Are you benchmarking or butchering your agency fees?

Benchmarking has quite rightly earned a poor reputation. Recently Michael Farmer, Executive Chairman of TrinityP3, expressed this opinion in an article in Media Village republished here. This poor reputation is primarily because it is used by many in the industry to simply reduce agency fees and not as a way of obtaining a reference point for comparison, which was the original purpose of a benchmark.

I have shared this opinion with him and the industry way back in 2011 when it became obvious that many in the industry (including many competitors) were simply using benchmarking to reduce advertising agencies to the lowest common denominator. This is because many are simply benchmarking one dimension of agency being costs, such as hourly rates or day rates. In this case, they are relying on titles and position descriptions as a measure of quality, or ignoring value completely, then simply butcher the fees paid for those resources to the lowest in the market. It can certainly deliver cost reductions, but usually at the expense of the quality of those resources.

Very early on we acknowledged that the rate or fee per resource was flawed and often criticised those who used cost per FTE resources as a benchmark for being the same type of people who would buy books by weight or choose a movie based on the length expecting it to represent better value. Instead, we set about developing benchmarks that better represented a benchmark of value rather than cost.

It is not benchmarking, but the misuse of benchmarking that is the issue.

Misapplication of agency remuneration benchmarks

I participated in a meeting of a Marketing Leadership Team (MLT) and was presenting the results of the agency benchmarking we had undertaken on a number of their agencies. The various agencies had different roles in the roster of agencies in regards to the type and quality of work they were expected to produce. They also had different specialist knowledge and skills that made the roster complimentary to the capabilities required by the marketing team.

Using low, medium, and high benchmarks, and benchmarks specific to the category in which they operated, we were able to provide significant insights into the current remuneration models and how well they were performing for both the marketers and the agencies. It was not a surprise for the MLT that the lead agency was at premium to the market overall, even though the organisations procurement team had achieved a significant reduction in the agency hourly rate at the contract negotiations three years earlier, the agency was effectively working at the high benchmark because of the additional hours, particularly in creative, they were investing in delivering the scope of work.

While the procurement team had reduced the premium agency to midlevel benchmark fees the agency had managed to recover by inflating the resources required for the scope of work to make up the shortfall that would have resulted in the retainer. The marketers were comfortable with this and were also happy to know that they were getting what they were paying.

On the other hand, a second tier agency who worked on project fees were priced on an hourly rate card similar to the lead creative agency (clearly the benchmark provided at the time) and slightly higher than their market position and expertise, but were managing on a project by project basis to add incremental margin to each project quote as a way to improve profitability. Interestingly it was this second tier agency that was perceived as more cost-effective even though they were effectively more expensive overall for delivering the scope of work.

The reason for the difference in perception turned out to be that being on a project fee and being able to incrementally increase margin the second tier agency were more attentive and more available than the retained creative lead agency.

If the purpose of the original agency negotiations was to reduce cost to the organisation, the procurement team had used a common benchmark across all agencies, but in a very one dimensional manner, being rate or resource cost. In the process they had encouraged or at least allowed the agencies to game the system procurement had created by increasing resource hours in the retainer to make up for the shortfall, or allow a project system were the agency could incrementally increase costs without anyone noticing. In both cases the cookie cutter approach to benchmarking failed. Continue reading

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

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. Continue reading

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Why it is so important to have an agency scope of work

This is the final in our series of articles on agency scope of work management. Managing the scope of work for your agency is possibly the easiest and fastest way to increase the buying power of your marketing budget by removing the duplication and uncertainty as much as possible from the agency work. In this way you are able to get more for your agency budget without simply driving down the rates and prices. Continue reading

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How to define an agency scope of work to deliver increased value

This is the first in a series of articles on agency scope of work management. Managing the scope of work for your agency is possibly the easiest and fastest way to increase the buying power of your marketing budget by removing the duplication and uncertainty as much as possible from the agency work. In this way you are able to get more for your agency budget without simply driving down the rates and prices. But why is specificity so important? Anyone that is involved in manufacturing, construction or technology knows, by clearly defining and specifying the actual requirements upfront you are better able to plan and execute the construction/manufacturing process more efficiently and effectively. Continue reading

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All-time greatest TrinityP3 marketing management posts

Ten years and this is the one thousandth post here on the TrinityP3 blog. I think that is an achievement worth celebrating if I do say so myself. The marketing management space is very different today to how it looked ten years ago. And TrinityP3 itself is a very different consulting firm to what it was back then. The post topics reflect that, if you take the time to look back to some of the earlier posts it captures the topics and issues of the time. Looking across the topics that are our most read posts, we see topics that have been read and referred to by tens of thousands of marketers, marketing procurement and agency professionals, not just in Asia, but around the world. But lets take a closer look at the Top Ten from the last ten years and the last 1,000 posts (though technically 999) to see how the world of marketing management is evolving. Continue reading

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7 essential considerations when moving from agency retainer to project fees

There is a distinct market trend occurring in the way marketers and advertisers are compensating their agencies and suppliers. Along with the Agency of Record (AoR) we are seeing a trend away from retainers to project based fees. This is due to a often long held belief by many marketers that the retainer does not deliver value, while most agencies believe that marketers are getting more then their pound of flesh under these arrangements. But many companies are finding the process of transitioning from retainers to project fees a frustrating one that will often not deliver the increased value, lower cost or greater agility they expected. In our experience this is because they will often make some fundamental errors in the process, largely due to a lack of consideration as to how the current remuneration model works. Continue reading

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Why agency negotiations are never as straightforward as you think

Negotiations can be difficult things, especially when either party is speaking a different language. And believe it or not, marketers and their agencies do often speak a different language, which is why these negotiations can become protracted and frustrating. Here are a few of examples of how the process can go hopelessly wrong. Continue reading

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6 marketing management tools developed to provide optimal performance

Yes, technology is impacting all aspects of business and especially marketing. But it is interesting that there are very few search, pitch or marketing management consultants who invest in technology to innovate their processes to increase the utility or robustness. Continue reading

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The Marketing Management Book of the Year – 2014 edition

Share74 Tweet +19 Share14Shares 97This 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, … Continue reading

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What is the best way to benchmark agency compensation?

Share49 Tweet +19 Share8Shares 66This 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, … Continue reading

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Benchmarking the marketing FTEs within your organisation

Share74 Tweet +16 Share6Shares 86This 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, … Continue reading

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5 ways agencies can bamboozle procurement about their compensation

Share156 Tweet +110 Share4Shares 170This 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, … Continue reading

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How long does it take to create a big advertising idea?

Share111 Tweet +18 Share14Shares 133This 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, … Continue reading

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How do your agency rates stack up and why?

Share295 Tweet +111 Share3Shares 309This 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, … Continue reading

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10 Ways For Marketers To Avoid Agency Sticker Shock

Share30 Tweet +15 ShareShares 35This post is by Stephan Argent, CEO of Argedia Group and a member of the Marketing FIRST Forum, the global consulting collective co-founded by TrinityP3 If you’ve ever been faced with sticker shock or seemingly pricey invoices from your agency, then … Continue reading

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