Recently in America, media agencies have been scrutinised for accepting rebates and now, finally, it looks as if the same scrutiny is starting to happen in the UK. Recent disclosures by the Telegraph and DMGT, owners of the Daily Mail, Metro and recently the i, have revealed the large sums of money that are being kicked back to agencies in rebates. DMGT paid back £24m to agencies and clients in the year up to September. Rebates are incredibly common with most large agencies having trading deals with major publications that give them a kickback if they clear a certain level of spend over a year.
Why are they bad?
For clients they are bad for two reasons. The first one is that clients are paying their agencies more than their contract states. The DMGT figures show that around 7% of spend was paid back in rebates. So, an agency could be making an extra 7% margin on a client’s advertising budget. The second is that an agency would no longer be impartial. They will have a financial incentive to recommend certain media over others and it could lead to media recommendations that are based on the commercial interest of the agency, instead of the client.
As someone who works for an agency it has always seemed a very short-sighted business model. If a client can’t trust an agency to have their best interests at heart, then they are of course going to spend more money on ‘consultants’ to audit their work. Ultimately this will come out of their budget.
What can you do?
There are more and more agencies that are now starting up with a more transparent trading model. Here at Focus on Media any revenue made from media owners sits within the standard agency commission model and is agreed within our client terms of business. We don’t have any rebates or tiered volume deals/kickbacks with any media owner, and never will. This allows us to negotiate better deals for our clients as the media will no longer need to make another 5% to give back to us at the end of the year. It also means that a client can be sure that the schedule that we put in front of them is based solely on what will perform the best and nothing else.