Question: When should I hire a digital agency/consultant?
Answer: It depends on how good they are.

The short explanation

Its an age old question – just when should you bring in an agency or consultancy? At Tribalism we have attempted to model this complex problem from a mathematical perspective. Apologies in advance for the mathematical terms and assumptions that follow. If some of this is over your head, then just remember to walk away from this article with two important considerations:

1) How big is my marketing budget and 2) how is it likely to perform in terms of ROI? If your answer is “big” (roughly >$150K) and/or “likely to perform really well” – then go with a big agency.

Our analysis shows that agencies have more resources to extract more performance out of well performing campaigns, compared to smaller or one person teams. When this performance is particularly good, it offsets the cost of the agencies. Similarly more expensive campaigns are usually more complex (targeting more customers, channels etc.) Agencies have the resources/expertise to deal with this complexity better (and hence perform better) than smaller teams.

Conversely for smaller campaigns or those less likely to perform well from an ROI perspective – one person or small team operations perform better.

The long explanation

Resources.
At the end of the day, that’s what it all comes done to. Whether you are a company owner, a CMO, a marketing strategist or marketing manager – right now – you are being asked questions relating to the allocation of your marketing resources. Do we have enough staff? Do we have enough skilled staff? Do we have enough investment dollars? Is it being allocated in the most efficient way?

In the recent Adobe Digital Trends 2016 study, less than 45% of the 7000 marketing managers surveyed said they were confident in their ability to measure returns on their digital ad spend. The majority do not know how to measure their ROI!

Measuring ROI is one thing. Maximising ROI is another. How do you allocate your resources (investment dollars and human/technological resources) to maximise your return on digital ad spend?

We here at Tribalism have decided to look at this fundamental question – and in particular try to answer when you should hire a digital agency/consultant.

(Full disclosure upfront – of course we are an agency/consultancy ourselves so take our results with a gram of salt as you should. But rest assured our intention is not to throw up an analysis/justification for our own existence. We want to help marketing professionals answer this very difficult question. And whilst our initial results show that big agencies are in fact a really great option a lot of the time – we don’t see ourselves as a large agency. We are a smaller, nimbler (and in our opinion smarter) hybrid.

The Digital Marketing Landscape

Australia perhaps more than most developed nations (although it is by no means unique) faces a shortage of skilled digital marketing and related IT staff. Just walk into any major agency in Sydney or Melbourne and you will struggle to hear an Aussie accent. Sure you’ll hear “hey mate – how’s the keyword research going” but it will likely have a cockney twang or an american drawl. There is simply not enough Australian born people with the skills needed right now, to fill the positions available.

And this is not because the Australian Digital economy is particularly booming or innovative compared to other countries. It just a simple result of the phenomenon that is the internet. Today any company without a regularly updated social media profile is bit of a laughing stock. Imagine saying that 5 years ago. Or even 2 years ago. It seems silly now to even question how important such parts of your business now are. Yet many of these technologies and related jobs didn’t even exist until recently.

This all just adds further complication to our resource allocation problem. Not only are skilled staff resources rare, but there is a constant need for new and improved skills as technologies change and expand.

Finally there is the obvious one. What resources does your company actually have? How big is your company? What size team can you afford? Should you develop a cutting edge team just because you can?

When should I hire an Agency?

The purpose of this post is to investigate the general circumstances and factors that will help you answer this question. We have set up the analysis so that we can delve further into a more granular examination of the optimal points and budgets at which this decision should be made – if we so wish. But we’ll save this to a later post – rather we wish to highlight our primary finding: the importance of marketing complexity and marketing effectiveness.

Digital Strategies

We divided our strategies into three:

  1. Marketing Executive + Senior Web Dev + Web Designer (Marketing Exec. Strategy)
  2. Marketing Director All-Rounder + Senior Web Dev + Web Designer (Marketing Dir. Strategy)
  3. Agency (Agency Strategy)

Note: clearly we could have chosen a “marketing team” as one of the strategies. But unless you are a very large organisation, it is too expensive to build a team of specialists covering each area of digital marketing. Inevitably “all-rounders” would be required for most organisations that cover multiple areas. This basically reduces the problem to a similar (albeit more expensive and complex) situation as above.

In the first two strategies above – a digital marketing “allrounder” (the exec or director) would cover all digital marketing tasks for the company. A big job sure, but certainly manageable for smaller companies. The marketing executive being less skilled and hence cheaper than the marketing director allrounder.

All digital marketing channels would contribute the same to ROI in our model and the marketing executive would be skilled in one of these areas. The Director would be skilled across all areas.

A senior Web Dev and a creative/web designer would be hired separately. There would be crossover between the three staff and indeed there may be some extra time for the non marketing roles to engage in other value generating activities. We have left this out of the analysis for now.

The Agency would cover everything itself – this is what most major digital agencies will be able to do.

Roles and Responsibilities

Here we show the roles and responsibilities under these strategies:

 
 

Marketing Effectiveness

We introduced a factor for “marketing effectiveness”. This means the extent to which the performance of the marketing channel can be maximised, all other things being equal. Below we show marketing effectiveness assumptions we made for a $10K (ie relatively small) marketing campaign.

 
 

Marketing Complexity

We also assumed that as marketing spend increases, so would the complexity of the campaign – and hence the marketing effectiveness above would reduce. We fit exponential decay curves to measure this effect. As a campaign becomes more complex one person or small teams become less able to manage the complexity. The Agency would always stay at 100% effectiveness as complexity increases – because it can allocate more staff (and of course become more expensive) to combat the growing complexity.

If it is purely a numbers game – and the obvious takeout is that some teams are more efficient than others – but if we look purely at the resources involved – the more expensive a campaign becomes, the more complex it becomes. Therefore it becomes less efficiently managed by small teams.

The Results again

The graphs below show the results of our modelling.

  1. For cheap campaigns – the expected returns are not high enough for the cost of larger agencies to be justified.
  2. If a campaign is not expected to have a high ROI (maybe it is just an awareness campaign, or maybe the creative is just not that great, or the target audience is wrong) <- whatever the reason, the lower the acheiveable ROI of a campaign, the less agencies are able to utilise their competitive advantage of managing complexity and maintaining full marketing effectiveness. Small teams/one person operations will outperform in these circumstances.
  3. For large, expensive, complex campaigns, agencies perform better. As a rough guide over $150K.
  4. For campaigns that are expected to perform really well – agencies are better positioned to exploit this performance to its fullest extent. Obviously this can be hard to tell in advance – but if you happen to have a high performing campaign, an agency will get more out of it.

A little about TRIBALISM – how we are different

Compared to the above scenarios we are a hybrid consultancy. For smaller/medium sized campaigns, hire us for complete digital management. For the biggest campaigns hire us for tactical channel management – but for complete digital management of very large campaigns – go with the biggest agencies, not us. Our analysis above shows that this is the optimal strategy.

And his is the sort of opinion you’ll get from us. We’re not going to recommend something that is not in your best interests.

We are great at what we do and the only way to show that is by giving excellent advice. It is our opinion that it is all about content, creativity and strategy – but underpinning all of these is measurement. Our tagline is – harnessing data for smarter digital management – we are industry experts in marketing analytics, so you can rest assured working with us that your digital marketing will have an industry leading measurement platform to expand off.

Have a great day,
Tribalism