Tag Archives: scope of work

Offsetting Marketing Budget Reductions

30 Dec

budget cut“Price is what you pay. Value is what you get.” ~  Warren Buffett

If you’re like many marketers, 2023 budgets have either been frozen at last year’s level or reduced in light of what many organizations believe will be a soft economy in the coming year. That said, company expectations relating to brand development, customer acquisition and revenue generation goals can seem daunting.

The good news is that there are five key steps that can be taken to offset budget reductions and refuel marketing budgets:

  1. Review and revise annual Scopes of Work – Working in conjunction with your agency partners, representatives from the marketing and procurement teams should reassess project deliverables relative to approved spend levels and make the requisite adjustments. Focusing the extended team’s efforts on strategies and tactics that are critical to the attainment of the organization’s core business goals are the top priority. Out-of-scope work should be prohibited and or at a minimum, tightly controlled and non-essential programs shelved until business conditions improve and or additional marketing funds are allocated.
  2. Evaluate and improve Client/ Agency work processes – The opportunity for efficiency gains in this area are numerous, particularly in longer term relationships where too often bad habits, that drive costs up or limit market timing opportunities have become status quo. Key areas to review include the creative and media briefing and client-side approval processes. Ineffective and or inefficient approaches to these basic tasks waste time and increase project costs. Conversely, tightening brief development and streamlining the approval process can reduce fees associated with agency rework costs and decrease the time required to execute certain tasks.
  3. Right size your agency network – Over time, an organization’s roster of agency partners can swell to unwieldly levels, leading to management challenges, overlapping resources and duplicative costs. Internally reviewing each agencies roles and responsibilities to identify opportunities for focusing each agencies resource offering and reducing overlap. Longer term, consider the creation of broadcast and digital production and content curation and production centers of excellence, consolidating activities in this area to generate scale economies and reduce agency fee outlays. Additionally, work with your agency partners to identify opportunities to remove links from the marketing/ advertising supply chain. In short, reduce the number of intermediaries involved in the production, placement, and trafficking of your advertising to reduce unnecessary fees and costs.
  4. Review agency financial management practices and contract compliance – Auditing agency compliance and financial stewardship can lead to the identification of billing errors, earned but unprocessed credits, unbilled media balances that should be returned, the application of unauthorized mark-ups and agency time-of-staff under deliveries that could result in financial recoveries. Additionally, the independent review of project management, job initiation and reconciliation processes can lead to cost avoidance strategies that result in meaningful savings.
  5. Reconsider the “Estimated Billing” process – As interest rates have increased, so too has a company’s cost-of-capital. One key tenet of any organization’s treasury management practice is to retain control of its money for as long as possible. However, when it comes to advertising outlays, the industry tends to work on an “estimated billing” process where each agency bills for work to be done, services to be procured or media to be purchased upon approval, with the pledge to reconcile estimated costs to actual once a job has closed or a campaign completed. Unfortunately, this results in an advertiser’s funds being held and managed by others, with no economic benefit (e.g., interest income) and some level of financial risk. Consider moving to a “final billing” process whereby invoices are submitted by the agency for payment once services have been rendered and third-party costs validated. In turn, advertisers should be prepared to tender payment upon receipt of these invoices, so that none of its agency partners is required to go out-of-pocket to compensate third-party vendors.

Taking some or all of these actions can offset the impact of budget reductions or freezes. As importantly, an open-minded review of a marketer’s partners and processes will generate financial recoveries and future savings that will help refuel and improve their marketing investment.

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Budget Reductions Create Opportunity to Fine-Tune Agency Network

28 May

 

Advertising concept: Ad Agency on digital background

For marketers seeking to generate efficiency gains, looking internally to rethink the processes used to manage planning and creative development workflows can yield significant benefit.

As importantly, looking externally at “how” and “where” work is being performed across an organization’s network of marketing services agencies is extremely important. This involves an objective assessment of the current network of agency partners, their resource offerings, capabilities, performance, and the roles and responsibilities assigned to each.

Without periodic assessment, agency networks can become bloated beyond a marketing team’s ability to effectively manage these vital resources. This risk can be compounded in companies where marketing positions are vacant or have been eliminated as a result of a budget reduction decisions – leaving fewer client-side personnel to manage dispersed agency activities.

Reviewing and creating an inventory of roster agency capabilities and the roles assigned is never a bad thing when it comes to identifying unnecessary expenses or opportunities to consolidate resources and protect against redundancy. Amongst other benefits, since the work necessitates a review of each agency agreement and remuneration program tenets, output should include a comparison of agreement terms, conditions, requirements, and bill rates to ensure consistency (where applicable) and reasonableness of agency bill rates and other costs.

This practice is even more apt when marketing budgets are being cut and agency scopes of work reduced. Such assessments form the objective basis for eliminating duplicative activities and or resources, paring specialty agencies that are not being fully utilized, and eliminating unnecessary fees that are putting downward pressure on working dollars.

Consider; How many agencies do you have that are managing influencers? Involved with social media or content production? How many different agencies are being utilized for studio services or broadcast production? How many agency trading desks are being utilized for the placement of programmatic media? Are you utilizing specialist firms that may no longer be required based on changes to the marketing budget (e.g. event management)? It is highly likely that there are opportunities to consolidate work among fewer partners to simplify workflows, improve communications and reduce costs.

If you are utilizing a “lead” agency to coordinate activities, briefings, production and trafficking across your agency network, it may be worthwhile to solicit their input on potential agency roster moves. Further, once a plan is formulated, collaborating with the lead agency’s account team to affect transitions can be critical to the success of consolidations and the reshuffling of assignments. If you do not employ a lead agency model, the time may be right to consider this approach.

Streamlining external agency networks will improve communication between marketer and agency, enhance business alignment and instill clarity on success metrics. In the wake of current crisis driven budgetary adjustments and uncertainty, companies may want to give serious consideration to such an approach.

“Whatever the dangers of the action we take, the dangers of inaction are far, far greater.”

                                                                                                                   ~ Tony Blair

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Agency Compensation: The “More for Less” Trap

31 Aug

More for LessFor many marketers, cutting agency fees is an obvious target when it comes to meeting budget reduction goals. The reasons are understandable given the need to balance achieving in-market results and preserving or improving working media levels, while achieving the desired savings target.

A factor which clouds this issue, is the general level of uncertainty among marketers as it relates to the overall competitiveness of the fees being paid to their agency partners. Are we paying our agencies too much? Or are we already at a competitive remuneration rate? Without being able to objectively address this item, there will likely be internal pressure brought to bear from finance and or procurement to reduce agency fees as part of the budget right-sizing initiative.

It should be noted that we believe in regularly reviewing agency fees, assessing their competitiveness vis-à-vis the market and in looking for ways to optimize a marketers return on its agency fee investment. That said, we also firmly believe in compensating agency partners fairly and in proportion to both the agreed upon scope of services and the agency’s ability to contribute to the attainment of an organization’s marketing and business goals.

Experience has taught us that organizations which focus solely on reducing agency fees, without adjusting the scope of work and or the agency staffing plan upon which those fees were based, can negatively impact agency relations and jeopardize the quality of the work generated by the agency. Further, we have found that when an advertiser involves its agency partners in the budget reduction process there is a greater likelihood of successfully addressing the near-term goal, with the least risk of negatively impacting brand sales.

While it should go without saying, we will say it any way, advertisers must adjust their expectations downward with regard to key agency deliverables in the wake of a budget reduction. It is not an agency’s responsibility to fund the advertiser’s savings goal. As it is, budget reductions create financial challenges for agencies in the form of reduced levels of revenue, which in turn create staffing and resource constraints that they must deal with. Thus, asking an agency to reduce its negotiated overhead rate or to lower its profit percentage to preserve planned deliverables (e.g. do more for less) is simply not appropriate.

There are specific areas that an advertiser might consider, in addition to right-sizing the scope of work to align with the revised marketing budget, which can reduce agency time-of-staff requirements and therefore fees:

  • Review the creative briefing and approval processes. Streamlining and reforming current practices in these areas can reduce the number of steps and therefore the number of agency personnel involved in the creative development process. This in turn can lower the level of “re-work” required, yielding meaningful time savings.
  • Extend current campaigns, rather than developing new approaches, leveraging current creative assets and forgoing the investment in both hard costs and agency fees required to conceive of and launch new creative campaigns.
  • When it comes to the creation of regional versions of creative or the production of collateral materials, embrace an “adapt” versus an “origination” mindset, optimizing existing content, rather than spending time and money to re-create the wheel. The age old acid test of “nice” or “necessary” is the best filter to apply in this area.
  • Reduce the number of media plan revisions over the course of a year. Establish clear goals, implement compelling and relevant strategies and tactics and “work the plan,” rather than revising and re-selling plans.
  • Assess the number of meetings, their frequency and the number of agency personnel required to attend. Attendance, travel time and expense and meeting prep time reductions can yield meaningful savings for both client and agency.
  • Work with the agency to adjust its staffing plan, evaluating both the number and level (e.g. experience) of personnel required to deliver against the revised scope of work.

Finally, once the planned reductions have been identified, consider adding or enhancing the agency’s performance bonus, with a large portion of the incentive compensation tied to in-market results. This is an excellent way to let the agency know that your organization understands both sides of the “share the pain, share the gain” partnership mantra. Taking this approach will deliver on the budget reduction mandated by the organization, without negatively impacting relationships with the organization’s agency network.

 

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Agency Charging Practices Questioned

9 Sep

ad agency charging practicesEarlier this week Digiday, a media company serving digital media, marketing and advertising professionals ran an interesting article regarding agency compensation and the “tricks” played by agencies to boost their bottom lines. 

In short, the article asserts that; “For ad agencies, it’s harder than ever to get paid. Their services are becoming increasingly commoditized, and their margins are getting squeezed as a result.”  According to the author, Jack Marshall, this in turn is “driving some to get creative with the ways they bill clients, as they exploit loopholes and tricks in an attempt to maximize their rewards.”  Examples of the bad practices employed by some agencies in this particular area include:

  • Artificially inflating the salaries of their employees when developing compensation programs
  • Double-charging clients by including items such as medical expenses in both salary costs and overhead calculations
  • Slow rolling projects and or throwing more people at a project than is required to boost billable hours

Andrew Teman, one of the agency executives interviewed by Digiday for the article suggested that;

“The problem with big agencies is they don’t make money being efficient; they make money billing more hours.”

For practitioners within advertising industry, the aforementioned revelations are not newsworthy.  Attempts to game the system have been ever present and serve as a reminder of the decades long struggle clients and agencies have had in structuring mutually beneficial agency remuneration programs in a post “15% commission” world. 

Ironically, advertisers and agencies want the same thing… a fair and efficient compensation program which incents extraordinary performance, good behavior among the stakeholders and which leads to a solid client-agency relationship.  To that end, neither party’s needs are being effectively served by the games and subterfuge described in the Digiday article.  The solution to the issue, which seems elusive, is actually rather straightforward: 

  1. Development of detailed scope(s) of work (SOW) to serve as the basis for agency resource investment modeling.  This is an important first step, since it is the SOW which will drive agency staffing and the resulting schedule of charging practices.
  2. Completion of a comprehensive agency staffing plan, with personnel names, titles, functions, utilization percentages and billing rates.
  3. Implementation of an agency remuneration program which aligns the client’s goals with the agency’s resource investment.  Of note, there should be full transparency into the various cost elements used to calculate agency fees, overhead and profit levels.
  4. Reporting and control mechanisms to monitor agency time-of-staff investment, performance and outputs to protect the financial interests of both clients and agencies. 

Unfortunately, as straightforward as the solution may appear, few clients and or agencies have effectively implemented the four steps suggested above at a sufficient level of detail as part of their continuous relationship management processes. 

Some would suggest that the real challenge has been in effectively scoping the work required on behalf of an agency.  According to Michael Farmer, Principal of Farmer & Company which specializes in assisting advertisers and agencies in developing and implementing accurate, effective Scope of Work practices and tools, “New metrics are required to track and measure workloads, prices and resource productivity. That’s the only way agencies can evaluate and negotiate changes in the fees they are paid in today’s marketplace — and halt the erosion in agency operational health.” 

We would suggest that putting in place an effective monitoring program in this area is long overdue at most advertisers.  If not addressed, the institutionalization of the bad behavior referenced in the Digiday article sets a dangerous precedent for treating relationship ailments with trickery rather than frank dialog between clients and agencies.  

 

 

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