Benchmarking: What is it you want to know?

25 Mar

benchmarkingWhen it comes to advertising related expenses, most marketers want to know; “What am I paying relative to the market?” and “What am I paying relative to my competitors?” For organization’s focused here, much energy is expended in their search for the ideal source for “industry norms” or the perfect “pool” against which to benchmark the rates that they paid vis-à-vis others.

This pre-occupation with what others paid clouds the real issue, which is; “Did we get optimal value for our advertising investment?”

Let’s start with a little dose of reality. There are no industry norms when it comes to advertising. Whether in the context of agency remuneration, overhead rates, media pricing or production costs…there is no such thing as rate card. The price an advertiser pays is reliant on multiple variables, variables that differ from one client/ agency relationship to the next.

Consider the following scenario; Advertiser #1 is paying a blended billable rate of $150 per hour for creative, while Advertiser #2 is paying $170 per hour. Is Advertiser one getting a better deal? The answer is; “Who knows?” What market is Advertiser #1’s agency sourcing talent from? New York, NY or Bogota, Columbia? How broad and deep is the creative talent pool available to Advertiser #1? What is the experience level of the individuals in that talent pool? Does the agency have a track record of success when it comes to creating break-through advertising? How solid is the agency’s creative development methodology? Do the processes which they employ (or the lack thereof) result in multiple re-works?  Is the agency deploying their top creative personnel on Advertiser #1’s business or the “B” team? You get the point.

Similarly, when it comes to media there are a number of factors which determine “value” that cannot be captured when benchmarking rates paid against Nielsen, SQAD or media pools. Items such as position in pod, lead-in or lead-out break position, premium placements, editorial adjacencies, relevance and topicality of the content environment, the level of no-charge weight secured to supplement the paid schedule ultimately drive advertiser return on media investment as much or more than the rate paid.  

Additionally, in the context of media rates, one has to weigh their comfort level with the limited transparency into the benchmark source data. Is the data self-reported by advertising agencies based upon what they claim they paid? Given that those same agencies may someday be compared to those self-reported rates is there a remote possibility that some agencies may inflate reported rates, thus artificially increasing benchmark levels? If rate data is provided by media sellers, do you think that they want to show how little they actually charged advertisers, thereby suppressing the rates that they would like to secure? Media auditor and agency search consultant rate benchmarking pools also represent a viable source of information. However, can the size and or composition of their pool be validated? How relevant is it for your demographic target, category or market? How current are the rates in their pool versus older data that has been modeled and rolled forward?  Will your media rates end up in their pool once they’ve completed the audit?

For the record, we are staunch proponents of benchmarking advertising costs. It’s just that in our experience, we have found that the best source for assessing value attainment is not what others paid, but what an advertiser has previously paid. As the old adage goes:

“Put your future in good hands — your own.”

This can best be done by developing and maintaining files that include both quantitative and qualitative information as part of their strategic supplier database. These could include items such as:

  • Fee detail (direct labor costs by position/ function, overhead rates, profit margins)
  • Billable rates for studio & digital production
  • Media rate detail (based upon final reconciled costs)
  • Days payable outstanding detail (agency payments to 3rd party vendors)
  • Annual agency evaluation scores

Of note, organizing this information in a manner that allows for comparisons by agency type, by holding company, by agency brand and by office will afford the advertiser the flexibility to compare both performance and costs across their marketing services vendor network.

For those organizations still interested in assessing the direction of their advertising costs, once they have established their own benchmarking “pool” they can compare year-over-year cost variances relative to published data that might include sources such as the Consumer Price Index, Producer Price Index and or Annual Media Inflation Rate.

Interested in learning how to create your own proprietary benchmarking tool? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management, LLC at ccampeau@aarmusa.com for a complimentary consultation.

 

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