Budget Line Item for External Agency Spend is Under Review
Marketing has always been under scrutiny when it comes to budgets. A pandemic and associated economic challenges has required marketers to review all spending categories to determine ways to cut budgets or, at minimum, optimize costs.
Over the years, marketing leaders continue to find ways to bring more work in-house or to internal teams. Our recent CMO Spend Survey cites marketers surveyed brought 32% of external agency work to in-house teams within the last 12 months. That work was mainly social marketing, creative concepting and development, content production, PR and both traditional and programmatic media. See chart below:
At the beginning of the pandemic, I started fielding more client inquiry calls on in-housing. In most cases, the CEO or CMO had tasked our client to call Gartner for help with in-housing. C-Level executives helped to prompt the increase in our call volume as external agency costs add up. The budget line item for agencies was in question.
Clients Consider In-Housing in Various Situations
In general, the situations in which our clients considered in-housing or further building in-house teams were along these lines:
- Expand their in-house agency to pull more agency work in-house or to internal teams
- Combine an in-house creative agency to create one larger in-house services entity which included the rest of the marketing department
- Optimize the workload and management of their in-house agency or internal teams
- Consolidate external agency work with fewer agencies
- Change their agency relationships, or add specialist agencies that would help them transition work in-house (particularly programmatic or other media)
- Start an in-house agency and wanted for advice on where to begin
It did not mean they wouldn’t be spending with external agencies or making drastic changes in cutting costs. For the most part, clients were investigating options of what was possible and reporting back on potential options. Most were using the global economic challenges to work on strategic growth plans and to optimize costs for 2020 yet make changes that would aid in long-term growth.
I was glad to hear they were taking their time and not cutting agencies in a panic. And that they realized taking work in-house, no matter how rudimentary the work, was no easy task. They were thinking it through and working on strategic plans with the benefits and drawbacks. It wasn’t all about cost savings of agency charges even if budget conversations ignited the conversation.
Rules of the Road for Using an In-House Agency for Cost Optimization
Below are a few options to apply cost optimization techniques to shift marketing work done by external agencies to in-house marketing teams:
Be Realistic on Savings
Depending on your situation, you may not be saving as much as you think by shifting work to in-house. Budget line items for external agencies are not eliminated as that money (or a good portion of it) will have to be used for staffing, training, software, equipment and other hard and soft costs. This includes outsourcing directly to vendors that the agency would have done on your behalf. Beware if cost savings or cost reduction is the only reason that in-housing is being considered as it could be tough to prove as it wouldn’t be dollar for dollar. It may be prudent to ask your agency how they could help in reducing agency fees and becoming more efficient for you going forward.
Take on Work Your Team Can Do
The reason why marketers are taking on social marketing and content creation is because it is easier. External agencies are typically better at strategic or brand development or innovation initiatives. High volume, consistent work that requires close relationships to brand, product, compliance or customer service may be better suited for in-house agencies. Take work in-house if it is difficult to train your external agencies to do, or they don’t do it well because they’re not close enough to the company. This includes analytics and other non-creative development work. But do not try to in-house short-term projects or work that is beyond your team’s capabilities as this could be a recipe for disaster.
Martech Must be First, not Last
As they bring work in-house, many marketers do not consider the extensive martech that is required for which agencies have long invested to assist their clients. Not just the martech, but the people to manage it. A marketing work management platform (see Gartner’s Market Guide for Marketing Work Management Platforms – license required) is standard. But there’s more to it than that in running an in-house agency. It’s like running a business entity and many brands have set them up to work like an independent business. Financial and performance management martech, process automation and even dynamic content optimization, digital asset management and other similar tools must be used. Marketers must consider technology and this type of infrastructure when forming and optimizing their in-house agency teams.