Marketing/Advertising: In-House vs. Agency | MarketingProfs

“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.