I was recording a podcast the other day with Life Science Marketing Radio (a great resource which I strongly suggest you check out), and the interviewer asked (with great feeling from bitter past experience I am guessing!), ‘how do you suggest companies prevent their agencies from proposing a budget but increasing it when you get deep into the project?’. ‘Budget creep’ is a common phenomenon that causes real friction in agency-client relationships. In this blog, we will explore why this happens and what both parties in the partnership can do to prevent it.
In all my time agency-side, I have never heard of a strategy where agencies deliberately set out to over-charge on programs that they have quoted. I have heard of agencies that up-sell, but that is what all good sales people do. And I have come across agencies that plan to bring a company on board and then sell to more people within that company. This, again, is a common business model. So why do companies end up feeling like they have been under-quoted and over-charged?
The impact of a bad agency selection process
In my experience, budget creep invariably happens because of how the agency selection was managed in the first place. If you use an RFP or do not specify a budget you are essentially selecting an agency on price. In this case, the agencies have no guide as to what you can realistically spend so they make a judgement call: agencies will have worked out a budget figure that they think they can deliver within and that will hopefully be cost-effective against their competitors while still enabling them to be profitable. Because you haven't necessarily done all the strategy work that should have been done prior to outreaching to potential agency partners (like determining what outcomes you need and how much you can realistically spend to achieve them) once you get into a relationship with an agency, they realize that they were briefed incorrectly. (To learn more about why selecting an agency on price is a recipe for disaster, read this related post: <a)
Discrepancies between briefs and the actual needs of a client are common and result in the programs that were recommended and quoted during the selection phase as ultimately wrong. Agencies often don’t see this until a few months into a relationship by which time they have had to change their recommendations to produce a proposal that often costs more. If you approach this from the other way and go to agencies with a clearly defined budget, and you say, "This is the finite amount we can spend, what can you do with this?" You're more likely to get a much more accurate proposal with very clear costings that you can measure success against. (Read this great post on how to handle an agency selection in the right way: )
Laying the foundations for success
If you have spent the time to really understand what it is you want to achieve with your marketing, developed these wants into measurable objectives and set aside a realistic budget before starting the selection, your relationship with your agency becomes much more powerful. This is because you can clearly tie your budget to outcomes, and start to measure whether what you are doing is having the impact on the market that you want. It all comes back to strategy, planning, and appropriate budget setting before you start any agency selection – there really is no short cut – if you lay the foundations you will have a much stronger relationship with your partner, get better marketing results and automatically prevent budget creep.