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In the Golden Era of the ad agency business — the decades between the early 1950s and the late 1960s — CEOs from the world’s largest corporations would meet regularly with their agency counterparts to discuss ways to grow their businesses.

And why wouldn’t they? The best and brightest minds in business worked for the likes of Ogilvy & Mather, Doyle Dane Bernbach, BBDO and Leo Burnet.

In fact, by the mid-1960s, high ranking executives working for New York-based agencies were making about $65,000 per year — the equivalent of $489,000 per year in today’s inflation-adjusted dollars.

Given all that, it only makes sense that corporate CEOs would want agency executive’s advice — after all, these guys knew their stuff.

Unfortunately, the industry landscape has changed dramatically over the past few decades.

Today, salaries are much lower, employee recruiting is much more difficult and client/agency relationships much more tenuous. (In fact, according to the American Association of Advertising Agencies, the average length of a client/agency relationship in the 1990s was 8 years. Today, it’s less than 3 years.)

I’ve just finished an important book on this topic called Madison Avenue Manslaughter. In it, Michael Farmer shares his perspectives on the advertising business, starting with the Post World War II era, then moving through the Golden Years (the 1950s and the 1960s), ending up with where the business is today.

The ad agency business is being disrupted and many firms will disappear as a result.

Mr. Farmer’s key point — that the agency business is going through a massive shift and that many ad agencies, design firms, and PR agencies will be left in the dust — hit me in the gut because my father was a Mad Man who worked side-by-side with the likes of David Ogilvy and the other great industry leaders.

All this got me thinking.

As you may know, the 60 Second Marketer is linked to SIXTY, a business consultancy that helps clients get more bang for their marketing buck. We spend a lot of time analyzing the relationships clients have with their agencies and we’ve come to some interesting conclusions which I’ve outlined below.

Let’s start with a fundamental premise:

Ad Agency Business

If we know that there are always going to be businesses, and that there are always going to be prospects, we can also assume that there’s always going to need to be a bridge built between the two.

The bridge builders in the illustration above are made up of people who work in the advertising and marketing profession.

The question then becomes what those marketing firms look like, and whether those marketing firms are in-house or at third party businesses.

That got me thinking about the different categories of services that agencies provide for their clients.

There are five different categories of agency services, which are outlined below.

The services go from highly-commoditized to highly-specialized. The commodity services are the entry point for most agencies. (Unfortunately, this is where most agencies spend the bulk of their time.)

Interestingly, management consulting firms start their client journeys by focusing on the most highly-specialized category. You’ll see what I mean once you review the graphics below.

The first one highlights what I call “Hands On Tactics.”

Ad Agency Meltdown

Most agencies start their journey with clients in the “Hands” category. But if the only thing they’re doing for clients six months after they initiate the relationship is “Hands” work, then their clients won’t get the full value of a relationship with them.

So, smart agencies should work their way up to the next set of options, starting with this one:

The Turner Matrix

If clients turn to you as the central organizing resource for their campaigns, that’s a good spot to be in. It means they trust you and your leadership/operational skills. That’s nice, but it still leaves you vulnerable to be replace by someone internally, or by another agency.

Given that, you should be on a constant mission to move up to the third level.

How to Save the Ad Agency Business

“Ideas and Innovations” is what most agencies think is their raison d’être. In fact, when you visit most agency websites, they’ll talk about the Big Idea or their “breakthrough” creative.

We recommend not focusing on the Big Idea or breakthrough creative because it doesn’t address the primary client concern, which is ROI.

Don’t get me wrong — it’s true that Big Ideas often lead to ROI, but most agencies don’t connect the dots for their clients and show them how they’re connected.

Why not?

Partly because connecting the dots means you’re being held accountable for the results, and that frightens a lot of agencies. The other problem is that many agencies don’t know how to calculate Customer Lifetime Value, Allowable Cost Per Sale, Return on Ad Spend or any of the other key concepts that are needed to calculate an accurate ROI. So they focus on the Big Idea instead.

(Side note: I cover the topic of ROI in a lengthy post on the 60 Second Marketer entitled An In-Depth Guide on How to Calculate the ROI of a Social Media Campaign. It might be worth checking out.)

All this leads to the next item agencies can bring to the table for their clients.

The Turner Matrix

The key to “Wisdom and Experience” is to tie your experience to a positive ROI. It’s one thing to say, “I did a campaign for Coca-Cola.” It’s an entirely different thing to say, “I did a campaign for Coca-Cola that increased market share in 5 major markets in the Southeast which added $50 million in incremental revenue to their bottom line, all for an investment of just $10 million.”

When you apply that kind of discipline to your own case studies, you’ll find they have much more credibility and impact with your clients.

The final deliverable agencies bring to their clients is called “Black Box.” Here’s what that’s all about:

The Turner Matrix

The secret to “Black Box” is to provide something that clients either don’t have or can’t have. In the management consulting world, this comes in the form of smart, hardworking, talented people who have MBAs from the top business schools.

It can also come in the form of a technology or a set of technologies that the client doesn’t have access to.

Ideally, you’ll bring a combination of these “Black Box” offerings to your clients. If you can do that, then you’re on your way to being so invaluable to your clients that they can’t fire you.

Now that you understand the key elements, let’s take a look at how those elements play out across the spectrum.

How to Save the Advertising Business

Once you understand the value behind each of the areas of expertise, you can see how agencies typically engage with their clients.

How to Save the Advertising Business

But wait — take a look at the next illustration. It highlights how management consulting firms enter into the fray.

How to Save the Advertising Business

All this leads a key point I want to share with you, which is illustrated below.

The matrix below shows you why it’s important for agencies to move from the lower left quadrant to the upper right quadrant.

The Turner Matrix

At SIXTY, we’re acquiring new technologies and new talent that fall into the “Black Box” category. By doing so, we hope to protect ourselves from being part of the highly-commoditized, project-based industry the agency business might become.

Do you have a marketing agency?

If so, you might want to apply some of the strategies outlined above to your business. We’ve spent a lot of time thinking about where the agency business is and where it’s headed. If you’re happy doing short-term, highly-tactical, project-based work for clients, then being in the bottom left hand quadrant might be fine for you.

But if you’re interested in working on long-term, strategic, business-building campaigns for your clients, you’ll want to work your way up to the upper right-hand quadrant.

One final important point.

Remember, “Black Box” is meaningless unless it’s tied to revenue. In other words, you can’t simply say the all-too-familiar rejoinder, “We have a proprietary way of looking at your business.” Quite frankly, that’s baloney — you know it and your clients know it.

Instead, you need to have “Black Box” technology that truly differentiates your agency and, most importantly, it has to be something that the client doesn’t have easy access to.

We’re exploring this vigorously at SIXTY and will keep you posted on where things net out as we evolve our business. In the meantime, let me know your thoughts and insights about the agency business below. Do you agree with what I’ve outlined above? Do you have your own take on the agency environment? Do tell.

Update from Jamie: Want to see our own version of the Black Box referenced above? If so, read Why You Should Abandon the Sales Funnel and Use SalesMatrix Instead. It’s our own set of technologies that allow us to target, tag, and track prospects all the way through the sales funnel until they convert into customers.

About the Author: Jamie Turner is an internationally recognized author, speaker, and CEO who speaks about business, digital media, and leadership at events, conferences, and corporations around the globe. He is a professor and lecturer at two leading universities, has been profiled in one of the world’s best selling marketing textbooks, is the author of several business books, and can be seen regularly on network TV news. He can be reached at +1-678-313-3472 or via email at Jamie.Turner@SIXTY.Company.