As agency and advertiser needs become more complex, AdTech firms are challenged with gaining a better understanding of what clients value from the relationship―how they can best learn and leverage the voice of the customer.
Through recent client engagements, Alexander Group has found that five mandates are shaping the AdTech space.
In part one of this two-part video series, Quang Do and Igor Uroic, principals for Alexander Group, walk through these key concepts and the next steps AdTech firms should take for a successful 2022.
Quang Do: Hi, everyone, this is Quang Do with the Alexander Group, principal in our media practice, and I’m excited to share some insights along with my colleague Igor Uroic on what’s happening in AdTech and how you, as commercial leaders can plan for a successful 2022 and beyond. Very excited to introduce Igor Uroic. Igor is a fellow principal who works with me in the media practice but also straddles the worlds of tech and has been seeing over the last over 13 years what’s happening in the world of software sales and also what’s happening in AdTech, and really excited to hear what Igor has to share in terms of mandates, things that are happening there, shaping the industry and how again, you as commercial leaders can help organize your teams for success in 2022 and beyond. Igor, over to you.
Igor Uroic: Thanks for having me. Hi, folks. So let’s start off with some of the key mandates and things that that we’ve heard over the course of last year with our client work in terms of what folks are thinking about for 2022. We’ve organized it into these five themes and so first one here is really complexity and in the marketplace. So we need a better and stronger understanding of our agency and advertiser needs and what they value in the relationship that came loud and clear. Second one is this idea of really leveraging our customer success for account management function to drive adoption and expansion of what is it that we’ve sold into our customers in the past? It’s really tied to the third point around maximizing customer lifetime value. It’s a little bit of a tech jargon there, but really it’s around growing the install base and offsetting the heavy costs that it usually takes to onboard a customer. The fourth key theme or mandate, is increasing focus on a specific set of products or solutions if you want to think about it that way. So connected TV, digital out-of-home, household IDs, particularly as we think about what’s happening with third-party first-party data and cookies. This is becoming really top of mind for most folks in the space. And then the last one it’s always been there in some capacity is this idea of being able to demonstrate ROI. Whether it’s measurement, success, reach. How do we do that to ensure that all the other four mandates that we talk about we can be successful against?
Quang Do: Interesting. Question for you, Igor. Customer Success that’s not a new topic, right? Customer Success and being aligned to how your customers adopt your solutions and the value they generate from it. That’s not new. So why the focus now and why? Why the focus on the account management function isn’t that everyone’s job?
Igor Uroic: Yeah, it’s about specialization. You’re right, it’s not new. It may be a new title for old functions like account management. And one of the things that we’ve highlighted as a part of the last year’s work and study is this idea that there are a couple of different flavors of account management or customer success that you can deploy some very tactical, others a bit more strategic. So the idea is depending on who I’m serving and what my needs are, I have options in terms of the type of role that I want to deploy.
Quang Do: And in customer lifetime value, again, you mentioned this is a concept that is well known in the world of tech. How are organizations codifying it? Are they being consistent with how they’re reporting? How do you know the way you’re valuing customer lifetime value or the metric you’re using is the same as the way the customer is and your competitors?
Igor Uroic: Yeah, this one’s arguably a little bit more difficult in media and ad tech than it is in pure software subscription tech. Given that we’re going to have different routes to market here. You’ve got the fixed IO, you’ve got percent of spend and it’s not really as kind of recurring as it might be and in tech. So it’s still evolving of how we’re thinking about it. But essentially, you’re looking at projections in terms of what that spend might be over the course of usually three, four or five years and looking at the ratio of what it costs you to onboard that individual, that’s that customer acquisition costs to select that value ratio. So if we go a little bit deeper, some of the things that we’re starting to get involved with and have been asked to do more in terms of project work is actually reaching out to the advertisers and the agencies to figure out how is the relationship with their particular partner vendor, right or whatever you want to characterize that. And those clients of ours that are doing this more frequently and we’ll talk about in a couple of different formats are building a cadence, they’re making adjustments to their plans within reason. You still have your own strategy of what product solutions and how you create segments and vertical specializations, but you’re making adjustments to that based on the input. Those that are also succeeding in this space are involving more folks in different ways. So they’re including cross-functional stakeholders. It’s not just a marketing exercise or a sales exercise where you’re including a broader set of individuals. And then lastly, you’re mixing it up. So if I highlight on the next slide, there are lots of different ways of gathering that feedback. So it’s not just through surveys or interviews. A lot of what’s happened lately, given the ease of scheduling, has been roundtables or events where you bring your key constituents and you’re talking about specific topics around: engagement models; are we bringing the right resource; what’s the value prop right us vis a vis someone else; what’s holding you from shifting share, for example. Things that really help both parties understand how do they maximize value out of the relationship.
If we think about some of the things that we’ve heard through those interviews at the Alexander Group when we’ve done those questions or those interviews on behalf of our clients, these are some of the things that have popped up as key themes. Number one is client support. So for those that still have in this space, a relatively complex technical solution, whether it’s optimization or the levers you pull in terms of the campaign, those that provide managed, co-managed or even support on what would be self-service really differentiate themselves and stand out as high value. Some of the other differentiators are things that you may provide that help give assurance around targeting, any advanced reporting, providing ROI on how you get incremental reach. Those are all types of things that we’ve heard from the advertisers or the folks that are at the trading desk, for example, what leads them towards one vendor versus another. The last one that is really thinking about or having differentiated models, if you will, in terms of spend and what you’re providing under a variety of ways that an agency might transact agency or direct for that matter. Fixed price, co-manage, percent of spend – how do I provide clear visibility and what are the reasons and routes that that one might go? And then the last thing that we really heard is this idea around emerging areas that are top of mind in terms of are we optimizing our spend across these routes to market. CTV, we talked about it, out at home. So being able to provide a solution that incorporates these along with the overall marketing spend is something that’s really popping up as top of mind for value for those constituents.
Quang Do: Who has to actually take this and turn into something that’s tangible for the organization?
Igor Uroic: Yeah, this is really a team sport. So what we’ve seen is that those that succeed tend to involve more functions. So sales, service, marketing you also actually sometimes using your ops teams to do some data analytics on what you’re hearing back if you have those end accounts. So the idea is these findings don’t just sit in one group. And given the technical nature of a lot of these solutions for folks in the tech space. This has to come back to the product and engineering teams. Are we providing the right solutions? Is it easy to navigate our platform? If it just sits within sales and then we complain about it, but don’t do anything about it or marketing creates a campaign to address some of these things, but the functionality isn’t changed – all those are breaks in the chain in some sense.
All right. A couple of other things that are starting to pop up in this space, I won’t go long on here, but it’s this idea that for certainly for publicly traded companies or those that are thinking about IPO, a lot of market value and tech and now bleeding into ad tech follows this idea of rule of 40, something you’ve been thinking about rule of 50. Quite simply, it’s saying if I add your revenue growth rate as a percent and your EBITA margin as a percent those two together, how does that stack up relative to 40. So it’s a measure of profitable growth. And quite simply, usually, you’re either growing super fast in your A/R growth rate is high, but your margins are low at that point. Or vice versa, we stabilize the growth but now we’ve figured out how to get to a pretty stable and positive margin ratio. So there’s not a right or wrong in terms of should one versus the other be larger. But much of the valuation for organizations in tech and now moving into ad tech is this idea of can we keep a pretty high profitable growth percentage in terms of the rule of 40?
So one of the things that we’re certainly seeing is that the ecosystem is not getting any less complex. So up top in light blue, you’ll see what we typically saw as the types of roles you might have in what we might call a late-stage media sale growth. So you’ve got your account executive really going across the stack. We have some folks on what I call the bookends of the process early on insights, research, packaging. We have some folks managing the relationships with our biggest spenders as well as our agencies. And in the back end, we have some folks optimizing campaigns or even account management. Down below now is what you see in terms of a bit of the alphabet soup in terms of all the different roles that are now at your disposal. Doesn’t mean everybody has all of these, but it’s getting a pretty crowded landscape. And the percentages that you see the 13, 66, 21, so on this relates to the headcount and the cost associated typically with those roles. So what’s becoming clear is that no longer are organizations primarily investing in that middle part, which is really AEs tasked with going and closing a deal. More of that investment now is going at the front and back end part of the process. Ties in with the idea of the importance of Customer Success. Ties in with the idea of increasing customer lifetime value, and providing that ROI. So all of those key themes that we talked about, in some sense, show up in these potential sets of roles that you might consider.
Quang Do: If all these rules have influence on commercial outcomes, whether it’s at the initial deal or even expansion of that relationship, how do you pay them and how do you keep them all aligned to the same true north and have their incentives match up? Because I imagine if you’re supporting the expansion, you’re not going to be happy if you’re not getting paid a fair amount given how much of the revenue you’re touching.
Igor Uroic: One of the themes that we’re seeing is that there is an increasing number of roles that are showing up when what we might call variable incentive plans or sales comp plans. They all don’t have the same structure as your account executive, but we are seeing that theme. Same basic principles apply. Let’s figure out what’s within their sphere of influence. Let’s figure out can we set measurable, reasonable goals and then we tie their incentives to that. Without overcomplicating it if we just focus on the account management or customer success function. This might answer that question in some level of detail.
So what we’ve highlighted here are these archtypes of customer success or account management roles that might be at your disposal. So the first two on your left don’t have a lot of sales focus. Sales focus is relatively low, so they’re providing some admin support, maybe monitoring campaigns, maybe doing some pre-sale support, necessary tasks. But they’re not really sales-focused. As you move to the right, those are more sales-focused and might carry the true moniker of client or customer success manager. What you’ll notice in that second row is how do we pay them? Are they even on a plan? So the first number, if you will, is the prevalence. How many organizations are using a post-sales ad and support? Based on our recent study, about 15%. So if you look to those percentages, you’ll see that most are using a post-sales client management role or a customer success role. But if I’m using any of these then there’s the guidance of do they typically show up on a sales or variable incentive plan? Typically, no for the first two, because there are facilitation-type roles. Now typically doesn’t mean never. So if you look at the next column, if they do show up on a sales incentive plan, they usually have most of their on-target earnings or market competitive earnings tied in base salary. 90% in the first case, 90-100% in fact. Second one, 80-100%. So these are not highly leveraged type plans like a 50/50 pay mix like you might have for your account executive. The ones in the right certainly have more at risk and a larger chunk tied to variable incentives. Because if you look at the key activities they manage the relationships, they identify opportunities, they assist with the opposite optimization – you could call that upsell/cross-sell opportunities. And all the way to the right, they in fact own resell and upsell opportunities. And the idea here is that this is not an exhaustive list, nor is it, well, great, let me pick one that I need. You may need more than one, depending on the advertiser, the agency, the tier and the size of that relationship. So depending on what you need these are the core archetypes of what we see organizations use in the space.
Quang Do: Got it. And this may be controversial, but if I look at the far right, those roles, those CSM, AM archetypes with a high percentage of their pay in variable anywhere from 35-25%, and compare that to what we’re seeing in some places where AEs are being asked to be more strategic, therefore, their pay is sort of moving in that direction – maybe not as far as 75, but maybe 60/40. Are we seeing a convergence of the roles? Are we seeing them operate more similarly, then different at least on how the base and how the pay mix is set?
Igor Uroic: Yeah, we are. It’s a great observation. We are seeing some convergence there. The questions we ask our clients is let’s talk about what do we really need out of that role. In simple terms, is it more of a technical nature? So campaign optimization, ROI, the levers that you may pull in order to structure a campaign, how do I actually navigate through the platform maybe the most technical aspect? Versus the account management. What are we looking to accomplish here? What other campaigns do we have down the line? Am I helping facilitate growth for that particular role or whatever? So if I’m more on the sales and facilitation account management side versus the technical side, I may need a couple of different archetypes. Or regardless of the titles that you’re seeing here, I may be able to collapse it into one role without straining the bandwidth of I’m asking someone to do disparate tasks and that usually loses efficiency.
Quang Do: Again, thank you so much to Igor for joining us and sharing your insights, I know I learned a lot. I hope you did as well. Please reach out to the Alexander Group if you have any questions or other topics you’d like us to discuss. We live this stuff day in, day out, and we’re happy to share what insights we have. Thank you.