🔥Hot Take: ROAS is a conflict of interest

Is "Return on Ad Spend" (ROAS) a scam? Ok, maybe that's a bit of an aggressive question. But certainly, it is fraught with conflicts of interest, right?

The second session at the ANA's Advertising Financial Management Conference in Orlando focused on a joint study between the 4A's and the ANA, led by the research firm Advertiser Perceptions.

The crux of the study focused on the things that both agencies and brands appreciate (and hate) in their relationship, focusing on what each side of the table values most. Not surprisingly, brands care most about ROAS followed by things like "trust."

What is fascinating and very troubling to me is that agencies and brands ranked "trust" highly in their stack-ranked list of values. However, only 22% of brands ranked "increased transparency" as important.

WHAT?! Only 22% ??

Brands have conceded ROAS measurement to their agencies

Media procurement and finance teams do not appreciate that transparency and ROAS are directly linked, to the point where they do not recognize the inherent conflicts of interest that have arisen.

Let me paint a picture for you:

Media agencies have taken principal positions in many of the most important elements of ROAS measurement. When your agency owns the inventory, the targeting data, and the outcome measurement for your investments, they own most of the pillars of calculating ROAS.

Each of those practices have a reputation for non-trasparency.

Is it any wonder that ROAS has been embraced as a primary KPI? If I owned most (if not all) of the primary ingredients to calculate ROAS, I too would be keen to have it placed front and center, while at the same time reducing transparency.

If you want to use ROAS as a primary KPI, great. You just need complete transparency into all the elements contributing to a ROAS outcome. If you don't have the appetite for that level of effort and ownership, then you need to find another KPI.

Cost of the Pitch: surprising insights that may make you rethink the process - 4A’s

Cost of the Pitch: surprising insights that may make you rethink the process

4A's4A’s

Session Recap & Highlights

Key Highlights

• Cost is Still King: Initially, procurement loves a bargain. The panel kicked off by revisiting last year's findings that cost often dominates the early stages of agency selection. But as relationships mature, value begins to play the lead role. Classic bait and switch, anyone?
• Long-term Love is the Goal: The ideal agency relationship isn't a fling but more of a golden anniversary type deal. Agencies should aim to turn initial cost concerns into long-term value propositions, much like making a relationship "Facebook official."
• Trust is a Must: Both clients and agencies underscored trust as the bedrock of a fruitful partnership. Trust isn't just about having faith; it's about seeing investments through the lens of shared success.

Takeaways

• Cost Obsession Can Transition to Value Appreciation: Initially, clients may be penny pinchers, but over time, as they witness the results of their campaigns, they tend to recognize and value their agency's contributions more.
• Proactive Problem Solving Wins Hearts: Agencies that actively address issues and exceed expectations tend to secure their client relationships faster.
• Define Value or Stay Confused: Most organizations lack a formal definition of what 'value' means in their partnerships, making it harder to measure and recognize.

Action Items

• Foster Transparency and Regular Communication: Encourage open dialogues and regular check-ins to nurture trust and adjust strategies as needed.
• Formalize Definitions and Metrics for Value: Clearly define what value means within the partnership and establish concrete metrics to evaluate it.
• Balance Cost and Quality from the Get-Go: Avoid the temptation to focus solely on cost during the agency selection phase. Remember, good things aren’t cheap and cheap things aren’t good.

The panel wrapped up with a reminder that building and maintaining a strong client-agency relationship is less about finding the lowest bidder and more about building a partnership that values transparency, exceeds expectations, and aligns long-term goals.