This post is by Darren Woolley, Founder of TrinityP3. With 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 Retainer||New Retainer|
|Total Retainer Cost||$1.2 million||$1 million (16.7% reduction)|
|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. Continue reading “Quality? Cost? Time? Which do you want from improving your marketing performance?”