Recently we were presenting the results of an agency remuneration-benchmarking project to an advertiser and members of the team asked how detailed and robust the methodology was. I began to explain how it was developed when I suddenly realised that we had been using this approach for more than a decade.
Back in 2004, Tony Quail and I were working on a methodology to accurately calculate the resources and costs for the various tasks provided by creative agencies at the time. We had collected a huge amount of data in the previous few years, and we started by analysing the costs and underlying resources reflected in this agency cost data.
What quickly evolved was the concept of a calculator that would allow us to approximate the resources required by the agency to prepare typical outputs at the time like television commercials, radio campaigns, press ads, point-of-sale material and the like. It was the birth of the TrinityP3 Agency Fee Calculator and the start of the Verificom toolkit. Over the past decade, the complexity, adaptability and range of agency services included have increased exponentially.
The latest version of the Verificom Agency Fee Calculator was managed by Lyndon Brill and can calculate agency resources and fees across more than 45 markets globally for hundreds of agency outputs, including strategy, creative and production.
Along the way it has been adapted and customised to the needs of agencies and advertisers alike, such as the TBWA Scope Manager developed with Adrian Paul, COO, Whybin TBWA Tequila, Australia, who explains the evolution here.
Back to the very beginning
The first advertiser to use the Verificom Agency Fee Calculator, or TScope Calculator as it was known then, was working with Westpac and followed the process of comparing the current agency resource use against the scope of work delivered to identify how efficiently the marketing team was working with the agency. One of the issues for both parties was the dynamic nature of the scope of work, which would change regularly in response to the competitive market.
Note: Up until 2007, the company was called P3. In that year, we expanded into Asia and changed the name to TrinityP3.
“In a highly competitive market, we needed to ensure we had the right agency model to future proof our business and help us be nimble and responsive to market needs. We partnered with P3 to advise us on our agency model and retainer structure.
Working with P3 we firstly benchmarked our current efficiency with the agency and then used these benchmarks to create a customised calculator that would allow us to track and measure the impacts of changes in the agency’s scope of work.
This scope calculator allowed us to adjust the agency remuneration based on the changes in their scope of work. It also allowed us to calculate agency fee scenarios based on the strategic requirements of the business.
P3 provided a unique service, their in-depth knowledge of the advertising industry, combined with their smarts and rigorous approach to financial modeling and benchmarking enabled us to develop an efficient, effective and dynamic approach to our agency structure and remuneration”.
– Amanda Connors, National Senior Manager Brand and Sponsorships, Westpac
The Verificom Agency Fee Calculator allowed Westpac to calculate the changes in the level of agency remuneration and the contribution of the scope of work for each business unit to the agency retainer. This increased transparency and accountability both for the marketers and the agency.
The next iteration
The next opportunity was later in 2005 when St George were wanting to change their remuneration model to be more accountable for the work delivered. This is where we evolved the Verificom Agency Fee Calculator to the Verificom Campaign Scope Builder.
The model was much more granular than in the past, with more than 300 agency outputs and was embraced by the agency at the time, Whybin TBWA, who called it the Scope Manager. (See the video above)
“The process of moving to a fixed output remuneration model began with significant analysis of the historical information. With TrinityP3 we reviewed the data we had built over time to create a fair and reasonable baseline, which TrinityP3 compared to their industry benchmarks.
Significant work went into determining the right job types and points for new, adapted or integrated campaigns. Both parties, marketers and agency, needed to be comfortable the Scope Monitor values assigned to each individual output (which in turn laddered up to calculate the agency fee against the annual forecast scope of work).
The end result was a rigorous, customised tool that enabled us to remunerate our creative agency on hard outputs rather than head hours, thus realising efficiencies”.
The Scope Monitor or Manager became the way the bank was able to manage the work outputs of each of the various business units and hold the agency and the marketing teams accountable for the cost of delivery against the budgets.
Consolidating the model
At the same time, Lion wanted to move away from a retainer but did not want the remuneration model dictating the strategic and creative solutions proposed. To achieve this, we looked at the past investment levels by brand and the mix of media and outputs typically recommended. From this, we were able to create a tiered approach to remuneration underpinned by the scope of work typical of each tier.
“We worked with P3 to develop a more structured approach to our scope of work with our creative agencies. In this process we were able to develop a number of scope of work models to reflect the various brand requirements based on the typical media used.
This meant that rather than a quite directive scope of work and remuneration model we had an agency remuneration model for each brand that was aligned to the strategic and investment importance of the brands.
This tiered approach was only possible with the industry benchmarking expertise provided by P3. It provided both agency and the marketing team with certainty around fees and costs aligned to the brand activities, investment levels and strategic importance of each brand from the small boutique craft brands to the major national brands”.
– Andrew Condon, Sponsorship and Communications Manager, Lion Nathan
This allowed the brand teams to allocate their budget to agency fees and production and media costs upfront based on the tier of activity typically required by a brand.
The latest evolution of the model
Since 2005 the outputs of the creative and digital agency relationship have expanded exponentially due to technology with digital, mobile and social scopes of work.
Along the way, we have been collecting the data to underpin the resources required for the various outputs and, more importantly the various types of outputs.
The Verificom Agency Fee Calculator has been used since then for:
- Global projects across more than 40 marketers to set the ‘should costs’ of a major CPG advertiser.
- Local and regional pitches to calculate the benchmark resource level, mix and cost of the proposed scope of work for comparison to the proposed financial responses from each of the agencies.
- A global client to benchmark and negotiate their global digital agency services against a significant strategic change in their scope of work.
- Measuring the efficiency of a global agency relationship for a global tech company across five of their major regional hubs.
This is not a guess, informed or otherwise. The Verificom Agency Fee Calculator is a highly evolved mathematical model that allows us to calculate the benchmark agency resources, the resource mix and the cost.
If you want to see how it works, we are happy to show you. But of course, you could check out TBWA’s scope manager to understand the principle, although I can not vouch that it is as evolved or as accurate as the TrinityP3 version.
To find out how TrinityP3 Marketing Management Consultants can help you further with this, click here.