Sponsor (Jan-Apr 1958)

Record Details:

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Ernest Join--, pres. MacManus, John & Adams, sees answer to profit squeeze in tight inting 1>\ clients, rather than staflor service reduction since workload is the same Arthur Fatt, pres., Grey, warns against false economies: "We'd rather reduce profits than undermine successful agency structure." Gil Burton, v.p., gen. mgr., GB&B, says his agency's continued growth is typical of 1958 billings expansion in food, drug advt'g. salaries: l2l close cost-accounting by clients. Since some clients require extra services, they must be covered with fees." More elient demands Must heads of agencies, while they agree with the latter solution to the profit squeeze, find it easier said than done. At this very moment, when billings in some product categories (cars, appliances, other hard goods) are falling off, clients are making bigger demands for services than ever before. On the one hand, they're forcing agencies to maintain large staffs to provide the extra servicing. On the other hand, thej want these pulses to be thrown in gratis, particularly in return for tv package show commissions. "The only way we're able to mainlain our full staff at the moment despite some $5 million loss in anticipated l>illin<: for the year is through Borne prett) fierce bargaining," the president of an agency billing over $30 million told sponsor. "Since we can'l 1 1 mi our staff without loosening out Ik»I<I on some accounts that expect ilit-r extra services, we've got about li\< different basii contracts with < lii ui at ihi point. We may begin bj talking 1595 commission, but costaccounting l.\ clients guides us after that." There i fat to be trimmed in man) agent j operations, but no one rule of thumb can guide the process. Some agencies overstaffed during previous years in anticipation of continued growth and have to correct this situation now. Says a BBDO executive: "There's no concentrated trimming here, but we have been correcting an over-staffed situation since the beginning of last summer. We had a big year in 1956 and we overhired in anticipation of growth at the same rate. Now we've got the same employment picture that the nation had in March: We're hiring more, yet firing at the same time." Unlike 1948-1949, when some firing for economy's sake went on in smaller shops, the trimming down of staffs in 1958 is most prevalent in two or three gigantic agencies which showed enormous growth in billing between 1955 and now. Says Ira Rubel, cost-accounting specialist and management consultant to agencies: "An agency's budget or forecast based on expected volume and income, current salary levels and expense estimates should provide for enough profit so that if the agency's income is cut by 10% it can still operate at a break-even (without a loss). Otherwise, an agency is in danger, because it doesn't matter so much what the financial position of an agency is, as in which direction it is moving. Even big fat surpluses can disappear in a short year or two of unprofitable operation." Where else to cut While salaries are the single biggest agency cost element, there is fat to be trimmed in other areas, less likely to impair the agency's service to clients. Expense accounts can add a fat chunk to the cost of operating. The president of $38 million agency told SPONSOR; "We spent an unbelievable $250,000 for entertainment and expense account payments last year, or 60% more than in 1956. Here's one area we're watching closely now." Another area of agency cost-trimming is in the approach to new business. During the 1955-1956 boom, a number of agencies hired top-salary executives not so much for their services on existing agency accounts, but as drawing cards for new business. This strategy applied particularly to big-name tv executives at a time when personal contact with tv network brass could mean the difference between negotiating a prime nighttime buy or being out cold. Such speculative hiring is unlikely in the 1958 climate. "Agencies may have to be more cautious about the money they invest speculatively in their efforts to attract new business," says Chet LaRoche, president of C. J. LaRoche. "But it's equally dangerous to trim in a panic. We must keep our product, that is our agency services, in good shape and not destroy it by false economies. Good tv departments are as essential as they were in earlier years and more so, and (Phase turn to page 74) SPONSOR • 19 APRIL 1958