Is your media agency charging you low commissions? Here's what lies beneath

Two recent Singapore government entity tender awards for media agency work caught my eye for the low commission levels charged by the winning agencies. As a tax payer, I am happy that government entities are no longer seen as ‘cash cows’, and are aggressive in using marketplace tensions to maximize their advantages. Here are a few things I hope these entities kept in mind as they awarded the contract.A low-cost bid in a high-cost market like Singapore means only two things:Your media agency is using its other clients to subsidize you.This is not something you would worry about now.But soon enough, you will end up subsidising the agency’s other clients.There will now be a new race to the bottom in local media agency commissions. If I am one of the winning agency’s clients, I am definitely looking at my contract right now.Your agency is going to make money off your spend volumes i.e. rebates & AVBs.There is no free lunch. The agency will make money off your business. You just won’t realise or know how this money is being made. The risk of course is that in the quest to turn a profit on your account, the agencies may look to make media decisions based on their bottom-line, not yours.The government entities have got significant value from the lower media prices & the lowest agency commission. However, they are leaving multiples of that value unrealized on the table.Define a clear scope of work, have tight commercial terms, pay fairly according to the resources invested by the agency, have a fee linked to KPI, and ensure that you get the most of the intellect, people & resources that media agencies can offer.Trust but verify. That will unleash the best of what agencies can offer.The writer is Bharad Ramesh, founder & chief analyst at eMVC-a media advisory firm. He was previously head of trading & partnerships for VivaKi South East Asia, the region’s second-largest media buying group.Read also:Government tenders: what needs to be fixed?Government tenders: The industry responds