For many years brands, and not surprisingly, the advertising industry shared the opinion that it was between difficult and impossible to bring the services that a traditional marketing agency provides “in-house” to the client company. There was pretty good evidence that this was the third rail of advertising as many large companies tried to build in-house agencies only to shut them down or struggle as the quality of their marketing mysteriously slumped. However, today there are some pretty compelling success stories for in-house agencies (IHAs), so we thought, rather than ignore this truth, we would have a closer look. In today’s edition of Plain Talk, we’ll help you look at what conditions might be necessary to make a go of in-housing, what you gain, what you lose, and if in-housing might be for you.
In-housing is not a new idea
According to researcher Marsha Appel writing for the American Association of Advertising Agencies (4As), businesses have been looking for ways to successfully integrate ad agency services into their internal marketing departments for nearly 100 years. Originally driven by the mythical 15% commission that was generally the sole source of income for an ad agency, businesses seeking to cut costs thought in-housing was a viable solution. However, a bunch of issues surfaced with this idea, not the least of which was that media outlets would not cooperate with businesses who wanted to buy their media directly at the same discounts offered to agency clients. That contributed to the problem in the 50s and 60s, but the 15% commission has been (mostly) dead for at least 20 years, so why has it been such a struggle to in-house in the 21st century?
In-housing can work
Yes, an agency guy said that. The truth is that for years in-housing did not work or work well, but in the last decade or so, some really excellent in-house capacities were born. The Hershey Company, AT&T, Bank of America, Ally Bank, and Frito-Lay, just to name a few. All operate smart, strategic, creative in-house shops. The idea that nobody worthwhile would work in an in-house agency is also dead, as is proven by blue-chip creatives with the help of in-house shops like Robert Wong at Google Creative Lab and Sue Anderson at Creative X (Instagram). So, knowing this is a growing trend, why might you consider building an in-house shop for your brand?
Motivation
When thinking about the potential for success (or failure) of in-housing, it might be helpful to first look at what motivates companies, maybe even companies like yours, to consider building an in-house agency. While there may be others, we believe the top motivations are:
1. Results – the idea that ad agencies are not driven by business results; rather, they are driven by less accountable “top funnel” metrics.
2. Savings – the idea that a company can save substantially on marketing costs by directly hiring staff to replace their agency.
3. Fit – The idea that an ad agency does not really “understand my business,” so how can they possibly succeed in helping me grow?
Let’s take a look at each of these to see if in-housing might make sense for your business.
My agency doesn’t care about results
While it seems like this should no longer be the case, we get that it can happen. Some agencies continue to focus on top-funnel metrics like “awareness” rather than on the impact of marketing on sales, profit, and attribution. In reality, though, many agencies have become great at measurement and attribution beyond top-funnel metrics. If you are willing to share sales data with your agency, they should be tracking marketing impact and attribution. If you have an agency that isn’t actively seeking to measure their performance, you probably just need a new agency, not an in-house agency.
In-housing your agency to save money
This is by far the most common reason we hear from friends and clients who are considering in-housing their agency services, and for some brands, it can actually be true. A typical ad agency charges an hourly rate for each hour worked by a billable person on their team, and that hourly rate is somewhere around 2.25 to 3 times the salary of that employee. Whoa, 3X? But built into that cost are things like benefits, software and overhead, etc., as well as a profit (net margin). Depending on what source you look at, the average agency profit runs between 6% and 25%. This means assuming you like the kind and quantity of services you get from your agency, the real savings opportunity is pretty much the agency profit margin. This assumes you will pay your in-house agency market rate and give them benefits and such. For a company with a $1,000,000 agency fee marketing budget, this looks a lot like an opportunity to save between $60,000 and $250,000 in agency fees. So, what are the potential pros and cons?
Pros:
1. Co-location – now, your agency works from your offices and has greater exposure to your culture, products, and systems. This can save time and streamline deliverables. There is a lot of truth to this, but at the same time, the increase in off-site workers caused by the pandemic (and contributing to the growth of in-housing) is eating into the value of co-location as a motive.
2. Salary savings – that 6% to 25% we mentioned above. If your brand is able to swap its fee costs for the same or better in-house marketing capabilities, this seems very compelling.
Cons:
1. In-house agency startup costs – the computers, desks, software licenses, etc., that you will need in order to replace your agency are sadly not free. Between creative software licenses, research software, insight tools and subscriptions, digital tools, data subscriptions, project management software, SEO tools, a data visualization suite, PR tools, social listening and management software, analytics tools, and other useful toys, your agency is probably spending $200,000 to $500,000 (or more) each year on tools used for your benefit (but amortized across multiple clients). If you are considering going fully in-house, you’ll have to pay for them or go without.
2. People – This can be tricky to nail down. Think of it in terms of full-time equivalents (FTEs). For one skill, say copywriting, you may be able to hire one great writer for what you were paying your agency for copy. But it’s likely that your agency had five or six writers working on ideas before they came up with the right one for you. That one FTE was really 20% of five people. I have personally met three writers who all claim to have written Southwest Airlines’ famous “You are now free to move about the country” line. I have no doubt they all played a role, but the process of getting to a great campaign idea is rarely a single person’s work. This is, of course, true of creatives, strategists, PR, and social media people and may be one of the greatest risk factors for small and midsize businesses that are considering in-housing.
3. Capacity – Parallel to the question of people is that of capacity. According to a study by the In-House Agency Forum (IHAF), 82% of in-house agencies say they are under-resourced for busy times and must reach out to agencies or freelancers to augment their ability to complete projects. While the option to reach out to freelancers or agency partners solves the brand’s short-term need to “flex,” project work can come at a premium, as can rush work. You may also have agency resources working on your business that need to be onboarded to your brand. All normal, of course, but can eat away at the in-housing benefits like co-location. In fact, according to a study by the World Advertising Federation, as reported in The Drum, some 95% of companies with in-house agencies still use external ad agencies as well.
That’s not to say there are no situations where in-housing can save money. Clearly, there are, but they appear to depend on the size and scale of your marketing operation. Simply put, if you have a really big marketing budget and a correspondingly large agency fee, in-housing might be financially right for your brand. The challenge is greater with small and mid-sized organizations where what you might give up in depth and breadth of talent, capacity and expertise may not be a good value for the brand.
The pros and cons of in-housing and agency “fit”
Fit is another brand desire that can drive in-housing. Fit is about having agency resources that understand your culture, your brand, the business the brand is in and the customer the brand is seeking. On the surface, you’re probably saying, “yeah, that’s what agencies are supposed to do,” and you’d be right. And while not all agencies are the same, we are seeing significant growth in specialty agencies (agencies that focus on a few or even one business vertical or skill) specifically to answer this need clients feel to have industry specialists, not just marketing specialists working for them. And you could argue there are some real advantages.
Pros:
1. Believers – The primary “fit” benefit of an in-house agency team is that it will be fully immersed in your company and brand culture and should really “get” your brand, business model, customers, products and how your company operates. This can be incredibly valuable to how your team works and can positively impact the authenticity and effectiveness of your marketing activity and messaging while eliminating process friction. However, the best companies will tell you that this does not just happen by osmosis; rather, a combination of onboarding, training, and the positive impact of working for a company over time appears to be what produces “fit.” If you are struggling to decide on in-housing based on this issue, consider whether or not you have onboarded your agency partners like you would a teammate.
Cons:
2. Groupthink and politics – While there have been some really great marketing communications from in-house agencies recently, there have been some truly awful ones as well. Famously, Facebook’s in-house agency Creative X released a six-minute video introducing the rebrand for Meta. The video led to Facebook’s “trustworthy score” per Harris Brand Platform dipping 6.2%, with most experts blaming the use of CEO Mark Zuckerberg as a significant contributing factor. In this case, the desire to support (or suck up to) the boss led to a seriously bad marketing decision. Building an in-house agency requires a culture that allows the agency to “speak truth to power.” Groupthink and politics can also lead to an unfortunate lack of objectivity about the market and your competitors. If your company culture does not allow team members to speak openly or even with admiration about a competitor’s great marketing, you are putting your company at a disadvantage.
2. Legacy thinking – Cousin to “groupthink” is legacy thinking. You may have heard the phrase “but that’s not how we do things around here” or “we tried that once and it didn’t work.” That’s legacy thinking and it can hobble a company’s marketing innovation and cause them to miss out. For an in-house agency to flourish, it is critical that your culture supports and promotes people who work outside of their comfort zones, because that’s where innovation happens. notes these pain points and their associated risk. If your company culture is not up to the task of fighting legacy thinking, it’s worth knowing that many marketing agencies will tell you that their survival depends on their ability to innovate and to help clients adopt new ideas, strategies and technologies that will aid growth.
First steps
Creating an IHA is a big and bold step for the right brands. If you believe your business has the culture and budget to achieve success with an in-house agency and want to pursue building your own, here are four things you can do to start the process off right.
1. Hire – (or promote) an expert and empower them. Many successful in-house agencies began with a single expert or visionary who was given the mandate, budget, and authority to build an in-house agency. An IHA isn’t just about getting HR to find you creatives. Having a dedicated leader to determine the mission, values, process, and the required skill set will help make sure your agency is built on a strong foundation.
2. Cherry-pick – Determine the most effective and profitable roles for your in-house agency. It’s possible, even likely, that your in-house agency should be built from the ground up to collaborate with outside agencies. As we mentioned previously, 95% of brands with an IHA still work with outside marketing services companies. Your existing agency probably has valuable institutional knowledge of your business and vertical that may make them a great partner moving forward, so don’t be afraid to discuss in-housing with your existing partners. They may have some great contributions. Also, consider things like speed and specializations as factors when deciding what to move in-house.
1. For example, if you have an e-commerce website that requires constant updating, an in-house “content pop” person will be a great addition to your IHA team. If your company has a lot of sales support needs (PowerPoint decks, small-batch brochures, etc.), an in-house designer would be a great choice.
2. Regarding specializations, some critical functions are not daily-use services. Large-scale custom research, web coding, and strategy functions (creative, traditional media, etc.) may not be good value in the form of an full-time equivalent on your payroll, and an agency partner may give you access to more resources and tools to “flex” for these roles when you need them.
3. Network – In addition to collaborating with existing marketing partners to help you build the best in-house capabilities, take advantage of the experience of others who have gone before you by joining organizations like the In-House Agency Forum (about $3,500 per year) or the In-House Agency Committee at the Association of National Advertisers (ANA costs vary), both of which offer resources, seminars and networking opportunities with companies who have successfully built an IHA.
4. Transition – When you do flip the switch on your IHA, you want everything to go smoothly. Consider overlapping IHA services with your previous provider. The short-term costs will mean you have to defer some of the savings generated by your IHA, but your business needs won’t change.
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The PriceWeber team stays up to date and writes our weekly Plain Talk newsletter about issues and innovations that impact marketers in several specialty practice areas, including marketing for law firms, healthcare companies, financial service providers, manufacturing, and beverage companies, and across several marketing disciplines including PR, social media, digital marketing, media, lead generation and SEO. If you have a topic that you’d like us to write about, we take requests, so let us know what you want us to write about by dropping us a note here or calling us at 502-499-4209!
