Are traditional ad agencies are bad for business?

There has been a lot of discussion about the dark side of ad agencies and whether or not it’s good for business (see WSJ article from earlier this month). In order to learn more about this subject I spoke with Ryan Faber, an award-winning growth marketer who has helped drive company valuations into the billions. Ryan is the Founder and CEO of AdKick – the anti-agency as he calls it – which acts as a performance-based growth accelerator for companies who have received funding and are looking to scale efficiently.

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Are traditional ad agencies bad for business?

For most companies it is not the right approach, especially tech startups who have extra pressure to grow efficiently. The main issue is that the traditional ad agency model doesn’t properly align interests between agency and advertiser. These agencies charge a percentage of marketing spend, usually between 10-20%, to manage media which incentivizes them to spend more of your money rather than drive efficiency. Most of these agencies also require a minimum spend threshold or long-term time commitment which keeps advertisers stuck into deals that aren’t performing for them. I speak to CEOs all the time who have been burned by this model and there is a huge appetite for more progressive alternatives.

What are the alternatives?

There are 2 other models that we have found to better align incentives between advertisers and agencies. The first one is to come in and build a high-powered marketing machine and teach the in-house marketing team how to operate it for a flat monthly fee. This covers everything from media buying strategy to ad testing to funnel optimization. The advertiser is bringing in the “A” team of marketing and product strategists to teach them what other companies have spent 100s of millions of dollars to learn. The second one is to work on straight performance. A company tells us how much a lead, an app install or a sale is worth (their cost per acquisition) and we are only compensated for the conversions that we drive. We cover 100% of the media spend and take on all the risk. With all the deals we do the advertiser has the ability to cancel at any time. If we can’t add value we don’t want to hold anyone into a deal that isn’t for them.

Are ad agencies really receiving secret kickbacks?

It happens. I used to run a traditional ad agency, and once I realized what was going on, I decided to adopt a more progressive and mutually beneficial model based on performance rather than spend. Business relationships need to be win-win. Advertisers have been bled for years and it is finally coming to light. The gravy train is coming to an end.

What are some growth marketing tips you can give advertisers?

– Commit to optimizing the entire funnel through an ongoing multivariate testing plan. You should always be running experiments on ads, landing pages and post-registration flows. Once an experiment hits statistical significance, call it and launch the next experiment immediately. It’s requires discipline to maintain this level of experimentation, but the most successful companies never stop testing.
– Build out a great refer-a-friend program with a double sided offer. The value of a referred customer is often much greater than one driven via ads. Uber did a great job of this which helped fuel their growth in the the massive business they are today.
– Have a solid exit intent strategy. We often look at onsite user behavior to identify when we think a user is highly likely to leave and present them with a strong offer or value add prior to exit. You can often capture 15-20% of leads that would have otherwise been lost.

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