Is the problem with agency fee benchmarking simply a matter of statistics?

Agency Fee Benchmarking

It is often quite annoying when asked if we sell our industry benchmarks, You see, over more than a decade we have been collecting and analysing agency rates across all agency disciplines. But it is not simply an average or a mean, we have collected and analysed statistically significant samples of rates, resource requirements and more. To buy this would require a significantly larger payment than the few thousand often on offer. After all this data is at the very core of the TrinityP3 business.

Is there nothing fair or reasonable about agency remuneration?

During more than 15 years of agency benchmarking and negotiations two words I have heard often repeated in these discussions is fair and reasonable. Marketers, procurement and agencies all agree that the remuneration model should be fair and reasonable. It is no wonder these words are so popular, after all they sound fair and reasonable. This is why so many guidelines on agency remuneration, including ISBA in 2006, ACASA in 2009, ISBA and IPA in 2012 and the recommendations of competitors and even ourselves, have all stated and restated that agency remuneration should strive to be fair to both advertisers and their agencies.

Cost benchmarking and value benchmarking your agency, which one gives the best results?

Advertising agency value benchmarking

In response to the question of “What is a cynic?” Oscar Wilde wrote “A man who knows the price of everything and the value of nothing”. When it comes to agency benchmarking it is hard not to be cynical. Recently Michael Farmer, author of best seller industry book “Madison Avenue Manslaughter” and Executive Chairman of TrinityP3 published an article highlighting the shortcoming of agency benchmarking, specifically agency cost benchmarking: Why cost benchmarking is the waterboarding of the advertising industry. How do we stop the manslaughter and increase agency productivity and performance? The first step is to stop cost benchmarking and move the focus to performance. Here is why.

The flawed economics of falling agency salaries and falling overhead rates

It is interesting that when you listen to some marketing procurement and consultants there appears to be a consistent story regarding agency fees that goes like this, “Agency salary costs and overheads are decreasing”. For marketers wanting to get more agency services for their marketing budget this is a terrific trend because it means that agency costs are falling. In fact this trend is well documented in Michael Farmer’s book “Madison Avenue Manslaughter” where he demonstrates that agency productivity had been improving since the mid 1990s for ten years when it hit bottom and further cost reductions have been at the cost of talent quality and quantity. But for procurement and consultants to explain this continued price reduction as reductions in overhead and salary is most likely confusing cause and effect.

Five common traps when assessing or defending agency value

Benjamin Graham famously wrote ‘Price is what you pay. Value is what you get.’ He was a smart guy, and one of Warren Buffet’s favourite teachers. (No doubt though, twenty far less smart people will still be posting his quote as a LinkedIn meme five or six times over the next ten days. Probably alongside yet another fake picture of a pack of wolves, with a trite exhortation to vote or breathe deeply or something. Jeez. What did they do to LinkedIn?) Anyway. Back to price and value.

Before you move forward with agency remuneration, make sure you look back

For more than a decade we have been helping advertisers benchmark and improve their agency remuneration arrangements. We do this using our extensive database of agency resource and remuneration benchmarks along with the TrinityP3 Scope Monitor. This can be done a number of ways; a review the current remuneration model against benchmarks, by calculating the remuneration going forward using the benchmarks. Typically, many marketers are more interested in what they should be paying their agency, rather then looking back on what they have paid in the past. But in fact when looking at agency remuneration you should ideally look back to the recent past to understand your current situation before you move forward.

What to do if you think you are being overcharged by an agency

It was an interesting conversation recently, with the head of a digital agency that had found themselves in a dispute with their client over the cost of work they had performed. It appears that having briefed the agency, the client then had the agency develop concepts, approved the costs and even paid the invoices. So what had gone wrong? This is an increasingly common occurrence in a cost sensitive industry with a possible over-supply of vendors, both specialists and generalists. The client was showing off their shiny new website to their PR agency, feeling very proud and wanting the PR agency to promote the site to the media, when the Head of the PR agency asked how much did the site cost? The client told them and was immediately deflated to hear that they would have charged half as much as they paid.