Tag Archives: statement of work

Linking Agency Fees to Outcomes

14 Dec

overheadThe topic of agency remuneration is one that the advertising industry has wrestled with for the last few decades, since the 15% standard agency commission went by the wayside. 

Agencies want to be paid fairly for their services and clients want to earn a fair return on their agency fee investment… at least theoretically. In reality, agencies want to earn as much money as possible on each of their accounts and clients want to pay as little in agency fees a they can. 

Unfortunately, both stakeholder groups’ true intentions can at a minimum negatively impact perceptions one side may have of the other and in a worse case scenario, drive bad behavior. This can include an advertiser focusing on continually ratcheting down agency fees, with little consideration for the relationship between agency fees and the scope of services. In turn, this is a perfect breeding ground for an agency’s decision to pursue non-transparent revenue sources to shore up perceived inequities at the expense of the advertiser. Ultimately, these actions can serve to undermine trust and eventually the stability of the client/ agency relationship. 

Thus the question remains; “How can both parties bridge the divide when it comes to the agency remuneration discussion?” 

The best solution, obviously, would be to structure a compensation system which is fully transparent, fair to both parties, encourages good behavior and fosters a relationship based upon mutual respect and shared goals. As Sam Walton, founder of one of the world’s largest companies once said; 

“We’re all working together; that’s the secret.” 

In our experience as contract compliance auditors, we have found that the most effective compensation programs link to agency fees to outcomes. We have seen more beneficial results when this is the case compared to fixed retainer fees that have no link to a mutually agreed upon foundation. Typically, these outcomes fall into one of three categories: 

  1. Agency deliverables
  2. Agency time-of-staff investment
  3. Qualitative and quantitative outcomes, those controlled/ influenced by the agency and KPIs tied to the success of the client in-market

It should be noted, that remuneration programs often combine elements from each of the aforementioned categories. In many respects, this is an ideal scenario, particularly in the context of agency-of-record relationships, where the nature of the client/ agency relationship is more akin to a partnership than a buyer/ vendor interaction. 

Regardless of the mode of compensation ultimately selected, value-based, direct-labor driven or performance based, we believe that there are two critical components, which must be negotiated in advance of focusing on the level of remuneration. 

First and foremost is the development of a tight scope-of-work (SOW) collaboratively constructed by the client-side marketing team and the agency account services team. At a minimum, the SOW should explicitly identify all projects, expected outputs, the quantity and timing of those outputs and some indication of whether those items must be created versus modified or adapted. Ideally, the SOW will also address issues with regard to project component complexity and the number of rounds of input/ review per project component to assist the agency in assessing the required time-on-task and to assist the client in establishing project briefing and approval processes which are consistent with desired project outputs. 

Secondly, with a mutually agreed upon SOW, the agency should be asked to provide a detailed staffing plan, one which identifies the names, titles and functional responsibilities of the specific individuals who will work on the business along with their utilization rates. The staffing plan should also identify the base number of hours utilized to calculate a full-time equivalent (i.e. 1,800 hours per year) and at a minimum, a blended hourly rate by department or by function for use in pricing out-of-scope work and or in reconciling fees relative to the agency’s time-of-staff investment if and when necessary. 

The time invested by both parties on the front-end to clearly establish the client’s desired outputs, timing requirements and qualitative expectations and to assess the resource investment required by the agency to deliver on those anticipated outcomes will yield significant dividends. 

Additionally, tracking monthly progress project status and the agency’s time-of-staff investment will allow both parties to stay on track and within budget… while eliminating any surprises. 

In the words of Henry Ford; “Coming together is a beginning; keeping together is progress; working together is success.”

 

 

 

 

 

 

 

 

 

 

Do Advertisers Value Their Agencies?

4 Aug

client - agency relationshipsThis question came to mind when reading the results of a recent survey conducted by the Institute of Advertising Practitioners in Ireland (IAPI) dealing with the state of the advertising industry.  One of the survey respondents expressed an opinion that clients were “much more aggressive and much less loyal.” Further, the representative from a creative agency stated that clients were “aggressive on cost and expectation and less committed to supporting their agency in their efforts to deliver excellence.” 

Subjectively speaking, many of us involved in the advertising space would likely answer this question with an unqualified “no, not as much as they once did.” 

The reasons for holding such an opinion may be many and varied, but the evidence manifests itself in the fact that client/ agency relationships simply are not as enduring as they once were.  There have been a number of studies conducted over the last half-dozen years which have pegged the average relationship length in the 3 – 5 year range.  If advertisers truly valued their agencies surely this would manifest it in longer, more productive relationships.  Wouldn’t it? 

Once full-service ad agencies “unbundled” this set the stage for advertisers to expand their agency rosters to address their “specialized” marketing needs.   In turn, this created bench strength and ultimately allowed advertisers to more readily re-allocate brand assignments across their stable of agencies, which certainly accounts for some percentage of client/ agency change.  Over time, the notion of transitioning work from one network partner to another became more acceptable and perhaps led advertisers to view going outside of their current agency rosters as less of an issue. 

Change costs.  Whether measured in terms of the time required to effectively transition an agency or the opportunity costs tied to a “new” agency’s learning curve on the business.  This in turn creates risks with regard to an advertiser’s demand generation and market share accretion efforts.  Yet in spite of the cost of change, advertisers continue to change out agencies at an alarming rate.  

One cannot place blame for this trend solely on advertisers.  The actions and behaviors which precipitate the termination of a client/ agency relationship both parties have a shared responsibility.  Similarly, clients and agencies each hold the keys to extending both the length and productivity of their relationship.  It begins with a simple, but powerful concept… mutual respect.  After all “respect” is an important proof point of the extent to which one organization values the contributions and support of another. 

Advertisers can take the lead in this area with a series of simple, yet meaningful processes which will demonstrate the extent to which they value their agency partners:  

  • First and foremost, advertisers can and should align agency compensation with desired agency outputs, measured both in terms of detailed statement of work outputs and the resource commitment required by the agency to deliver on those expectations.  
  • Minimizing project reworks and the number of start / stops in the planning and execution phases of creative and or media development will go a long way to demonstrate the regard in which advertisers hold their agency partners.
  • Look for opportunities to improve the briefing process.  Advertisers who can effectively and succinctly prepare their agency partners at the start of a project provide a huge morale boost for their agencies and greatly enhance the odds of producing great work.
  • Reinforce the fact that as a client, you value the input of your agency partners.  Encourage candid, two-way communication among all stakeholders involved in the Client/ Agency relationship.  To be effective, this concept must extend beyond the annual 360° performance review process.
  • Encourage full transparency when it comes to agency reporting and financial management.  Supplement this with periodic (i.e. quarterly) business reviews so that both sides have a clear understanding of where everything stands, both as it relates to budgets/ project completion as well as with the relationship itself. 
  • Consider rewarding successes with incentive programs tied to the efficacy of the agency’s marketing efforts, using brand relevant milestones as the guideposts (i.e. awareness, sales, market share).

As Henry Ford once said: “Coming together is a beginning.  Keeping together is progress.  Working together is success.” 

Taking these proven steps will go a long way toward demonstrating the extent to which advertisers value their agencies, as well as the respect which they have for the art of crafting and delivering effective marketing communications.  In the end, they can also represent an important building block in extending the length and productivity of their agency relationships. 

Take Stock of Your Marketing Supplier Network

26 Apr

marketing agency networkWhether viewed in the context of the marketing dollars that flow through an advertiser’s marketing services agencies or their respective roles in building an organization’s brands and driving revenue, a marketing supplier network is a valuable corporate asset.  So how much do you know about the agencies which comprise that network?

Boosting supplier visibility within the C-suite of an organization can yield significant strategic and economic benefits.  The process begins with taking an inventory of those suppliers, their corporate lineage, resource offering, skills, pricing and historical performance on behalf of the company.  Without this knowledge it will be a challenge to optimize the investment made in maintaining this network.  Constructing a database with pertinent details on your supplier organizations is a pre-cursor to assigning roles and responsibilities across an advertiser’s agency base and for determining internal oversight responsibilities.

If this is an activity the organization has yet to undertake, there is a high likelihood that there is a significant degree of overlap across the supplier base and a less than optimal utilization level within a select group of marketing agencies.  Why should an advertiser care?  Because there is an attendant cost to contracting with marketing agencies and to retaining them on the advertisers agency roster… whether those agencies are being effectively utilized or not. 

Additionally, it is quite likely that the controls that are in place vary greatly from one supplier to the next.  This begins with the master services agreement (MSA) that is in place, whether or not such contracts have been executed and or kept current and extends to the resulting statements-of-work (SOW), agency staffing plans and remuneration programs.  While there is an obvious need for customizing MSAs and SOWs by agency type, there are certain terms and conditions ranging from “non-disclosure” and “non-compete clauses” to “right to audit” clauses, “document retention” policies and “intellectual property rights” assertions which provide critical controls that should be present in each MSA.  The question is; “Are they?” Further, once an MSA and or an SOW has been reviewed, updated and executed these documents should be retained in a central database for “ready access” by authorized representatives from Marketing, Procurement, Legal, Finance and Internal Audit.

Cataloging agency costs is another important step in constructing a marketing supplier database.  Armed with a deeper understanding of agency bill rates, overhead rates, direct and indirect expenses and multipliers an organization will be able to construct agency remuneration packages that are fair to the agencies and which generate savings for the advertiser.  One of the important bi-products of this information is the ability to benchmark supplier costs across agencies and makes for some interesting comparisons for those advertisers working with multiple agencies owned by the same holding company.

Implementing a systematic marketing supplier performance review program to be followed by the advertiser’s marketing department and marketing suppliers will provide a layer of qualitative data to further assess the effectiveness of each agency and to proactively identify potential weak links within the network.  Laggards can be targeted for performance improvement actions and or replaced in the event of continued sub-par results.

Ironically, the most valuable benefit of a marketing supplier database is the role it can play in advancing an organization’s collaborative supplier management (CSM) initiatives.  Aside from boosting agency performance and marketing ROI a well-orchestrated CSM program will enhance supplier satisfaction, longevity and fuel supplier motivation to invest in the client-relationship.  In the words of former Federal Reserve Chairman, Alan Greenspan;

“I have found no greater satisfaction than achieving success through honest dealing and strict adherence to the view that, for you to gain, those you deal with should gain as well.”

Interested in learning more about supplier visibility systems?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation. 

 

The 3 Keys to Successful Agency Relationships

4 Sep

There are a lot of very capable advertising agencies and no shortage of experienced, intelligent marketing professionals on the client-side.  So what distinguishes successful client-agency relationships from those that fail to yield the desired results?  Based upon my experience it comes down to three key elements: People, Process and Perspective.

Other than scale and talent, often there is little that distinguishes one advertising agency’s service offering from the next.  They offer a comparable array of resources delivered through professionals representing a consistent range of agency functions.  Yet some client-agency relationships withstand the test of time, producing memorable work and significant in-market results, while others struggle to synchronize their efforts that result in failure to produce the desired results.    As a rule, individuals and business entities enter into relationships committed to the notion of success.  However, in a people business such as professional services, achieving success requires more than commitment and good intentions.

Constructing an effective team begins with assembling the right people with the cumulative experience and skills necessary to address the client organization’s market challenges and opportunities.  Assigning roles and responsibilities to each team member will assist in improving the group’s efficiency and productivity while minimizing conflict.  Over time, it is important to hold a team together to leverage the group’s shared learning, brand knowledge and market insights to achieve incremental gains year-over-year.  As we all know, in an industry marked by high employee turnover, this is often easier said than done.

Implementing a sound process to guide both the team’s efforts and resource investment decisions is a critical component to a successful relationship.  The process plays an important role in assisting the team in executing their tasks in an efficient manner, maintaining a goal orientation and providing feedback on the team’s progress to key agency and client-side stakeholders.  In the end, an effective process will mitigate risks (i.e. legal, financial, in-market performance) and improve transparency for all members of the team while enhancing the cumulative contributions of each team member.

“A bad system will beat a good person every time.”  – W. Edwards Deming

Having a shared perspective is a necessary component of all successful relationships.  This does not mean that the client and agency must agree on everything.  Differing opinions and the ability to discuss the merits of disparate points-of-view is an essential element of producing break-through work.   Undoubtedly, a shared perspective involves clarity around a brand’s position, its target audience and an understanding of what moves the needle when it comes to demand generation.  However, it also involves a knowledge of and respect for each organization’s culture and values.  These crucial insights help drive team interactions and assist in resolving conflict when disputes inevitably arise.

Of note, client-agency agreements represent the ideal venue for establishing the “rules of the road” for aligning people, process and perspective.  A well-constructed letter-of-agreement (LOA) will clearly define an agency’s roles and responsibilities, identify key deliverables and layout the criteria for assessing performance.  Additionally, LOAs should incorporate an agency staffing plan which identifies agency personnel by name and title with their utilization levels.  This is a pre-requisite for assembling and “locking-in” a team and, in conjunction with the scope-of-work, forms the basis for the agency remuneration agreement.  The LOA should also establish the processes and controls that will govern all aspects of the relationship thus providing both parties with clarity around the advertiser’s expectations, particularly when it comes to accountability and transparency.

Finally, it is important to remember that the LOA is a living document which must be socialized among key constituents within the client and agency organizations and must be reviewed and reconciled on a regular basis to insure that both parties are conducting themselves in an appropriate manner.  Many advertisers consider it astute to engage an independent consultant to conduct a contract compliance audit to assess agency performance and gain valuable insights that  improve both the return on advertising investment and the relationship.

Interested in learning more about the “3 P’s” and their role in “Building a High-Performance Agency Network?”  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com to schedule a complimentary consultation.

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