Everyone Wins When Agencies Put Skin In The Game

Everyone Wins When Agencies Put Skin In The Game

July 13, 2022

Every marketer today is taking a hard look at budgets. The reality of current economic conditions and a looming recession, combined with supply chain issues and shrinking margins are giving rise to cuts in marketing. We’ve seen this movie before and the ending is not a happily ever after for advertising agencies and marketing consultancies.

But it can be. We have had 20-years of growth by putting skin in the game. We get paid based on results. And we have found that by changing the way a client pays you – and aligning your financial success and theirs – the biggest change occurs to you, your agency, and your staff.

Given the economic headwinds of today, there is no better time than now to put a new pay structure in place and truly build a partnership with your client, and in doing so, realign your relationship. It’s also a time to build relationships with a new breed of client.

The pandemic-accelerated explosion of ecommerce, and improving messaging and measurement capabilities, has given rise to a new cadre of D2C brands built online. For the ad industry, they represent a golden opportunity to redefine the agency/client relationship around compensation.

Speak to the founders of some of the fastest growing brands of the last decade. Allbirds, Casper, Warby Parker, to name a few, have all innovated selling direct to consumers by skipping retailers and leveraging the internet. They are a new breed of client more likely to share risk and reward at the start.

We’ve developed a remuneration stack that has over a dozen ways clients pay us. These include:

  • A fixed-price model where both sides agree on the deliverables and the compensation without justifying costs with staffing charts or work hours.Revenue sharing, where we work for a royalty percentage on the sales of the brand.
  • An in-house venture arm through which we invest directly in our client’s business
  • We’ve even funded and facilitated the launch of our own, owned-and-operated brands.

We’ve shed the title of “agency” in favor of “growth partner” – because we are materially operating in a different model.

So what have we found? Our client partners recognize that our inventory is expertise in growing businesses, not billing for time. We’ve traded the traditional conversations about hours and staffing plans for discussions about marketing effectiveness and exceeding their business goals. XenoPsi exchanges the energy and resources other agencies spend on tracking hours for measuring what really matters: the success of their brand in the marketplace.

Back to Allbirds, Casper, Warby Parker and other DTC brands – they saw their fantastic growth without the use of traditional advertising and marketing agencies at their inception. They built the foundation of unicorn brands without renting the services of legacy agencies. And now that they are leaders in the industry, they have developed ways of working with their growth partners that has transcended the old agency/client model for good.

This has lead us to a mindset at XenoPsi that eschews the glitz and glamour of the Cannes Lions and other trappings of a fading legacy vendor model. I believe the new go-to shops will be led by those willing to share financial risk with brands and – like VCs – smart enough to bet on the winners. These shops will be led by a new and maybe unrecognizable “ad person.” More financial folks, data analysts and computer programmers – can anyone say revenge of the nerds?

To paraphrase Nassim Nicholas Taleb, in his New York Times best-selling book Skin in the Game, “People have two brains, one when there is skin in the game, one when there is none.” Can anyone argue? When there is fire, you will run faster than in any competition.

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