A couple of weeks ago we completed a project benchmarking the agency remuneration. The marketer got us in because the agency CEO had presented the Marketing Director with a bill for almost $1.2 million in retainer resource over runs. $1.2 million the Marketing Director did not have in the budget and did not expect.
How did this happen?
After all, he had defined a scope of work and reached agreement with the agency a resource plan and retainer to cover the work. And with the GFC and the tightening of the budget in the middle of 2009 he believe the agency was doing less work, not more.
As part of our remuneration benchmarking process we asked the agency CEO to provide us with:
1. The work delivered in 2009
2. The resources used – both retained and non-retained
3. The income paid by the client during this period
A week later we had the answer.
The problem was the account management team at the agency could not say NO!
You see, every time one of the brand teams asked then to take on a project that was outside of scope they would say YES.
YES, we can do that little press campaign
YES, we can do the company Christmas Party invitation
YES, we can put together that powerpoint presentation for the sales conference
Yes, they were doing it to help secure the relationship and make themselves invaluable to the brand managers. And it would seem to petty to suggest that as this was outside of scope they would need to provide a quote for the work and have it approved as per the agreed contract.
Soon the costs started mounting in the agency and by end end the head hours could no longer be ignored by the agency CFO.
But who was to blame?
Should the agency wear the cost or should the client pick up the tab for all the additional work, above and beyond the agreed scope of work?
In the building industry, which provides quotes against a scope of work (the plans for the construction) additional work outside those plans are variations to the contract and are quoted before the additional work commences.
But the agency did not have the work quoted or approved. The marketing team requested the work. The agency did the work. So who should pay for the work?
We benchmarked the additional work and calculated a cost to the agency to provide the service. Instead of the $1.2 million the agency was claiming, we benchmarked the resource cost at $920,000.
We suggested that as the work was requested and provided and the cost was incurred, the marketers should pay, but as the agency was in default of their contract by not obtaining an approved quote for the requested work the agency should wear half of this cost and the marketers pay $460,000. Quite a King Solomon idea.
We also suggested that the agency should provide monthly reports on not only the client spend, but also the resource utilisation and the number and type of outputs so that the Marketing Director can keep a track of his various brand managers.