The Performance Agency Plan for Growth, produced in partnership with Google, is based on findings from an online survey of nearly 400 senior executives from performance marketing agencies.

Throughout the report, leading agencies are contrasted with the mainstream as defined by their 2018 revenue growth.

The common ground between the two groups describes an industry moving toward a greater mastery of data and putting it to work across the whole of the customer journey.  Their differences highlight how leaders are moving quickly to reorganize their capabilities to focus on their client’s strategic goals of revenue growth, customer retention and market share.

Methodology

This report is based on an online survey conducted in the third quarter of 2018. Invitations were sent to targeted third-party lists. Respondents were offered an incentive to complete the survey. It closed on September 5th with 396 qualified responses.

The sample was comprised of performance agency executives in North America who qualified for the study based on their seniority coupled with their agency’s focus and spending on performance marketing.

  • Any respondent below the ‘manager’ level was disqualified. Fifty-five percent are at the vice president level or higher.
  • Only agencies investing more than $8 million in paid search for 2017 were included. Forty-nine percent reported spending more than $50 million in that time period.
  • Performance marketing represents a significant source of revenue for all respondent organizations; 86% report that performance media represents over 25% of their total media spending and 54% report that it represents more than half.

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Key Takeaways

The Performance Agency Plan for Growth, produced in partnership with Google, is based on findings from an online survey of nearly 400 senior executives from performance marketing agencies.

Throughout the report, leading agencies are contrasted with the mainstream as defined by their 2018 revenue growth.

The common ground between the two groups describes an industry moving toward a greater mastery of data and putting it to work across the whole of the customer journey.  Their differences highlight how leaders are moving quickly to reorganize their capabilities to focus on their client’s strategic goals of revenue growth, customer retention and market share.

  • Leading agencies are working with clients on long-term business goals. An overwhelming 95% of leading agencies say that they prioritize business outcomes such as revenue, profit or market share when assessing the effectiveness of their marketing strategies for clients.
  • A key shift is toward customer lifetime value. Leaders are 53% more likely than the mainstream to say that more than half of their clients view CLV as a key metric of success.
  • Machine learning and automation are central to the Leaders’ approach and described as providing both strategic and tactical advantages.
  • Leaders believe that machine learning/automation allows them to deliver more value to existing engagements and add new services to grow them. They are 57% more likely than the mainstream to say that, thanks to machine learning and automation, their agency has moved increasingly toward driving business growth for clients as a KPI.
  • Leading performance agencies were 45% more likely than the mainstream to cite services built around data management as a top priority for their future growth plans.
  • Leaders have embraced more sophisticated attribution that scores credit across the customer’s journey. They are 56% more likely than their mainstream competitors to have shifted to data-driven attribution as their primary attribution model.
  • Leading agencies have changed the structures of their teams to reflect the changes in model and goals. 83% have built cross-functional teams and they’re doing it to solve for end-to-end customer experiences and journeys.
  • Adding new commerce related products is a primary interest for the leaders; they are nearly 70% more likely than the mainstream to cite this as a top priority.
  • Leaders were 44% more likely than the mainstream to describe performance video advertising as a top priority to their future growth plans. As an indication of the strength of this trend in the near term, 92% of leaders anticipate significantly growing their investment in performance advertising on YouTube in the next 12 months.

Lessons from the Leaders: Four Pillars of Growth

Performance agencies are on an existential journey to define their relevance for the next era of marketing.

Until recently, even sophisticated brands relied on the expertise of performance specialists to get an edge. Today, that advantage is increasingly productized within broadly available marketing technologies which have streamlined the processes for purchasing, managing and optimizing performance media.

Some brands are now choosing to bring performance capabilities in-house or are pressuring agencies to lower their fees due to the perceived commoditization of their services.

In a study conducted in Q4 of 2018, Econsultancy surveyed 396 performance agency executives to discover how their organizations are contending with these shifts in the market and thriving through them.

To identify the most useful lessons, the study’s findings compare the characteristics of leading agencies with the mainstream, using previous years’ revenue growth of more than ten percent as the dividing line. See the Methodology section for details.

Performance agencies are seeing their work change, but not disappear. Their deep knowledge of how to use intent and data is still highly valuable to brands, and new applications are being added to the mix.

The most exciting of these opportunities are those that align client and agency as partners in driving long-term growth, where success is measured by business metrics and customer longevity.

A focus on clients’ long term business growth, powered by machine learning

Debates on the future of agencies often center on whether marketers will ultimately value the point solutions of specialty providers or the wider set of services of a fuller agency model.

The answer for performance agencies may be an approach that blends a comprehensive suite of services unified by the core skill of using data to deliver results throughout the funnel.

By expanding the scope of engagements to reflect a client’s business requirements across their customers’ journey, performance agencies can build more durable relationships. A shift in strategy and KPIs from immediate returns to long-term business growth requires a deep partnership that includes sharing data, information and strategy.

Leaders are ahead of their peers in building stronger relationships in part because they are prioritizing automation/machine learning as a way of delivering more value to existing engagements and adding new services to grow them. They are 57% more likely than the mainstream to say that, thanks to machine learning and automation, their agency has moved increasingly toward driving business growth for clients as a KPI.

Leaders clearly see the benefits of these technologies to their client relationships in the context of investment and growth; they are 67% more likely than the mainstream to say that long term gains from automation and machine learning can outweigh losses from short-term KPIs.

While performance agencies across the board are adopting these new technologies, early success isn’t evenly distributed. Leading agencies are nearly two times as likely as the mainstream to say that using automation and/or machine learning has improved the ROI of their clients’ worst performing campaigns by at least 10%.

In practical terms, the ability to save and redistribute time may be the most important benefit of successful implementations of automation or machine learning. Every agency is trying to do more with flat or declining human resources, and these tools provide a clear path to greater efficiency; 45% of leading performance agencies say that they have been able to reallocate time from manual operation/optimization to more strategic activities by using machine learning.

Leaders take customer intent beyond search to drive effective personalization

Personalization across the customer experience is the new mandate for marketing, and performance agencies are well positioned to help because they are experts in using search data to discover and act on customer intent.

Eighty-seven percent of the leading performance agencies describe intent as the most powerful tool marketers have to improve results, and they’re investing in technology to better understand it. Leaders are 74% more likely than the mainstream to say that they use machine learning to process the data signals of intent.

Leaders are also using their core knowledge in search to improve performance in other media; 86% say that they leverage search data to predict and capture customer intent in other media channels.

This extension of intent-based insights across media and platforms is one of the most promising, emerging capabilities available to marketers. Performance agencies who unlock these insights for brands have the opportunity to re-frame their agency client partnership beyond the silo of performance media.

Profiting from the efficiency stage of digital marketing: data-driven attribution and ROI

As digital marketing matures, brands’ emphasis on accuracy, efficiency and growth increases. Performance marketers and their agencies have always been ahead of this curve, and for some time have pushed the science of attribution forward.

Perhaps the biggest step for the industry has been to leave behind simplistic methods of assigning credit; 89% of leading performance agencies agree that the ‘days of assigning conversion credit on a last-click basis in paid search are over.”

True attribution is inherently complex in an omnichannel world and no model is perfect, but today machine learning powers sophisticated approaches to assigning credit across the customer’s journey.  Leaders have embraced this approach and are 56% more likely than their mainstream competitors to have shifted to data-driven attribution as their primary attribution model.

Leading performance agencies have translated these insights into tangible returns; almost 90% say that data-driven attribution has increased client ROI and nearly one-third report increases of more than ten percent.

Working with brands to focus on customer value and business outcomes

The fastest growing performance agencies are working with their clients to emphasize long-term goals such as customer lifetime value (CLV). Leaders are 53% more likely than the mainstream to say that more than half of their clients view CLV as a key metric of success.

Perhaps more tangibly, leaders are nearly twice as likely as mainstream to report that more than half of their clients give them flexibility to uncap budgets when there’s an opportunity to increase lifetime value, even at the expense of cash flow.

For years, flexible budgets have been the hallmark of effective performance marketing and strong marketer-agency relationships. The current shift is remarkable however because CLV is more difficult to establish in the moment than a straightforward conversion.

It’s only with the real-time capability of machine learning that leading agencies are able to unify consumer data and effectively estimate the impact on CLV within a performance campaign.

The focus on customer value is only part of a larger movement away from marketing metrics in favor of strategic outcomes; 95% of leading agencies say that they prioritize business outcomes such as revenue, profit or market share when assessing the effectiveness of their marketing strategies for clients.

Implicit in that statement is the strong communication between client and agency – without transparency and trust, the metrics and measures necessary for these calculations are obscured to the agency.

Lessons from the Leaders: Characteristics of High Growth Agencies

#1 Leaders are building out their services on the foundation of data-driven, accountable performance.

When asked where new growth is coming from, leading agencies point to services that play to their strength in accountability and using data to measure and drive performance. Top priorities include performance video, commerce, social, and data management.

  • Leaders are significantly out front of their peers in their interest in additional commerce capabilities as a path to near term growth; they are nearly 70% more likely than the mainstream to cite them as a top priority for their future growth plans.
  • Fifty-three percent of leading performance agencies cite social advertising a top priority in their growth strategy.
  • Leading performance agencies were 45% more likely than the mainstream to cite services built around customer data management as a top priority for their future growth plans.
  • Leaders were 44% more likely than the mainstream to cite performance video advertising as a top priority to their future growth plans. As an indication of the strength of this trend in the near term, 92% of leaders anticipate significantly growing their investment in performance advertising on YouTube in the next 12 months.

#2 Leaders use technology to overcome fragmentation

Digital advertising is as fragmented as the consumer’s attention and that presents an enormous challenge to traditional media analysis, buying and optimization. Machine learning-enabled technologies for discovery and automation are beginning to overcome the problem and allow strategists to address the customer journey across media and platforms.

This capability isn’t lost on leading performance agencies; 88% say that machine learning and automation have made it possible to move beyond fragmented, single-channel planning to now leveraging consumer intent data at scale and across multiple channels. This growing capability is at the heart of successful efforts to evolve the agency’s role from channel-centric specialists to customer-focused partners in growth.

#3 Leaders assemble and empower cross-functional teams

Reorganizing how advertising and marketing find and serve customers across the customer journey isn’t just a technology challenge. Just as the tech has to evolve to work beyond media silos, so does the organization of the teams using it to drive client success.

Again, leaders are ahead of the industry in this critical area of development; 83% have built cross-functional teams and they’re doing it to solve for end-to-end customer experiences and journeys across channels and devices. To be effective, this means unifying data and KPIs across teams, and leaders are 77% more likely than the mainstream to strongly agree that they have done so.