"What should I keep in-house (i.e., do with teams inside the company's four walls), and when should I use an agency?" That marketing/advertising dilemma may be one of the most persistent.
In the zeitgeist of advertising, a lot of back and forth happens around that issue, particularly while weathering different economic cycles.
The decision is hugely consequential, and so it would be ideal to apply some sort of lens that can help you make some sense of all the noise around this topic.
I've worked at agencies all my career, but I have also had a few turns as a client and board member, so my hope is that both sets of experiences make me qualified to share with you why you need to at least grapple with the difficult decision of in-house vs. agency.
In this article, I provide four key areas to guide your decision: your core, economics, resource scarcity, and leverage.
Let's look at each one.
1. Is the Work Part of Your Company's Core?
Not every company is suited to in-house media, creative, analytics, or whatever service you might be talking about. A key question to ask yourself is, "How core is this service to the essence of my company, its mission, and its talent base?"
Let's look at an example. For about eight years, I was on a team that served as Capital One's digital media and analytics agency. Capital One was an incredible client, and our team did some great work for the company over those eight years.
Toward the end of the seventh year, the Capital One folks were incredibly honest (shout-out to them and their great culture of integrity) and indicated they needed to bring most of their digital media and analytics in-house. Their reason for the change was a great lesson I have held on to for years: "Capital One is as much a data company as it is a credit card company, so we naturally have to be close to our customer acquisition data."
Capital One had more data engineers than most of the modern digital advertising agency complex combined, so of course that made sense. It had the ability, the engineering capability, the will, and the business mandate to get closer to its data.
To be clear, the company did not bring "everything" in-house. It continued to delegate TV media-buying to an agency and continued to use a great roster of other agencies for social media and campaign creative because those pursuits were not core to their culture in the same way that digital media and analytics were.
Really think hard about whether your brand has the internal DNA and team to be the best at media, digital, analytics, creative, social, SEO, and associated services. Are those core to your business and your strengths? If the answer is no, it's a good initial signal to recognize it may be productive to partner (at least partially) for the biggest possible return.
2. The Economics of In-House vs. Agency
The weakest argument for keeping work in-house is typically the economic argument. Too often, a hastily created cost savings case is fashioned essentially comparing a banana and a lamp in the cost exercise. In other words, the analysis too often does not compare the right things, which in turn leads to a false conclusion as to whether there are real savings.
Don't get me wrong, there might well be savings, but it's important to be sure you have looked at the right areas and compared the right things.
Here are five things that need to be included when a client is trying to examine whether the costs are lower than the fees they are paying the agency.
A. Benefits, Healthcare, and Overhead
When you figure out your true cost of staff in-house, you have to take care to multiply the number by at least a 1.5 salary multiplier to account for benefits, healthcare, etc.
Too often, that step is forgotten. The 1.5-multiplier is likely light (it can often be far higher), but it's a place to start.
Simply put, you are paying for far more than just salaries when employees are on your client-side payroll, and to be accurate your business case must account for that fact.
B. Attrition and Hiring
When you have a three-person team running search, creative, or social (as examples) in-house, and one person leaves, it might take you three months in the current hiring climate to replace that employee.
Those are three months of lost productivity with no bench to pick from. Furthermore, the burden on the other two who remain creates a situation where they are more likely to also leave. You have to model that opportunity cost (lost productivity) when there is eventual productivity loss as a consequence of being short-staffed.
It is key to ask yourself, "Would a search marketing or social media all-star want to leave their current job to come and work for me at this XYZ company?" You know the real answer here, deep down. If you are the new hot retailer, the answer might be a resounding yes. If you are an old-fashioned steel company that pays toward the lower end, the answer is perhaps no.
Either way, do some reflection to figure out which type you are.
C. Tech Savings
An agency uses many technology providers on your behalf. That might include things like a demand-side platform (DSP), data management platform (DMP), data lake, and clean room, along with ad-serving fees, API connections, competitive research tools, creative testing tools, and the like. Typically, agencies will receive a superior rate due to the volume they do with those providers; that could be 10-30% cheaper than the rate for a client that goes direct.
The larger agencies have favored rates with the likes of Google, The Trade Desk, Salesforce, and so on. They also have favored rates with certain publishers, partners, and providers. They have those rates because of the billions in aggregate spending they bring to those mega-platforms.
Though you still might have a significant budget at, say, $20 million, if you are now having to pay 2% more for an access fee to a DSP, that could potentially be another big slog of tech fees you are having to pay out (depending, of course, on the amount that goes through the chosen platform) that would completely negate any sort of savings argument of going in-house.
Again, there are no right answers, but you must do the math—and wade in the weeds, not just do surface calculations.
D. Invisible Perspective/Expertise Tax
You get more than just your agency team when you get an agency.
Let's pretend you are a client hiring an agency in organic social. Sure, you have a team of five FTEs who are there to do a job around social creative. However, when you have a question around GA4, tagging, or some other Web analytics question, you can tap into that overall agency expertise that sort of comes with the premium to do something outside.
To some degree, your agency is your all-around "phone a friend" partner.
E. The Cost of Not Being on the Bleeding Edge
Betas, alphas, tests, the newest tech, and the newest methods typically start with a great agency.
If you are a conservative CPG entity, for example, it's entirely possible/probable that your team is already busy and does not have time to figure out what is on the cutting edge of consumer desires. It's just difficult. Agencies do that homework as a function of how they work. They work across so many industries and challenges that innovation is a natural by-product.
Don't underestimate the cost of not being at the forefront of trends.
3. Resource Scarcity
It is very difficult for an auto parts online warehouse in Kansas City to hire a 20-person data science team. Yes, I understand that in theory the world of remote work helps change that dynamic, but bear with me on the argument. Let's talk about why.
Great data scientists (insert whatever function you want here) are scarce. They can work at Google, Tesla, or NASA. They can work at the hottest EV company or the coolest startup. They can work at an agency that is doing groundbreaking work. Yes, they can work in Kansas City for an auto parts company as well.
I'm just suggesting it's harder than you think, even with the recent proliferation of remote work. The best guidance I can provide here is to spend time with HR and a professional recruiter assessing the odds of building out the team, at the salaries you assume and on the timeline you estimate, and factor all that into your decision.
As of this writing, there is an average "time to fill" of 90 days for top digital talent. When the brand you are hiring for or the salary you have to offer is not top-notch, that lag can be even longer—and it is enough to truly destabilize your plans if not accounted for and managed.
At times, using an agency is about leverage. There are certain activities where leverage is required and even ideal. A great example is TV buying, especially TV buys in what is referred to as the upfronts.
If you are a larger TV advertising spender, and you want to ensure your ads end up in primetime on a very popular TV show, chances are you will have an advantage in buying within the context of a larger holding company.
There can be leverage in creativity as well. If you have a quick summer campaign or rebrand that is about to happen, or maybe you are releasing a new product or movie, these "once a year" moments have to be perfect. When you are short on time, and the stakes are high, there is often a need to get more great minds in a room.
At an agency, you can quickly source those vast perspectives in a way that may not be possible within your own four walls.
Again, there is no right answer, other than to ensure you look back at your average year and ask yourselves, when do I need the leverage that my agency can bring forward for me?
It's Not All or Nothing
Above all else, consider not framing the choice as a binary one. It is not really "in-house versus agency." The choice here can be nuanced, varying by service and industry.
* * *
You have a big choice to make when thinking of in-housing vs. working with agencies. Hopefully, the framework outlined in this article will be useful.
When you do make your decision, think in terms of economics, leverage, scarcity, and finally core.
Note: This article is based on Chapter 6 of You Get the Agency You Deserve, published by Ripples Media, an independent publisher for business leaders, focusing on leadership and self-discovery.
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