Five ways to use the Verificom toolkit to more effectively manage agency fees

This post is by Darren Woolley, Founder of TrinityP3With his background as an 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, search and selection and relationship optimisation.

Since our foundation in early 2000, TrinityP3 has been working with our clients and procurement teams to better assess and understand agency fees, be it for a creative agency of record, media agency, digital agency, public relations firm, event company or more. At the time, most agency fees were based on resources and costs with no direct correlation to the work being delivered.

Our research collected and analysed significant amounts of commercially confidential information between our clients and their agencies. From this data, we developed and tested a growing number of algorithms across the complex and expanding remit of the various agencies. It became clear that deliverables were not just tangible production deliverables but also included the multitude of intangible projects and processes agencies undertake for their clients.

This created a valuable methodology for calculating agency resource requirements (the level, discipline and experience mix) which combined with the more traditional cost benchmarks of salary, overhead, and profit margin created a powerful tool for analysis and understanding marketing agency fees, no matter what the client verticle, the market or the agency discipline.

But this is about the various ways marketers and advertising agencies can use VerificomTM not just to measure the resources required to deliver the outputs or deliverables but to use this to create a fair, sustainable and accountable agency fee model that is value-based rather than simply resource cost-based.

These five applications of the VerificomTM tools include:

  1. Reconciling agency fees to outputs and deliverables
  2. Efficiently calculating agency project fees
  3. Developing a value-based pricing model
  4. Calculating agency retainer fees with and without a scope of work
  5. Measuring and improving client/agency productivity

What is the VerificomTM toolkit?

The easiest way of thinking about the VerificomTM is as a calculator that takes a specific and defined agency scope of work and accurately calculates the agency resources required to deliver those particular outputs or deliverables. Within this package are all of the resources required in capability, mix of skills and seniority required to deliver that specified output.

Creatively this would be account management, strategy, creative and production. For digital and technology this would also include technology and digital specialists and for media it includes account management, strategy, digital and customer analytics, media planning and buying and more.

The more outputs required, the more agency resources are required to deliver the total output. But the number of agency resources it takes to deliver a specific output also depends on the complexity of the output and if that output is being originated, refreshed or adapted from pre-existing work.

Agency resources are also calculated for parts of the process required to deliver the output, with the ability to calculate strategy, creative/ideation and production independently of each other. This means that if a project is split over two financial years or abandoned in mid-project the resources reflect the agency resources for the work to date.

Therefore the resources required by the agency will depend on the level and mix of the specific outputs from the scope of work being done by the agency. Likewise, with the media model, the media agency resources will be dependent on the media investment by channel and the level of complexity of the media spend, along with other complexity considerations

1. Using VerificomTM to reconcile agency fees

One of the biggest challenges facing agencies and advertisers is the reconciliation of the agency retainer. The problem is that the retainer is traditionally related to retaining a particular mix and level of agency staff and is rarely if ever based on the productivity of that agency team.

This resource retainer is rarely linked to the work the team is expected to deliver. This is because for many marketers it is difficult to plan a year’s scope of work. But even for those marketers that can provide a detailed scope of work, reconciling the agency retainer is often difficult against the agency spreadsheets of resource quantities taken from often questionable timesheets leaving marketers often bewildered at why everything appears to take the agency so long.

If only there were a more effective way of reconciling the agency’s scope of work and the deliverables against the retainer.

Well this is where Verificom is ideal.

By mapping the scope of work that has been delivered, the Verificom tool will calculate the resource level and mix required to deliver the outputs and this can be compared to the actual resource utilisation recorded using the agency timesheets. This provides both parties with an industry based benchmark against which they can reconcile differences.

But the process of capturing the scope of work must also capture not just the deliverables but also if those deliverables were originations or not and if the whole or part of the process was delivered in the retainer period.

2. Using VerificomTM to calculate project fees

Those advertisers and their agencies that have moved from a retainer fee model to project fees often report the increased time and effort that goes into calculating and negotiating the agency fee on a project-by-project basis. Plus if the scope of the project changes after the original project and fee is agreed it can be difficult to recalculate the revised agency fee to accommodate either an increase of decrease.

Again, the VerificomTM model is ideal for calculating and managing project fees for advertisers and their agencies.

In this case, the advertiser and the agency agree on the scope of the project, and the deliverables are placed into the VerificomTM toolkit, and it calculates the number of agency resources, their level, disciple and experience mix for the project and the associated cost.

But what if, during the project, it is decided to either add additional outputs or delete some of the deliverables for whatever reason? Well, then it is simply a matter of changing the outputs required and recalculating the agency resources, and changing the project fee to reflect the change.

But let’s say that upfront, the advertiser is unsure of the scope of the project and wants to engage the agency in developing a strategy and creative first before agreeing on the particular channel-specific creative. In this case, the initial scope of work is calculated for the strategy development and creative ideation using the VerificomTM tools.

On approval of the idea or concept, the advertiser and the agency can then explore various combinations of outputs and the relative resource implications and associated costs to decide on the final project scope of work.

In this way, using the Verificom tools streamlines the process of calculating the project fee based on outputs and allows both advertiser and agency to reconcile the change in the project scope of work and work more collaboratively and iteratively in developing the scope of the project.

3. Using VerificomTM for value-based pricing

A lot of advertisers and their agencies are discussing value-based fees but have struggled with agreeing on the concept of the value and setting the price to reflect this value. The problem is aligning expectations on both sides to what is a fair price for the value of the outputs delivered.

This is where the VerificomTM tools provide a terrific opportunity for both advertisers and agencies to pilot a value based fee model.

Above, we have been talking about the way Verificom can be applied to a particular scope of work to calculate the agency resources and agree on the cost. Based on the fact that the fee paid to the agency is related to the value under a value-based model and not simply the cost of resources required to deliver the outputs or deliverables, then adjusting the agreed average cost per resource can create a pricing model.

Many agencies have implemented alternative cost tiers within the agency for high volume, low complexity work based on a perceived lower requirement for resources. But applying a tiered approach to the agency cost resource can create a more convenient and easier model. In fact, the VerificomTM platform can create a menu of all outputs based on the agreed cost per resource and be reconciled against the price created by the online platform for project fees or used to calculate a surrogate retainer based on an agreed scope of work of various tiers.

4. Using VerificomTM for calculating agency retainers

In managing a vast number of agency selection tenders, we have seen that sometimes marketers can provide a specific and quantifiable scope of work for the agency to quote and other times, the scope of work has been ill-defined and lacks the specificity required to develop a resource plan accurately.

The VerificomTM tools can be used to assist in both approaches.

  1. If the advertiser CAN provide a quantifiable scope of work, it is a simple matter of inputting that scope into the VerificomTM tools, and it will calculate the number of resources required. It is simply a matter of agreeing on the average cost per resource to calculate the agency retainer fee. It also means that using the VerificomTM tools, both the agency and the advertiser can enter and track the scope of work as the outputs are delivered and manage the volume of work going forward.
  2. If the advertiser CANNOT provide a quantifiable scope of work then a different approach is needed. This assumes that year-on-year, the scope of work delivered in the past year and the scope of work required in the coming year will approximate each other, even though we acknowledge there will be some differences. Therefore it is a matter of capturing and quantifying the previous year’s scope of work and calculating the number of agency resources using the VerificomTM tools. You then agree on an average cost per resource to create a proposed retainer fee for the agency. But the agency and advertisers monitor an actual scope of work delivered collaboratively using the VerificomTM tools. Then the proposed retainer fee is reconciled against the actual with adjustments made throughout the year if required.

Both of these approaches allow for unforeseen changes in the scope of work, providing flexibility for the advertiser but at the same time, ensuring the agency is paid for the outputs delivered.

5. Using VerificomTM to improve client/agency productivity

While it has become quite popular for procurement to drive ‘efficiencies’ through agency fee reductions, it is increasingly clear to many advertisers and their agencies that future efficiencies will only come from more productive working relationships. But what is a productive working relationship, and how to measure it is a challenge?

The fact is that both agency and advertiser are responsible for optimising the performance of the relationships. Often the structure and process on the advertiser side create complexity and inefficiency. At the same time, the agency often mirrors the advertiser’s structure, thereby multiplying the complexity and doubling the inefficiency in the hope of solving the issue.

But again, the VerificomTM tools can measure the level of productivity within the relationship between the advertiser and their agencies.

As the Verificom is based on the typical agency resources required to deliver a defined output, it is simply a process of capturing the specific scope of work delivered by the agency over a specified time frame. This is used to calculate the agency resources required, which can be easily compared to the resources reportedly used to deliver the scope of work during the same period.

If the reported agency resources are higher than the calculated, then the relationship has low productivity as the agency is providing more resources than typically required. This means that both parties need to review where complexity is impacting the performance of the relationship.

If the reported agency resources are lower than the calculated, then the relationship has high productivity as the agency is providing more outputs with fewer resources than typically required.

As we mentioned above, Verificom provides a breakdown of Account Management, Creative, Strategy and Production. These can be used to compare with the agency’s actual hours to identify which areas within the agency resources are being over or under utilised.

Our Scope of Work Management service evaluates your current agency scope of work and recommends the best approach, calibrated to your needs. Read more here