Past, present or future – which tells you more about your agency fees?

Wondering if your agency fee is fair and reasonable? When we benchmark agency fees against a scope of work there are a number of ways, we can do this: we can assess the performance of the past, we can benchmark the present, or we can calculate the fees for the future.

Many marketers will favour focusing on the future. They will want to ‘fix’ the issue of the agency fees going forward. At best they will simply want to benchmark the present to ensure the fee is the right level for the moment. But it is more insightful and valuable to assess the immediate past and use these findings to inform the present and the future. Here is why.

Scope Metrics^TM, developed and used by Farmer & Co and TrinityP3 calculates the agency resources required to produce everything from brand strategies to Facebook updates and everything in between. Currently, there are more than 3,500 distinctive outputs for creative, digital and media. For content, these are classified for origination, extension and adaption. For media, the Scope Metrics^TM units are based on media channels, investment levels and campaign and stakeholder complexity. You can read all about the methodology in these White Papers for SMUs and MSMUs here.

Calculating the future

Scope Metrics^TM can and is used to calculate the agency resource requirement for the future. By projecting a future scope of work for the agency, Scope Metrics^TM will calculate the resource requirements of the agency by capability (Account Management, Strategy, Creative, Planning, Buying, Analytics, Production etc) and then depending on the required mix of senior, mid-level and junior resources we can calculate the cost per Scope Metric agency resource to give a proposed total fee.

This approach has a number of assumptions. The first is that while Scope Metrics^TM will calculate the agency resources based on agency practice and data, it will not necessarily reflect any anomalies that exist in the current relationship. If the relationship is more or less productive, this will not be reflected in the future calculations. The second is that often the proposed scope of work for the future will be uncertain. Changes in the future scope of work will make changes in the calculated agency resources based on the Scope Metrics^TM

Validating the past

This is where looking to the immediate past works. Rather than simply jump to the future we recommend benchmarking the past to assess the variance between the current state and the calculated Scope Metrics^TM resource. The great thing about the past is that the scope of work is definitive. It has happened and therefore defining and quantifying the scope is easier.

It also means that a comparison of the calculated resources required, according to the Scope Metrics^TM algorithm, compared to the actual agency resources required, can give insights into the effective productivity of the relationship. This assumes that the agency resource requirement is accurate.

The biggest benefit of using Scope Metrics^TM historically is the ability to identify where productivity, and therefore value, is being lost in the current relationship. Imagine if you could have your agency produce more work or better work at no additional resource time or associated cost?

We have become particularly adept, across the thousands of agency scopes of work, at being able to diagnose areas where complexity in process and structure is negatively impacting agency productivity. Higher than expected levels of account management, high levels of account management to creative, excessive production hours are all indicative of productivity loss.

Perfecting the present

But in a world that demands agility, how can you manage an agency retainer or an agency fee to be flexible with the needs and demands of the advertiser’s changing needs? We have found that once the agency level of resources has been determined (usually historically) and then optimised (to maximise productivity and value) then Scope Metrics^TM becomes an effective management tool. It allows marketers and their agencies to stop looking at timesheets and start focusing on the agency outputs and the marketer’s outcomes.

It becomes a way dynamically to manage the agency level of resources aligned to changing needs. But, better still, it does not require the constant negotiation of many project-fee models, and yet still provides the agency with the continuity of fees to ensure you maintain a core agency team on the account.

It also means that brand teams can explore different combinations of outputs to maximise their projected return on investment. Because each output effectively has an associated resource requirement and cost, it means as part of the planning process you can optimise the scope of work in real-time to ensure the best marketing investment.

The choice is yours

Past, present or future? Calculating and benchmarking agency resources and fees can provide significant insights. The past gives you an accurate diagnosis of the current productivity of the relationship and helps to identify areas for improvement.

The future provides a way to establish the resources required to deliver a pre-determined scope of agency work. But the present provides you with a dynamic way of managing agency resources and fees in a world where the scope is constantly changing. The only decision is which one is the most important to you right now.

Defining and managing your scope of work is the easiest and fastest way to deliver greater value for your marketing budget. Find out how we can help you do this