Defining the scope of advertising agency services to determine agency compensation

Think of the marketing plan as the blueprints for a construction of some sort. After all we refer to it as brand building so the metaphor is not that far removed. In developing the plans for the building we need to take into consideration the end use (objectives) the style (brand personality) and the budget (budget).

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As clearly the plans will determine the scope of work, which will determine the tasks to be delivered, which will determine the level and type of resources required, which will then determine the cost of those resources, then throw in the materials (production) and all together it will then determine the overall cost.

Yet defining the scope of work can be a difficult and apparently almost Herculean task for some marketers.

The usual problems with determining scope of work are:

1. The marketing plan does not currently exist (no plans, no approval)

2. The budget is unconfirmed or changing (clearly someone with deep pockets)

3. The details of the marketing plan are unclear (someone who is indecisive)

4. The requirements are defined by the business, not marketing (you are actually the architect and the real client is somewhere else)

Let’s look at some of the different ways a scope of work can be developed.

Defining the scope of work by budget

If there is a budget allocated for advertising and promotion within the marketing budget, then at the very simplest and highest level this can be compared to the previous year’s budget. Simple allocations of media versus non-media spend can be factored into the equation and a proportion of the budget allocated on the basis of the variation to the previous year’s resource plan can be calculated.

While quite rudimentary, this is based on the fact that many agencies will work out revenue projections based on the advertisers proposed spend along the lines of the traditional media commission for media agencies or extraction rate for creative agencies.

Defining scope of work by deliverables

While the budget or proposed spend can define a basic volume of work, it does not take into consideration the complexity, which can impact significantly on the resources required.

Only by developing a marketing/advertising plan and projecting the type of deliverables required can you begin to develop a detailed scope of work from which the agencies can develop a proposed resource plan.

Even in the media space, a number of smaller media campaigns can be more resource consuming than one major campaign, while online media planning and optimisation is significantly more resource consuming than many traditional media campaigns.

For creative work, allocating the type of deliverables (TV, Online, Mobile, Press, Magazine etc) based on the previous campaign requirements can be more insightful than having no scope at all.

Defining scope of work by strategy

If trying to lock in the deliverables proves too difficult or constraining, then another valid approach is to define the strategic requirements by brand or category and develop a scope of work based on past requirements and remuneration for similar strategic deliverables.

This could be defined a number of ways, such as “new product launch”, or “Tier 1, 2 or 3 activity”, or “Maintenance” etc. Each of these would then be related back to a previous similar activity and the remuneration paid to the agency. This obviously requires a level of transparency into the cost paid in the past.

Managing changes to the scope of work

Where the marketers are unable to provide a defined scope of work, there is often a move to secure an “all in” remuneration model. We call this the “All you can eat model” because typically it becomes like a marketer feeding frenzy of agency services until the agency runs out of resource allocation.

While this may appear easy, the problem is that without a base scope of work initially, even with the best intentions, there will quickly develop conflict between the agency and advertiser if the scope outstrips the resources covered by the remuneration level. If you have no scope of work and the agency is not complaining about the level of remuneration, it could be that the level is about right or possibly much higher than required.

For marketers in this situation we have the Scope of Work Calculator (Also called the Scope Manager by TBWA who have refined this approach further)

This allows us to monitor the scope of work delivered by the agency and adjust the fee going forward to reflect any change in the outputs from the agency.

What methods do you use to define your scope of work?

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About Darren Woolley

Darren is called a Pitch Doctor, Negotiator, Problem Solver, Founder & Global CEO of TrinityP3 - Strategic Marketing Management Consultants and a founding member of the Marketing FIRST Forum. He is also an Ex-scientist, Ex-Creative Director and a father of three. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com
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One Response to Defining the scope of advertising agency services to determine agency compensation

  1. TrinityP3 says:

    Thanks Dianne. It is amazing how many marketers still base agency remuneration on the resources and not the outputs those resources produce. The next step is to base the remuneration on the value those outputs create.

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