The Agency Model vs. Managed Buys: How to Correctly Leverage Your Programmatic Ad Dollars

So you’re in. You’ve heard the pitches and the numerous unique value propositions. You’ve sat through countless decks, coffees, lunches/breakfasts, webinars and even read an ebook/white paper or two. You have internal buy-in from your CMOs/Marketing Directors and you’re finally ready to incorporate programmatic ad buying into your digital marketing program.

Now what? Who?? How much?? How many???!

There are so many questions, and everyone has their “solution.” Let’s dive into a couple of concepts that will put you on your way to implementing a programmatic ad buying program that will maximize your ad dollars vs. a program that lacks transparency, control and allows ad tech companies to optimize their margins against your ad dollars.

I will start off by stating the obvious: from Agency to Ad Server to DSP to Ad Exchange/Network to SSP to Publisher, everyone is getting paid. The critical question is how much and more importantly is do YOU  know how much?

 

The Direct/Managed Buy

You’ve done your research and settled on an agency/platform to execute your programmatic campaigns. Now comes the fun part, negotiations. This is where you are going to set your pre-fixed pricing and target goals for this campaign. Normally, pricing is based off paying for an Impression (CPM) or a Click (CPC). In both cases, you’ll most likely be presetting your campaign goals and benchmarks – CVR, CPA, CPL, CPE, ROAS, ROI…etc. – as a means of ensuring efficiency and quality on your ad buy.

My favorite analogy to describe this pricing method is thinking of CPM/CPC pricing for managed buys as if you are getting a ride in someone’s car and they’re going to charge you a pre-set miles per gallon (MPG). It goes something like this:

You have $1,000 dollars, and the driver tells you that a gallon of gas costs $1. They’ll get you 30 miles per gallon which means you’re going to go 30,000 miles. 30,000 miles is your return on spending $1,000 – and 30mpg is your performance metric.

Fairly simple right? You know the cost and you know exactly how far you’ll go. Where’s the problem?

Well, first we have a transparency problem in the pricing. Remember when we agreed that everyone has to get paid – this includes the driver, the car owner, the GPS maker… etc. When platforms/agencies tell you that the cost is $1 per gallon, included in it is their fee – what they may not be telling you is what percentage of that $1 is going to gas vs. going to them.

This lack of transparency now creates a larger performance problem. Because during a managed buy, not only did we agree on a price of $1 per gallon (of which we don’t really know how much is going to gas vs. commission) we have also agreed upon a performance metric; miles per gallon.

Could you imagine if the car you were paying for was a hybrid capable of 50 mpg, but you are being billed based on a pre-determined 30 mpg. What happens to the other 20mpg?!@ – That is a called a margin, and agency trading desks/platforms can actively optimize against it during managed buys because that is how they can increase their profit share of your media buy.

The paradigm of managed programmatic ad buys immediately limits performance because the lack of transparency creates an environment where the advertiser doesn’t know where there money is going therefor trading desks/platforms can optimize for growing margins.

 

The Transparent Agency Model

Alright, you’ve made it this far. You’re ready to move forward with your programmatic ad buying program. You have an idea of the platforms you want to use, the users you want to reach but you’re a little unsure of how to implement and scale your program.

This is where working with an agency that is completely transparent comes in. They have the access to the same technology, the expertise, and most of all provide transparency into how much they get paid.

In sticking with the same analogy – This is like a driver saying to you I will charge you based on a percentage of how much gas you buy – let’s use 15% as an example. You still have $1,000 to spend, so the driver’s fee is going to be $150 dollars. The passenger is not per-determining a cost per gallon or miles per gallon goal.

Here is the major difference: the agency is going to find for you the cheapest gas and work to achieve the most efficient miles per gallon possible.

This can really help solve the performance problem and it’s not because agencies are better at programmatic ad buying. It’s because of how this model incentivizes agencies to find performance. We are no longer working in a paradigm where advertiser performance can be limited by optimizing towards a margin.

 

There are certainly pros and cons to both pricing models. Managed buys are less work, can be quicker to turn around and offer guarantees but they lack transparency and advertiser control. Agency partnerships offer a process to transparently find and deliver performance but can be slower to achieve and scale that performance.

Understanding the difference can really help you in creating the right framework to build an efficient, transparent and most of all effective programmatic ad buying program that works withing your available resources.

Evan Barocas About the author
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