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Quality? Cost? Time? Which do you want from improving your marketing performance?

Marketing performance
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This post is by Darren Woolley, Founder of TrinityP3With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

It used to be that when it came to production there was quality, cost and time and that you could have any two. That is you could have high quality in a short timeframe but it would cost you. Or you could have a short timeframe and low cost but at the expense of quality.

However technology is changing this, enabling the production of a high volume of high quality digital assets in near real time and at relatively low unit cost. But the distinction of Quality, Cost and Time is an important one in marketing and advertising today and not for production but for all aspects of performance improvement.

You see it could appear to the observer of the advertising and marketing industry that the only measure of improvement is cost reduction. This is because when agencies and suppliers are selected and deals are done the main or often the only point of measure is cost, and usually only in reference to quantity.

That is agency fee based on the cost per hour or the number of people retained. This trend has been prevalent since the global financial crisis a decade ago and has given rise to the belief that advertising, is in a race to zero. Rarely, if ever, do we read, hear or see discussions on improvement in quality or time as a measure of improved performance or increased productivity.

Productivity versus Savings

The most common agency remuneration method is a cost based model either paid in hourly or daily fees for resource, project fees based on the amount of resources required, or retainer fees for the number and type of resources required.

It is unusual for these fees to be based on the productivity of the agency, which would be to pay the agency for what they produced or delivered, the outputs, rather than the resources and the hours that the agency allowed and the advertiser paid for, plus overhead and profit margin.

With the remuneration model not based on productivity, but on cost, it means that when the agency remuneration model is negotiated or reviewed at contract end or tender, the outcome is measured against the previous cost of the remuneration to identify cost reductions or savings.

Therefore if the retainer was $1.2 million per year previously ($100,000 per calendar month) and the cost now is $1 million then this is a 16.7% reduction. As the retainer is about the number of agency staff being retained, there would also be a measure of the number of agency staff in the retainer.

Following the same example if there were 4 full time equivalent (FTE) staff then the cost per FTE would be $300,000 per FTE per year. Remember this cost includes the agency overhead and profit margin, so this is about $150,000 per year as an annual salary per person.

Past RetainerNew Retainer
Total Retainer Cost$1.2 million$1 million (16.7% reduction)
FTEs44
Cost Per FTE$300,000$250,000 (16.7% reduction)
Average Salary per FTE$150,000$125,000

 

But what if the number of FTEs after the negotiation to reduce the retainer stays the same at 4 FTEs? On the surface this looks like better value because the cost per FTE is now $250,000 per FTE per year, which equates to an average of about $125,000 per year as an annual salary per person, which reflects the 16.7% reduction.

But what if the same number of staff, but lower cost and probably less experienced is not as productive (or perhaps as motivated) to deliver your requirements. Of course if you have not been measuring our outputs or deliverables how will you know? The agency will always argue that the amount of work has increased in volume and complexity and therefore like for like comparison is virtually impossible.

Speed versus Savings

Increasingly there is a requirement and a demand for advertisers to be faster and more agile in their go to market process. Some mistakenly refer to this as Agile Marketing, which is a different process of test and learn.

This increased agility and speed often requires a complete change in marketing structure and process and a significant change in the way you work with your agencies. But that takes time and can be difficult and complex. So instead the simpler solution is often delivered by increasing the agency resources. But here is the conundrum.

Therefore again if the current agency retainer was $1.2 million per year previously ($100,000 per calendar month) and the desire is to deliver savings by negotiating the cost to $1 million then this delivers the 16.7% reduction. But to be faster and more agile to get to market faster we need to increase the number of staff, without increasing the retainer because if we do then there will be no savings.

Past RetainerNew Retainer
Total Retainer Cost$1.2 million$1 million (16.7% reduction)
FTEs48
Cost Per FTE$300,000$125,000 (58.3% reduction)
Average Salary per FTE$150,000$62,500

 

So this time we have to double the number of agency FTEs to 8 so this means we should be twice as fast to market. Instead of that campaign taking 8 weeks from brief to material delivery we should be able to get it done within the 4-week deadline marketing is increasingly getting from the business.

This excitedly means that the average cost per FTE is $125,000, excellent value at a massive 58.3% reduction. In fact that is the number that will be reported to the CFO because an almost 60% reduction in agency cost sounds much more impressive.

So now you have twice the number of agency staff retained and the work will be done twice as fast, right? Well irrespective of the quality of the briefing and the complexity of the approval process, having twice as many on the agency team may not mean they are twice as fast as it depends on their experience, expertise and capabilities.

It could be that with mistakes and poor quality work getting bogged down in the approval process it takes longer to get that campaign to market, but at least you delivered the savings for procurement and the CFO, who will be expecting another 60% reduction next year as this one seemed so easy to deliver.

Quality versus Savings

Quality is an interesting and often challenging concept when it comes to advertising and the outputs of advertising agencies. It is largely subjective and often related to the perception of the quality of the agency and the key people in the agency and the work they have produced for other clients.

Yet it is a tangible issue because one of the main criticisms of an agency by an advertiser looking to review their current agency is a lack in the quality of the strategic and creative thinking.

But let us say that this time we have negotiated the current agency retainer from $1.2 million per year ($100,000 per calendar month) to $1 million to deliver the desired savings by delivering the 16.7% reduction. So what type of agency resource would represent value?

Past RetainerNew Retainer
Total Retainer Cost$1.2 million$1 million (16.7% reduction)
FTEs45
Cost Per FTE$300,000$200,000 (33.3% reduction)
Average Salary per FTE$150,000$100,000

 

Well what if the number of FTEs after the negotiation goes up from 4 to 5 FTEs? On the surface this looks like better value because the cost per FTE is now $200,000 per FTE per year, which equates to an average of about $100,000 per year as an annual salary per person, which is a 33.3% reduction.

Do you think you will be getting the same expertise, experience and seniority of agency staff working under this retainer? You are certainly getting 20% more but are they worth what you are paying or even what you need?

They are if you are just looking for savings. But what if having 20% more junior staff means that the quality of the work is poorer? Will the strategy be 20% more insightful or will the creative concepts be 20% more impressive?

Cost

The reason that cost and savings are so prominent in the measure of agency remuneration is because it is easy. A competitor in the USA once told me that the only purpose of ‘compensation’ was to establish the cost of the agency deal. But our TrinityP3 approach to ‘remuneration’ (there is a difference) goes much further.

It determines not just the cost of the agency resources, but also the quality and quantity of these resources and aligns them to the scope of work or outputs to be delivered. It also values the outputs and agency deliverables and therefore allows you to not just measure cost and savings, but also value and productivity.

Any remuneration model that is based simply on total cost and cost per quantity (FTE) is one dimensional and ultimately becomes a false economy/

Quality

Beyond quantity there is quality and this is about the quality of the agency you are working with and the people working within that agency on your business. You do not always need the A-Team on every part of your business, but it is important to invest in those capabilities that deliver quality and value and not just deliver the remuneration as a lump sum.

If strategy is important then be willing to invest in strategy, if creativity or project management is important then invest in these areas. We have customised remuneration models from retainers to value priced models to ensure the quality is delivered in the areas where value is created for the advertiser.

More importantly is a measure of the outputs that the agency produces and the quality of the results of these outputs. This leads to performance based remuneration or payment on results, which is a powerful way to incentivise the agency to deliver the quality required.

Time

Reducing lead times and improving speed to market is not simply putting more agency people on your account. There may be a need for some increase but it is more important to get the structure and process agreed before you enter into the resources and remuneration to deliver the scope of the work to be delivered.

Becoming more agile as opposed to embracing an Agile Marketing process are two different things and we have worked with marketers and their agencies in delivering both. But getting the process right will often deliver greater improvements in reducing time to market than adding a lot more agency resources.

The most important thing is to have mutually articulated and agreed processes and expectations, which we call an engagement agreement. These clearly define the quality, time and cost expectations of all parties involved and become the basis of delivering performance improvement.

Quality Cost And Time

It is interesting how the obsession has been the focus on cost and the delivery of savings, especially as quality and speed can also be important requirements of many marketing and advertising strategies. Perhaps the issue has been defining quality and time. After all cost is so simple. But then defining value is not simple if you do not have the other measures.

So while production was always “Quality Cost and Time – you can have any two” for agency remuneration the fact is you can have all three. In fact you need all three if you want to deliver productivity and value improvement and not simply savings and cost reductions at their expense.

If you do not have the time or resources to manage your roster performance, we do. Find out more here

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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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