Is the big idea everything you paid for through your agency compensation?

Marketers and their agencies talk regularly about the “big idea”. The idea that will transform the business, lead to substantial increases in brand equity and drive revenue and sales.

But what is the cost of this “big idea” and do marketers get the value for what they pay?

If the “value” of something is what someone is willing to pay for it, then it may interest you to know that the Big Idea is one of the smallest marketing expenses.

Looking at the compensation models and spend data of a range of multinational marketers and isolating the component for the generation of the “big idea” we found that for creative agencies, this represented about 7% of the total agency spend including production. If you consider the total advertising and promotion budget it fell to less than 1%. Less than one cent in every dollar spent on advertising and promotion was to the “Big Idea”. Not really so big.

It seems that if as Albert Einstein said that “Genius is 1% inspiration, 99% perspiration”, then marketers are happy to pay for the perspiration, but only at the lowest possible hourly rate.

Why?

Because most of an advertisers spend is not for ideas but for hard costs like media or implementation costs such as account management, production, administration, all the tasks that consume hours of resources.

You pay more for 12 people sitting in a room reviewing the work in progress than the one or two people that will actually create the ideas that make the work in progress worthwhile.

This is the flaw in the current compensation models. It rewards doing, head hours, resources, but not thinking or idea generating.

How long does it take to come up with an idea? A minute? An hour? A day? A week? A year? It depends of course. But under the current compensation models it is better for the agency to take as long as possible and better for the advertiser to be as quick as possible.

But with fixed fees such as retainers and projects fees there is an underlying assumption in the time it will take to develop the idea. In which case the agency needs to crack the brief as quickly as possible to maintain the margin.

Now the agencies have not really been concerned about this, after all the industry has given away intellectual property since the beginning of the media commission system and this practice has continued with the introduction of fees and retainers.

But no other creative commercial pursuit does this. You do not see authors, film producers, composers and the like giving away the IP for an hourly rate. They negotiate a rate directly linked to the value created by the IP. Sales, downloads, box office and the like are all used to share the value generated with those involved in commercialising the IP.

I recognise that there is a huge difference between an author working on a manuscript and a copywriter responding to a brief, but in both cases there is a commercial output that can be quantified.

Of course agencies usually try to make up the short fall with all of the other implementation services they provide. Production is a key area. But with increasing uncoupling, outsourcing and unbundling, along with the incredible competitive pressure on the rates for these services, this is becoming increasingly more difficult to maintain, with agency fees often much higher than the alternative models.

But with the call for greater transparency in agency compensation, especially from procurement, it is important to distinguish the two functions of the agency: firstly IP creation and secondly implementation of those ideas. Separating the two brings greater insight into value. The first should be ideally compensated on the value this represents to the organisation or brand, while the second is a process that can and has been increasingly optimised.

So why is this an issue for marketers and advertisers? After all, if the agencies are willing to provide their ideas and IP for next to nothing that is a bonus, right?

In the short term; yes. But we are already seeing this is not sustainable in the longer-term. Creative talent is becoming increasingly harder to attract and keep and the relationships between marketers and agencies and between agencies working with the same marketer are becoming increasingly difficult to manage as each competes for a bigger slice of the same pie budget.

If you think I am simply advocating paying agencies more, think again. If you are currently paying 1% of your budget for the big idea, what would be the impact of paying 2% on the basis that the idea generated delivers your marketing and business objectives or 0% if it fails to deliver completely? And isn’t that a more accountable agency compensation model than simply squeezing the margins looking for the lowest possible cost?

This also appears in the Internationalist Magazine Issue 52, 2011 http://www.internationalistmagazine.com/

What do you think? Leave a comment with your thoughts.

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About Darren Woolley

Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com
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