Traditionally, agency fees have been calculated and paid based on the cost of the inputs, the number of hours and the cost of those hours. But today’s trend is to pay agencies based on the value created, going beyond cost to calculate the fee based on the value of the work produced. The work produced is known as the Scope of Work. By defining the Scope of Work, marketing teams and their agencies can better assess the productivity and value the agency delivers and move the agency fee from a cost-based model to a value-based one. We explain the approach using the building and construction industry as a metaphor.
Think of the marketing plan as the blueprint for a construction of some sort. After all, we refer to it as brand building, so the metaphor is not that far removed. In developing the plans for the building, we need to take into consideration the end use (objectives), the style (brand personality) and the budget (budget).
As clearly, the plans will determine the scope of work, which will determine the tasks to be delivered, which will determine the level and type of resources required, which will then determine the cost of those resources, and then throw in the materials (production). Altogether, it will then determine the overall cost.
Yet defining the scope of work can be a difficult and almost Herculean task for some marketers.
The usual problems with determining the scope of work are:
1. The marketing plan does not currently exist (no plans, no approval)
2. The budget is unconfirmed or changing (clearly someone with deep pockets)
3. The details of the marketing plan are unclear (someone is indecisive)
4. The requirements are defined by the business, not marketing (you are the architect, and the real client is somewhere else)
Let’s look at different ways a scope of work can be developed.
Defining the scope of work by budget
If a budget is allocated for advertising and promotion within the marketing budget, then at the very simplest and highest level, this can be compared to the previous year’s budget. Simple allocations of media versus non-media spend can be factored into the equation, and a proportion of the budget allocated based on the variation to the previous year’s resource plan can be calculated.
While quite rudimentary, this is based on the fact that many agencies will work out revenue projections based on the advertiser’s proposed spend along the lines of the traditional media commission for media agencies or extraction rate for creative agencies.
Defining the scope of work by deliverables
While the budget or proposed spending can define a basic volume of work, it does not consider the complexity, which can significantly impact the resources required.
Only by developing a marketing/advertising plan and projecting the required deliverables can you develop a detailed scope of work from which the agencies can develop a proposed resource plan.
Even in the media space, several smaller media campaigns can be more resource-consuming than one major campaign. In contrast, online media planning and optimisation are significantly more resource-consuming than many traditional media campaigns.
For creative work, allocating the type of deliverables (TV, Online, Mobile, Press, Magazine etc.) based on the previous campaign requirements can be more insightful than having no scope.
Defining the scope of work by strategy
If trying to lock in the deliverables proves too difficult or constraining, then another valid approach is to define the strategic requirements by brand or category and develop a scope of work based on past requirements and remuneration for similar strategic deliverables.
This could be defined in several ways, such as “new product launch”, “Tier 1, 2 or 3 activity”, or “Maintenance”, etc. Each of these would then be related back to previous similar activity and the remuneration paid to the agency. This requires a level of transparency into the cost paid in the past.
Managing changes to the scope of work
Where the marketers cannot provide a defined scope of work, there is often a move to secure an “all in” remuneration model. We call this the “All-you-can-eat model” because it typically becomes like a marketer feeding frenzy of agency services until the agency runs out of resource allocation.
While this may appear easy, the problem is that without a base scope of work initially, even with the best intentions, conflict between the agency and advertiser will quickly develop if the scope outstrips the resources covered by the remuneration level. If you have no scope of work and the agency is not complaining about the level of remuneration, it could be that the level is about right or possibly much higher than required.
For marketers in this situation, we have the VerificomTM Scope and Resource Calculator, part of the VerificomTMToolkit (Also called the Scope Manager by TBWA, who have adapted this approach for their own use)
This allows us to monitor the scope of work delivered by the agency and adjust the fee in the future to reflect any change in the outputs from the agency.
Interested in knowing more about managing the agency’s scope of work? You can download a free TrinityP3 White Paper on the topic here.
Learn more about how TrinityP3 can help you manage your agency’s scope of work and associated fees here.