For more than a decade, we have been helping advertisers to benchmark and improve their agency remuneration arrangements. We do this using our extensive database of agency resource and remuneration benchmarks within the Verificom toolkit, including the Verificom Agency Fee Calculator. This can be done several ways:
- Review the current remuneration model against benchmarks
- Calculate the remuneration going forward using the benchmarks
Typically, many marketers are more interested in what they should be paying their agency rather than 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.
“Those who don’t know history are destined to repeat it.”
Edmund Burke (1729-1797)
Here is why.
Looking back to learn
While the TrinityP3 industry benchmarks offer low, medium and high benchmarks for rates, resource levels and mix, applying the right benchmarks provides insights into the current relationship being assessed.
1. The cost of the individual resources (agency personnel) indicates the seniority and level of expertise providing the advertiser with insights into the individuals on their account.
2. The mix of the resources by seniority and discipline provides insights into the alignment of the resources to account for requirements, including volume and strategic importance.
3. The level and mix of resources by discipline against the scope of work indicates the efficiency of the relationship.
By reviewing the current remuneration, we can determine the specific terms of the relationship. To do this, we collect details on the specific outputs for the past year, the agency resources required to deliver this scope of work and the costs associated with delivering the scope of work. We also review any agreements or contracts in place covering the relationship.
Using this information, because it has happened, as opposed to being planned for the future, we can confidently benchmark the current relationship against the specific market benchmarks for the category.
The only time this is unadvisable is if there have been any major recent changes in the past 12 months, such as a change in an agency or a significant change in the process.
To demonstrate the insights of this process, let’s look at some examples of the outputs.
Lessons from the past
A financial services company was concerned about the low-quality creative and strategic outputs of the agency. The benchmarking showed that the agency was well-resourced in the level of resources. Still, for the relatively low volume of work, the agency had skewed the mix of resources to the junior level, especially in the creative department.
The fact was that the agency needed to apply more creative resources to the account. The other insight was the junior creative resources led to high levels of rework, which was impacting the level of account management, which was almost double the level expected and was driving the agency to ask for an increase in fees.
An automotive client was in negotiations with their agency, with the agency requesting a significant increase in the retainer. The level of resources in account management, strategy and creative was significantly higher than the benchmark for the scope of work.
The level of agency resources used indicated a fee that was almost 80% higher than the current retainer. When we looked at the number of iterations of creative concepts it was almost 6 times higher than the benchmark.
Further investigation revealed that the approval process within the organisation encouraged the high number of reworks, with the senior marketing team often vetoing the work approved by their team.
A consumer goods client had a significant reduction in budget and therefore cut the scope of work from 8 major campaigns to four. Expecting a corresponding 50% reduction in agency fees, they were shocked when the agency proposed a fee of only 5% less than the previous year.
We benchmarked the previous year and then used this to calculate the new-year scope of work resources. The mix of the campaigns was not linear in complexity, and so the final benchmarked resources and cost were around 35% less than the previous year.
The benchmark variables
Beyond low, medium and high benchmarks, we have assembled and collected data by market and advertiser category. We also have benchmarks for a wide range of agency types, from media and creative to digital and public relations and everything in between. We even have benchmarks for call centres and content production hubs.
We have benchmarked almost all outputs or deliverables from the obvious such as landing pages and television commercials, to the more complex, like e-commerce sites and mobile apps. The range is wide, and within these categories, there is a huge amount of granularity to allow us to provide you with the benchmark you need.
Working with regional and global marketers, we have data for more than 20 markets through our Ad Cost Checker online. We also have data for another 30 markets, but not to the statistically significant level required to be included in the Ad Cost Checker database
Account management and management, strategy, creative, digital, technology, production and more.
We have distinct benchmarks for various advertiser categories such as automotive, alcoholic beverages, consumer goods, entertainment, financial services, telecommunications, retail and more.
Setting the benchmark
By comparing the actual scope of work with the historical resources used and the costs with the benchmark resources and costs across the various disciplines and analysing not just the level of resources, but the mix, too, we can create a benchmark profile for the agency and client.
We then discuss the findings with the client to understand if there are any anomalies and to delve into the underlying processes to account for the variations against the benchmark.
This way, we can create a unique benchmark profile customised to the client and agency process and expectations. This then becomes the basis for calculating future agency resources and costs based on the proposed scope of work.
Occasionally the client will ask that we adjust the benchmark profile to better align to the industry benchmark, but this is only advisable if there are plans to change the processes to support the benchmark levels. In the case of the automotive advertiser above, it would be to streamline the briefing and approval process, which was going to take time.
Simply adjusting the benchmarks to the industry benchmark and not the customised benchmark profile will not change behaviour; it will simply pay the agency less, and this will lead to the agency making adjustments to protect their margins and profitability in areas that could have a substantial impact on quality and output.
Over time the benchmark profile can be revisited to ascertain how the process optimisation is impacting the efficiency of the agency output, and then it can be adjusted accordingly.
The alternative to looking forward is to assume that the relationship between the advertiser and the agency is optimised and to apply the industry benchmarks in a “cookie cutter” way without any consideration or adjustment for the peculiarities of the current arrangement.
We can do this, of course, but it is important to understand the shortcomings. Usually, it is simply to check or justify the proposed agency fee or to be used in the negotiation.
The danger is, as above, that if the current relationship is not optimised and not working efficiently, then the industry benchmark will not reflect this, and the shortfall in the agency fee will not be the incentive to become more efficient; it will simply incentivise the agency to cut their costs.
An agency’s biggest cost is people and so the quality and number of people on your account will decrease.
This is why we recommend that instead of simply calculating the fees for the future scope of work, it is always worthwhile to stop and look back to the immediate history to determine how efficiently the current relationship is performing.
TrinityP3’s Agency Remuneration and Negotiation service ensure that how you pay your agency is optimal.