nature, a retrospective activity. It is obviously impossible to determine how well an agency or marketing partner has performed – in buying media, in developing creative content and so on – until the work has actually been done. In the normal course of events, the industry typically works on a one to three year delay.

At best, auditing agency contract compliance for 2019, say, would rarely start until the second half of 2020. But for many companies – including multinational and global businesses with a house or family of brands – there is a two or three year time lag, and 2018 and 2017 are yet to be audited. The pandemic – with most companies not in the thick of developing and executing major new campaigns – gives brands an ideal opportunity to play catch-up.

I’ve written in this column before about the complexities of the modern, digital, increasingly programmatic media supply chain, full of actors and middlemen who all take their piece of the pie. Advertiser-agency contracts are often not fit-for-purpose for the constantly-evolving marketing ecosystem, and in many cases the contracts don’t cover all of those in the supply chain.

Now is a good time to review contracts to ensure they do meet future needs, but my appeal to advertisers here is at a more basic level than this.

Almost as a matter of course, audits of agency compliance identify monies that are returned from agencies to advertisers without protest or complaint from the agencies. In our experience, the vast majority of contracts contain the clauses necessary to recoup any funds resulting from unbilled media, credit notes, AVBs (agency volume bonuses).

AVBs are the bonuses agencies receive from publishers and other vendors in the supply chain after reaching spend thresholds throughout the course of the trading year. Many contracts already ensure that these should be shared with advertisers in proportion to their spend with specific suppliers via the agency. For most brands, clauses in these areas are clear-cut and the expectation is that they should be calculated and returned back to advertisers.

This is why, in the current environment, we’re routinely encouraging our clients to get up-to-date with their contract compliance audits, making sure they catch up on audits for years they have yet to perform. When the money is returned, it can either be used to support or shore up marketing budgets which have – in most cases – been cut.

Advertisers can then choose to put these recovered funds back into the business to support it in this time of crisis.

In the U.K., clothing sales fell 34% in March, and in April new car sales were down by 99%. Just 4,300 new cars registered that month, the lowest total since 1946.

With many other sectors suffering, recouping monies owed is quite simply an exercise in good housekeeping. And once they’ve caught up with missing or lost years, advertisers would be well advised to run contract compliance audits of their agency partners every year for the calendar or financial year just passed from now on.

This article was featured in Accountancy Today.