In-house versus outside agencies

In-house or outhouse? The debate about using in-house advertising services versus traditional, outside agencies has raged for decades. It’s especially relevant if you’re marketing products or services with heavy concentrations of technology and jargon.

“They just don’t understand our business,” goes the call for hiring permanent employees who will learn the product/service messages well enough to think like the people to whom your communications programs are directed. Outside agencies are an easy mark for this criticism because they have notoriously high turnover and it seems like you’re always having to “break in” new agency staffers.

Since I’ve spent significant portions of my 40-year career on both sides of this debate, and since my business-to-business agency works with several clients’ large in-house staffs, I guess I can be as objective as anyone on this subject.

So here are some observations on in-house versus outside to help you sort your way through this surprisingly easy issue.

The case for in-house

1. Team membership

When you’re a company employee, you automatically qualify as a member of the home team. You’re not selling anything, so your motives are “pure.” And because your paycheck is guaranteed, you’re free to think about things as much as you like. Agency people have to get client permission to work on projects, and then they can only put in as much time as the budget allows. Otherwise, they’re giving away billable time, and that’s generally frowned upon in agency-land.

2. Continuity

In my experience, in-house people really do stay in one place longer than their outside agency counterparts. Assuming in-house agency staffers get better with every passing year, the continuity and accumulated experience this provides is the strongest argument in favor of the inside marcom group. If they don’t get better over time, however, this can have the opposite effect. Outside agencies ruthlessly weed out dead wood. In-house agencies don’t.

3. Access to Big Ideas

In-house people have better access to everything because they’re there every day. I’ve seen as many Big Ideas pop out in the elevator or company lunchroom as in conference rooms where attendees are supposed to be tossing out Big Ideas. Plus, you’ve got easier access to company information and dozens of valuable resources that make projects go smoother.

The case for outside agencies

1. Objectivity

You know the story about being unable to see the forest for all the trees? There’s a lot of truth to this. Inside people tend to fall victim to tradition or procedure (”we’ve always done it like that”) or just taking the path of least resistance. They may not be willing to go too far out on a limb to argue in favor of something the company needs to do, but has yet to fully embrace. Outside firms can offer new perspectives based on experiences with other clients in different or related markets.

2. Creativity

Creative people, namely artists, writers and now computer jocks, would rather work for outside agencies. They get a richer variety of assignments and, for the most part, see more opportunity for advancement. Outside agencies tend to offer a more nurturing environment for creative people. Conversations start at a higher level, because it is understood that advertising is important (that’s why we’re here, after all). In-house groups spend a lot of their time defending the practice of advertising against non-believers.

3. Productivity

I’ll probably get some argument here, but the flip side of team membership is that you don’t get dumped on as much with assignments that have little or nothing to do with marketing communications. During both of my stints as company-side practitioner, I recall thinking how much of my potential productive time was wasted doing meaningless tasks for big wheels who popped in my office with a late afternoon “Oh, by the way” request. Team players have a hard time saying no. Outside agency people are paid to focus on the assigned tasks.

Cost-savings

You may have noticed I’ve avoided “cost savings” as an issue in the in-house versus outside agency debate. That’s because it isn’t an issue.

In-house agencies must pay salaries competitive with outside agencies. If anything, they pay more. I’ve interviewed dozens of former in-house marcom managers whose salary expectations were out of line with outside agency pay scales. The same applies for writers, art directors and other in-house positions.

In either case, salaries and benefits comprise the greatest portion of inside or outside agency overhead. And these costs should be essentially the same for either type set-up. Other overhead factors like computers, furniture, office space, utilities, etc. are also a wash.

If an outside agency makes 10% net profit, it has done extremely well. Usually it’s a lot less. And this profit margin includes commissions from media and mark-ups of other outside production. In-house agency advocates like to take the media and production budgets, multiply by 15% and present that as the annual savings opportunity.

Unfortunately, this analysis just doesn’t compute. When the in-house organization absorbs its share of all operational costs, including taxes, invoice processing and indirect overhead, the simple truth is that outside agencies are not pocketing commissions as incremental profit. These revenues go in the pot along with everything else and the bottom line is usually less than 10% of total revenues. And much of that is plowed back into the company to keep it competitive.

So the decision doesn’t hang on money.

The case for good people

If you are struggling with the in-house versus outside agency question, the only issue that matters is, “Which approach will give us the most effective communications program for our products and services for the money we choose to invest?”

And like everything else in the services business, the quality of the work will probably come down to the quality of people you can enlist. If you find quality people who want to form an in-house group, you should give them a shot. You’ll probably be pleased with the results.

But after a while, if you notice the service has dropped, you should be equally willing to disband the in-house group and go in the other direction.

It’s not about building empires or saving money. It’s not even about convenience. It’s about doing good work. And you can provide the proper environment for this on either side of the fence.

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