Looking for sustainable income streams in the current downturn, columnist Keith Wiser weighs up the pros and cons of agencies taking shared risk and downstream annuity income instead of traditional fees and mark-ups.

I have just spent much of a weekend starting to prepare my agency’s entries for a number of awards that we enter each year. The process is lonely work, but someone has to do it.

For years, I shunned these awards, avowing to myself that they were unimportant, that the work we do for our clients ought to be sufficient validation.
While this may be broadly true, I have finally come to grips with the idea that awards are, quite frankly, one of the most public and approved ways of blowing your own trumpet AND, in times like these, you need not just a trumpet but a whole brass section!

All of this leads me to mull over what our business is all about.

The current submissions I have been preparing evaluate the entries on four elements:

• Strategy  20 per cent
• Creativity 40 per cent
• Execution 20 per cent
• Results    20 per cent

I have the pleasure of spending a great deal of time in the company of a friend of mine, who also happens to be the executive director of the South African Direct Marketing Association. Brian Mdluli (pictured below) came to the position from outside our industry. So, like any new convert, he cannot resist any opportunity to preach. And what does he say? He typically says that, unlike many other forms of marketing, direct is the one that produces measurable results.
And he’s correct.

I have often stood in front of groups of students, making statements like: “If the work does not seek a response . . .  and for response you can also read result . . . it’s not direct.”

While it’s a truism to state that you cannot achieve excellent results without a clearly thought-out strategy, beautiful creative and well managed execution, one has to wonder why a particular set of awards places so little emphasis on the final outcome.

Until quite recently, when new clients asked me if I was willing to go on risk, I reacted like a young virgin to an overly amorous suitor (ie righteous horror)! I made all the industry bulk standard responses: “I’m a professional and, just like any other professional, I expect to be reimbursed for my expertise and my time.” Or how about: “You wouldn’t expect your doctor to work for nothing!”

I had a truck-load of these ripostes and not only did I use them, I also genuinely believed them.

But, come back for a moment, if you will, to the thought that direct marketing is about results. Most of us do tell our clients that we are good at producing them. And that, of course, is exactly what they want to hear and why they come to us in the first place.

THEY WANT RESULTS.

And so, my thinking over literally the last few months has started to change.

Heart and mind
In part, this change of heart and mind may have been brought about by the need to develop a more sustainable income stream for my agency.

Working with regular clients from project to project is fine when the client actually has a budget. But what happens, as has been the case with a number of our clients this year, when that budget becomes like an honest lawyer (ie hard to find)! You know what they say about lawyers: it’s 99 per cent of them who give the rest a bad name.

Anyway . . . I digress . . . so back to the plot.

You can’t extract money from a non-existent budget. But there isn’t a client in the world who doesn’t want to get more customers to spend more money more often. That, of course, requires results and if you are willing to carry much of the risk then suddenly all those clients without budgets start to show some interest.

An analogy just popped into my head relating to the aforesaid young virgins but I probably shouldn’t go there (towards the analogy, that is!).
In the last few months, we have entered into various relationships with clients based on the idea of shared risk and downstream annuity income
for us.

The irony is the agency stands to make far more money in the long run by going down this route than we did using the more traditional route of fees and mark-ups. So, come on guys, why don’t we put our money where our mouth is?