In one case we had client-mandated changes as more than 30% to the approved cost of the production and when the brand manager was confronted with the costs they engaged us to assess the proposed costs. In most cases the blowout could have been avoided with some careful planning up front.

Increasing options in media, regions and durations

While this has been an issue for as long as advertising itself, it has recently been exacerbated by the increased number of media channels, the regionalisation and globalisation of markets and advertising, and the fast pace of change in business and marketing, making more and more executions more short-term and disposable.

The increasing time and resource pressure on marketers and their agencies has lead to an increasing number of shortcuts to meet these deadlines, which further impacts this increased complexity.

Time pressures appear to overcome the need for cost consciousness

Of course, cost reduction is no reason to sacrifice creative impact or effectiveness. Just as poor planning and lack of due diligence is no reason to pay more than is required.

But in the pressure to deliver outcomes, due diligence is often overlooked or discounted. This means that instead of looking for the most cost effective way of delivering the outcome, often only the most expedient and invariably the most expensive production process is used.

The need to clearly articulate all your needs and requirements

The best solution is to develop and implement guidelines for campaigns prior to commencing the process. We have found that often in the heat and pace of campaign development, many considerations are overlooked in the shortcuts to meet the deadline and deliver the outcome.

Our recommended guidelines include:

1.  Defining all the media channels to be used for the campaign both short and longer term. This is not just the initial media but also possible longer term uses so that rights can be negotiated up front and paid if and when required.

2.  Defining the media execution required up front in terms of size, duration and number, and have this estimated up front. Invariably the production cost of additional executions after the fact is more expensive than having these produced at the time.

3.  Hold your agency to the defined requirements agreed up front. Once these parameters are established on each and every project, the agency and other creative and production providers must then be engaged to competitively quote and fix the cost and timeline of delivery.

Too many times oversights in the production process lead to cost blowouts that are paid for by the advertiser and not the suppliers.

We see it all the time, advertisers call us in because they are unhappy with the performance and service levels provided by their agency. When we benchmark the agency remuneration, we find they are hopelessly underpaid.

The cost considerations

Many retainers are calculated on a resource, overhead and margin model. This is based on determining a set of dedicated agency resources, taking the direct salary cost of these resources and multiplying this by an overhead factor.

The overhead factor is to cover the indirect salary costs such as support staff like the receptionist and accounts, plus accommodation and utility costs and business development, IT and capital expenses.

This overhead factor can vary from 60% to 120% depending on a number of factors. Then to this cost there is a profit margin of anywhere from 10% to 25%.

Of course if the salary rate is overstated then this adds to profit as the overstated cost is multiplied by the overhead factor and the profit margin. Understated, it cuts into the profit margin. Likewise with the overhead factor and the profit margin.

Paying too much

Many advertisers feel they are paying too much because they have compared their costs with what a colleague is paying. Unfortunately, with the complexity and diversity of remuneration models they are not often comparing like with like.

While overpaying the agency will make the agency senior management happy, it can lead to complacency developing between the agency and the advertiser. After all, the adage that the squeaky wheel gets the oil applies here, and if the agency is achieving a higher than average profitability from the client with little or no extra effort, they can apply less attention to this client over another who is demanding and underpaying the agency.

Paying too little

Paying too little forces the agency management to find ways to increase the profitability of the account.

Typically there are a number of ways to achieve this:

1. Reduce the calibre and number of resources working on the business. By reducing the direct cost of servicing the account you can increase the profit margin. Replacing an account director with a senior account manager can go unnoticed if they have the same title on the business card and thereby save $10K – $15K per annum. This can become self-perpetuating as the staff on the account turn over more frequently due to burn out – having to deliver the same with less.

2. Increase the charges outside the retainer agreement by increasing the number of changes made during the production process to increase production charges on each job thereby increasing the “extraction rate” for that client.

If you are underpaying the agency they will need to find a way to increase revenue and manage costs to increase profit.

Pay for the resources or the outcomes

At the end of the day what you actually want is outcomes and results, not just resources. If you just wanted the people, why not employ them directly. The overhead factor will be a lot less.

So if you want to pay for outcomes, firstly you need to define the outcomes you need for any period and the results you want these outcomes to deliver. Then you can strike a retainer or project fee for the agency to deliver the outcome and then a value based remuneration for delivering the results.

This is a value based model that pays the agency a fee for the delivery of the services and outcomes and then provides a significant and variable profit based on the achievement of results.

Getting the formula right



Some advertisers find it difficult to implement a value based model because they think of agency costs in terms of a cost for people. In the TrinityP3 model the agency is paid to deliver the services, but shares in a significant and higher profit margin if they participate in delivering higher than expected results in sales, market share growth or some other significant business measure.

We had undertaken a benchmarking exercise and identified that the briefing and approval process was driving a 15% over resourcing in account management. This represented a $120,000 per year impact on the retainer.

Changes are driven by multiple stakeholders


Most organisations have a collaborative culture, which encourages more people to be involved in each process. This, and a flattened organisational structure means that multiple people of similar authority can be involved in the approval of work as part of the advertising output.

 The problem is that each approval potentially, and usually, involves a change to the current work. This process works also more effectively if all those involved in the process are working to the same brief (but that is another issue altogether).

Changes to artwork is a revenue bonus for the agency

The issue is that every set of changes can be a bonus revenue opportunity for the agency. While some agencies are on a fixed fee for production, most agencies are on head hour rates for production. 

In the most extreme case we were asked by an advertiser to investigate their agency’s costs because it cost $7,000 to provide the client’s logo for a balloon printing. What we found is that the size of the logo on the artwork was changed more than 12 times by the six stakeholders involved in the approval process. Each set of changes cost $650 in studio time, plus print outs, pdfs, archiving, etc…

A rigorous process is the secret to minimising production costs

All advertisers should review their approval processes to:

1. Map the current process to ensure it is as direct and rigorous as possible

2. Identify all stakeholders and the role they play in the process (Use the RACI or similar process)

3.  Look at reducing or consolidating the number of stakeholders where possible

Processes can be reinforced by software and online systems

Back to the meeting we had with our client and their agency. Once we had discussed the cost of the approval process we went on to talk to the client about the many online approval systems that help to manage the approval process when you have a large number of stakeholders.

The agency added that they currently used one of these approval systems with some of their other clients. You could hear a pin drop as the client wondered why this had not been offered to them, and lead to a 15% reduction to the retainer they were paying the agency.

Which processes within your organisation are the most time consuming? Let me know, as these are usually the ones with the greatest opportunity for improvement.

But these services we offer at TrinityP3 have proven to be a real money saver for clients:

1. production cost assessments,
2. production cost estimates and
3. production management

Here are two case studies that demonstrate how we have delivered those savings.

Case study 1 – Setting budget expectations

A client, unsure what their production budget should be for an upcoming TVC, asked us to review the proposed creative and estimate the production cost.

Based upon the production spend of their last campaign, the client was considering spending $400K.

However, after consultation with the client, agency and production company, our ballpark estimate came in at $320K. All parties were willing to produce the TVC for this budget.

Prior to this assessment, the agency’s estimate to produce the concept had been $400K , based upon the client’s budget and previous production spends.

Had we not been involved, the agency would have given the production company a target budget of $400K and the budget would have come back to the agency at around this budget.

As the client had already included the production budget of $400K into their overall budget, the subsequent saving of $80K was added to the media spend to achieve better reach and frequency. Based on the cost of the process this was a 30 times ROI.

Case study 2 – Bringing due diligence to supplier selection

A client asked us to review the preferred creative for a campaign and provide a ballpark estimate to set the production budget.

Our analysis was based upon recent exposure to a very similar production and production technique, and the result came in well under the agency’s estimate ($350K) from their preferred production company.

Subsequently, we recommended to the client that the job be put out to competitive tender, as many of Australia’s directors and production houses were capable of the creative and technical requirements for the project.

At the client’s request, we were involved in the tender process, with all the requested production estimates, including the preferred agency supplier, coming in within a 10% variation of our ballpark estimate.

This represented a saving of some $60K and as the agency’s preferred Production Company was able to match its competitors’ they were awarded the job.

The total cost to client for the production assessment and tender management was less than 2% of the production budget and delivered a 17% production saving, representing an 800% ROI.

The figures speak for themselves.

Strategic resources

If you are looking for business or marketing strategy it is better to select a specialist in this area than to expect the communications provider to supply this.

Look for: a clear distinction of the strategic functions they provide; demonstrable strategic performance, probably as case studies; clear demonstrations of consumer insights that led to strategic insights. 


People resources

Many providers will have a New Business Team for the pitch, possibly never to be seen again. It is important to identify the resources that will be working on your business short and longer term. 
While small agencies can be an advantage with access to the most senior people, as the agency grows or if something happens to key staff they may not have the flexibility to manage your business. Likewise, large multinationals may have higher turnover through career development.

Look for: a loyal, long term staffing base (low churn); dedicated resources or guarantees of time and effort by individual name or specific level of seniority/expertise; depth of resource as well as breadth.

Experience/expertise

The conundrum is many advertisers want an agency with recent experience in their category without account conflicts with competitors. While it may be ideal to have a provider with experience in your category, it could be that this comes with a package of set thinking.

Look for: expertise in your category or industry (both historical and current) in a range of individuals; a cohesive team that provides both youthful creativity and mature experience. 


Management skills

Agencies are business units in their own right, and managing their own revenue and profit centres requires skill. The experience these management teams bring to the table are critical to your success.

Look for: key personnel who have experience across many industries and categories; managers who have ‘skin in the game’ (hands-on with clients); demonstrably good management skills (strong and consistent agency performance). 


Remuneration structure

Remuneration is most often based on a ‘cost plus’ formula that sees the provider remuneration comprised of a salary + overhead + profit calculation based on the advertiser’s needs and expectations. In some cases, advertisers also enjoy a Performance Based Remuneration (PBR) of Value Based Compensation (VBC) aspect that rewards or penalises the agency on performance.

Look for: a flexible remuneration arrangement based on reasonable salary structures, overhead multiples and base profit margin; the willingness to participate in PBR arrangements; demonstration of putting their profit on the line (case studies); a workable review facility that recognises the ebb and flow of budgets and workloads.


Chemistry

One of the most important parts of the relationship between provider and advertiser department is ‘chemistry’ or ‘fit’. Most relationships that do go long-term are based on mutual respect, understanding and consideration.

Look for: a willingness to listen as well as talk; something more than the camaraderie of the new business pitch; a genuine interest in or passion for your business; an open and honest approach that will engender trust and respect.

Size

How big or important do you want your account to be within the agency? Dominating the agency could mean that you end up funding the infrastructure that others benefit from, while being one of the smaller clients may mean that you may be overlooked at times.

Look for: What are the other clients at the agency? Consider both size and type and where you fit in. How demanding are these other clients? Eg. Retail or high volume clients may demand resources to a greater extent than high media spending clients. What impact would the addition of your business have to the agency size?

Location

While some advertisers are happy to source the best provider in the market, no matter where they are located, most require a local supplier. Considering so much of the business is built on relationships, long distance management needs to be considered.

Look for: Does the agency have other long distance clients? How successfully do they manage these relationships? What are the additional costs both in time and money? What are the alternative offerings? How can technology be used to increase interaction and shorten time issues and lower costs?

What other considerations do you use?  Let me know by leaving a comment here.

1. What are the issues affecting negotiation effectiveness?

2. How effective are the advertiser and agency in achieving additional cost efficiencies during each campaign?

TV or not TV?  That is the question

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With most communication strategies based on exhaustive consumer analysis and insights from a plethora of syndicated and bespoke research, a clear understanding of your target’s ‘media imperatives’ is one of the most powerful negotiating tools available.

Understanding how to reach a ‘light TV viewer’ who is also a ‘heavy on-line reader’ might seem obvious, but the essential communication elements of your particular product or service may dictate otherwise.

On one hand, using TV to try and reach consumers who don’t watch much can be inefficient and expensive. On the other hand, trying to explain a complex visual scenario on radio just because your targets listen a lot can be just as ineffective.

Getting the media mix right and the balance between effective and efficient communication channels – both between and within your chosen selection – can have a marked effect on the ability to leverage spend during the negotiating and buying process through more effective channelling of budget.

Is bigger better?



In media negotiating terms, size does count. And not just how big your budget is but also how much clout your media buying agency has overall.

In the typically ‘three-tiered’ process that makes up most major media negotiations, the media agency (or buying group) size sets the first discount off base rate (usually known as the ‘ceiling’ for agency-based advertisers).

Your individual spending volume then comes into play, as the client-specific discount structures are set based on volume or share.

Finally, the actual rate paid on a campaign by campaign basis is the result of the leverage your buying team can exercise on top of these first two discount levels in the context of the current market conditions, lead times, placement strategies and a range of other variables.

One lump or two?



Naturally, negotiating strategy can play a big part in the rate base outcome.
 One, two or three networks in your TV negotiation? Two contracted and a float? Specific target, specific need – one network? Newspapers by masthead or by publisher? Magazines likewise? Do you know your high, low and walk away positions?

Having an agreed negotiating strategy, the courage to stick to it and a good team in support can make all the difference between a great outcome and a bad feeling in the pit of your gut. And remember, in any negotiation, the best result is a win:win!

The power of process



Even with the best team, a great strategy and terrific leverage, the best laid plans can go astray if the basic process rules are forgotten. These rules apply at the macro (doing the annual deal) and micro (campaign by campaign buying) levels.

1. Give the agency and yourself time.

Negotiations don’t need to be protracted but you will need breathing space so both sides can properly consider their positions and come back with well thought out counter offers along the way. Time is particularly critical in the campaign negotiation/buying process where the best spots and/or positions are always the first to go. In the seller’s market that has characterised conditions over the last couple of years, there have been no prizes for coming in late!

2. Make sure the brief is clear, concise and based on as much factual information as possible.

Basic factors like timing, seasonality, distribution and geography are obvious factors in ensuring the negotiation is based on your business plan. Of course, critical factors like target audience are essential elements that must be spot on or you’ll end up wasting your money despite the best of intentions.

3. Make sure that both you and the agency understand and agree what your expectations, goals and objectives are for the negotiation.

Many times, the agency comes back thinking they’ve done a great job, only to find that the client’s expectations were based on issues only partly communicated and understood.

This brief review only scratches the surface of rate negotiation effectiveness. 
We have been providing advertisers with a benchmark report on how their negotiated media rate compares to the industry rate across the main media for the past ten years. But more importantly we benchmark how effective you and the agency are in capitalising on this rate as it is applied to your campaign activity.

They posted a blog

For those who don’t know @threeshipsmedia is their twitter account.

It was posted on Instagram

As you can see, in plain and quite amusing language, using donut examples, it explains the different types of social media.

And it has gone viral.

More than 100,000 people have liked it on Facebook.

And thousands have retweeted it in a few days.

Take a look at these other stats for content that went viral -

The Old Spice Ad: 39 million views, 45,000 comments, 141,000 likes.

Or Double Rainbow: 32 million views, 139,000 comments, 151,000 likes.

This Ford Fiesta campaign resulted in: 5 million social media shares, 11,000 videos and 50,000 people said they wanted to know more about the Fiesta when it came out. 97% of these people didn’t currently drive a Ford.

A Southwest Airlines / Make a Wish Facebook campaign resulted in 1 million new Facebook fans for Southwest Airlines.

And this one from the 2012 Super Bowl – The Dog Strikes Back for Volkswagen: The biggest viral ad from the Super Bowl so far – 8 million views, 25,000 likes, countless embeds on websites and blogs, huge numbers of shares through Facebook, Twitter and other social media channels and all this in a matter of days!

Okay everyone, back to work.

In television production, the delivery of quality is a subjective and often nebulous concept and one that is often used to drive up the cost of production with negligible improvement in value.

There have been numerous examples of where budgets have had the latest, and therefore the most expensive camera equipment, where a suitable less expensive version was available. Like the director who wanted the latest high speed film camera to shoot talking heads to camera in a studio. Or the producer who loaded the quote, but presumably not the truck, with every lens available. Or the director who still insists on shooting film and then allows stock shoot ratios of 500:1.

So here are a few ways to ensure your budget delivers every cent in quality on the screen.

Defining quality

In many discussions about production quality, the production house will justify costs with the comment “Doesn’t your client demand the very best”.

This retort usually ends the conversation as the implication is that every production needs to be the highest quality.
 
For the production house the measure of quality is not the effectiveness of the execution in achieving the marketing objectives, it is achieving the highest possible production values, which means using the latest technology, embracing the latest techniques, allowing time to experiment, being able to cover multiple shoot options as insurance if one of these “new” techniques fail and having the latest equipment.

What they are really saying is “Doesn’t your client demand the very latest and therefore most expensive”. The answer to this should not automatically be yes, because each of these is adding cost, but is it adding value?

A culture of spending

There seems to be a culture within the TV production industry of using (and using the client’s money to pay for) the latest equipment and/or technology whether it’s required or not.

The people that benefit from this culture of “the latest” are the equipment hire facility who hire out the top of the line stuff, the production house who get to mark up the top of the line stuff and the technicians who get to use the top of the line stuff. So there is a strong lobby to maintain this culture.

The knowledge to know better

Some agencies are often complicit in this culture as often agency personnel don’t fully understand some of the technical aspects of production and post-production – whether there is actually any “value add”.

When confronted with the question “Doesn’t your client expect the very best” they have to nod in agreement, and are often coerced into using high-end hardware to keep the director and production company happy, and is in many cases, over and above their client’s expectations and needs.

The expansion of this culture relies on the client’s and sometimes the agency’s ignorance and production pre-ambles full of esoteric jargon and unfathomable technical terms.

So how do you discourage this culture?  By having someone “on-side” that:

1. understands the technical aspects of production
2. understands the jargon and who is not intimidated by the technical gobbledygook
3. asks the right questions at the right time on the client’s (and by default the agency’s) behalf.

Instead of simply advising clients on their production costs we manage their production costs for them. After all, the director has his producer to look after the interests of the production company. The Creative Director has the agency producer to look after the interests of the agency. So why shouldn’t the advertiser have a producer to look after the interests of the client.

It is very common in North America and Europe and is becoming increasingly so here.

Thoughts?

Yet these media billing measures are irrelevant and misleading when discussing the size of accounts or the size of creative agencies. So why, when there are more relevant measures in the industry, are the media still obsessed by media billings?

Media billings

Before the dismantling of media accreditation, advertising agencies provided media and creative services and were largely remunerated on a combination of media commission of 10% and a service fee of 7.5%.

Therefore when discussing agency remuneration or the value of a particular advertising account the media billings was an indication of not only the total turnover for the agency, but also the revenue based on the “standard” commission and fee.

Of course, even in those times, the advertising industry, like the movie industry, was prone to exaggerating budgets as a way of talking up the significance of a win. Or deflating the billings to deflate the significance of a loss.

Non-media billings

Before the dismantling of the media accreditation system, there was a move away from the mark up for print and electronic production. Retail clients were the first to start remunerating their agencies on page rates for catalogues instead of the costs plus mark up.

In fact one prominent retail agency at the time generated more revenue from catalogue production than they did from media. When asked to provide their billings they would take their print revenue and multiply it by 5.7 times to project it as media billings and then add it to their actual media billings.

Therefore a media budget of $10 million and a print production budget of $2 million would multiply up to be $24 million in billings. Or what about a direct marketing client who spends $10 million on direct marketing and less than a million on media, and is declared to have media billings of $58 million?

Misleading the market and themselves

How many times have you read in the trade press where an account moves from one agency to the next and the incumbent declares a significantly smaller loss than the winner declares as their gain.

Or how many times do you read that an account is worth millions of dollars in media billings when the AdEx media spend for that brand is significantly less.

Now most advertisers would prefer that no-one knows the financial details of their activities. But this doesn’t stop the advertising agencies and the media obsessing about it, even though it rarely reflects reality. In fact some people have made a career doing little more than counting these billing wins and losses.

Retainer based on resources

Today most agencies, media included, are remunerated on resource or direct salary costs, multiplied by overhead and a profit margin rather than the budget or spend.

Perhaps a better measure of an account size is the number of resources of FTEs? (Full time equivalents).

 This is a direct measure of the costs and complexity of an account and their advertising. That’s why when negotiating an agency contract we spend so much time and effort getting the resources and associated costs right.

So if you are interested in knowing how big a particular agency is, don’t ask them about billings, as you never know what you will get. Instead ask about the number of employees. From this you can fairly accurately project their revenue and profitability.

In new business pitches, touting these well developed and attractively presented pieces of software that promise to provide the highly developed and financially optimised solution to your next campaign brief has an almost irresistible allure for many marketers.

Every major agency group has devoted significant expense and expertise on a global basis developing bespoke tools and technology designed to provide their clients with the edge over the competition.

But are these tools just presentation fodder? Are they really applied to your business on a day-to-day, week-to-week basis in order to add value to each and every recommendation?

Tool or Trap?

In many cases, the ability to apply the technology relies heavily on the availability of raw data to drive the application. Most modelling tools, for instance, require ongoing ad or brand awareness to compare with alternative media lay-downs. No awareness data – no model.

Consumer insight and understanding are the core of most sophisticated recommendations today but unless the appropriate data is available through the syndicated Morgan or Nielsen databases (expensive in their own right on a category basis), it will require access to either bespoke agency data or specially commissioned research to find out anything really useful about your consumer and then apply it to the media consumption for your next campaign.

Cornucopia or plenty of nothing?



Many advertisers are either unaware of the range of technologies available to them or simply unsure of just how the alternatives might apply to their business. Sometimes media agencies like to encourage a little mystery around their expensive proprietary tools because it adds to the perception of their sophistication and the ‘added value’ they bring to the table.

Answering the questions



Based on our many years experience in this area, specialising in reviewing agency process and resources, here are a number of ways of ensuring the agency’s tools are appropriate, available and applied to your business:

1. Seek a comprehensive presentation from the agency outlining all their tools and technology and how they apply it to your business.
2. Make sure any descriptions in this area are clear, delivered in everyday terms and comprehensively illustrated by examples or case studies.
3. Review your own data sources and the media briefs and objectives set for your campaigns and consider if they provide a good basis for a ‘technological’ solution.
4. Make sure that every recommendation the agency makes is accompanied by a rationalisation that clearly describes the tools and data sources used – compare this usage to the ‘menu’ presented in their tools and technology expose.