Post on 21-Apr-2017
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Getting Paid for All of your Work…
A New Structure for Agency Fees
April 11, 2011
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Executive Summary Dramatic and negative change in agency remuneration
over past two decades Separately, workloads have grown in volume and
complexity
Much more work for much less money Negative consequences for agency headcounts, salary
levels, training and status Yet, workload is still handled as a “service issue”. This is nuts!
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.
Madison Avenue Manslaughter!
Aiding and abetting are:– Client CMOs– Client Procurement Officers– Search consultants– Benchmarking consultants…
and– The Victim !
“Lower your costs!”Clients
“Deliver more profits!”Holding Company
Unappreciated again !
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From Clients: Sound Familiar? “Let’s wrap up the fee negotiations. (The Scope is still
being worked on, but no matter…..)” “We’ll be doing more digital, so the fee will go down.” “Those extra timesheet hours were pure agency
inefficiency.” “Sorry, but that’s all we have in our budget this year.” “We’re going through a benchmarking exercise. Please
give the consultants your full cooperation. They’re very experienced.”
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From Agencies: Sound Familiar? “We’re in the ideas business” “We’re known for our creativity” “We don’t have clients. We have relationships” “We do what’s required.” The work. The work. The work “We’re known for our service” “We’re special”
– Our history and founders. Our people. Our capabilities. Our work. Our awards. Our network. Our clients….
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What is the economic transaction?
“Workload” is assumed
Fees (prevalent)Commissions (rare) or
Commitment / relationship Creative ideas / intellectual property Service
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Agency Remuneration ‘per Ad’ 1992-2010
Source: Farmer & Company clients. Farmer & Company measures agency workload in FSUs.
$100
$150
$200
$250
$300
$350
$400
1990 1995 2000 2005 2010
Inco
me
per F
SU ($
Tho
usan
ds 2
010)
Farmer & Company Clients -- Income per FSU (1992-2010)
Fee per Farmer Standardized Unit (FSU)(Constant $2010)
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Farmer Standardized Unit (FSU)
Scope of Work (SOW) with varied Projects
Scope of Work in ‘Farmer Standardized Units’
Workload
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The FSU concept is not original!
10 FSUs 5 FSUs
0.01 FSUs
0.10 FSUs
1 FSU
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A 2010 Scope of Work -- $5.2 million fee
Project Count
FSUs % total
FSUsOnline - Ad Units / Banners 33 8.0 21%Online - E-mail 2 0.7 2%Online - Web 14 3.2 8%OOH 3 1.6 4%Print - Non-Traditional 25 4.6 12%Print - Traditional 13 6.4 17%Radio 3 2.2 6%Strategic / Research 4 - 0%TV 31 8.8 23%Video 7 2.5 7%Total 135 38.0 100%
Media Type
2010
$ 135,000 per FSU
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A 2011 Scope of Work -- $4.2 million fee
Project Count
FSUs % total
FSUsOnline - Ad Units / Banners 52 8.7 19%Online - E-mail 4 1.8 4%Online - Web 4 2.3 5%OOH 2 - 0%Print - Non-Traditional 43 7.8 17%Print - Traditional 12 9.5 21%Radio 5 3.9 9%Strategic / Research 5 - 0%TV 32 10.4 23%Video 1 0.5 1%Total 160 44.8 100%
Media Type
2011
$ 93,000 per FSU
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The obvious questions
Is the fee too low? (Definitely) Is there too much work? (Definitely)
Only one of these is ‘negotiated’ (the fee) Workloads are uncalculated and are generally
unknown when fees are set
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Consequences Growing workload, declining fees
– Requirement for more output with lower costs – Annual downsizings– Unrealistic productivity levels, especially for creatives– The productivity increase cannot continue without
compromising quality The gap between workload and fees can only get worse
What strategic response is required?
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The agency as a “service provider?”
All You Can Eat neon by Jeremy Brooks/Flickr, used under CC license
CLOSED
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Paradigm Shift: From ‘Service’ to ‘SOW’
Agency New Point of View:1. Scopes of Work will be planned, negotiated, tracked
– SOWs defined by deliverable type – Use of structured SOW templates – Master SOWs updated as they change
2. Agency resources will be calculated from SOWs– Requires “resource standards” for different types of projects– Projects will be quantified: for number of creative teams, rework,
FTEs, and costs or fees
3. A fee will be proposed for the entire SOW
4. If the fee exceeds budget, the SOW will be trimmed
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Typical Agency Structure
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ClientService
Planning
Creative
Approximately equal in cost
Production
Approximately equal in cost
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Two Differentiated Capabilities
1. Strategic brand diagnosis and advisory services Plus relationship management,
coordination, etc.
2. Creation and production of advertising outputs
Smart, creative ad factory
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ClientService
Planning
Creative
Approximately equal in cost
Production
Approximately equal in cost
Retainer
Variable
Variable
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Resource Modeling – Ad Factory (1)
Creative Timeduring
Creative Development for
this brief
Creative Headcount for
Creative Development
Baseline time for one Creative Team on one average complexity
brief by media
± Use of greater / fewer Creative
Teams
± Effect of low or high creative complexity
+ Effect of more than zero rework
Media Type
Baseline time for one Creative Team on one average complexity
brief by media
± Use of greater / fewer Creative
Teams
± Effect of low or high creative complexity
+ Effect of more than zero rework
Media Type
Hours per yearUtilization rate
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Resource Modeling – Ad Factory (2)
Creative Timeduring
Production for this brief Creative and
ProductionHeadcounts in
Production
Baseline time for one Creative Team
on one brief by media
� Effect for Orig’svs. Adaptations
Baseline time for TV / Print Production
People by Media
� Effect for Orig’s vs. Adaptations
Media Type
Hours per yearUtilization rate
Production Timeduring
Production for this brief
All Types of Production
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SOW Template (by deliverable)
Project characteristics that drive agency resources– Media Type (TV, Video, Radio, Print, OOH, on-line banner, ad
units, email, web, other, etc.)– Media type detail (print examples: advertorial, banner, brand
book, brochure, calendar, collateral, catalogue, DM package, FSI, insert, letter, poster, etc.)
– Project type (origination, adaptation)– Creative complexity (low, average, high)– Rework expectations (creative rework, production rework, etc.) – Number of versions (one, two, twenty, etc.)
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TV Creative Development - Modeling
TV Originations -- Creative Development Model
Low Complexity
Average Complexity
High Complexity
Baseline Creative Team-Days 7 11 16Standard Number of Teams 1 1 2Hours for Standard Number of Teams 56 88 256
Standard Rework Rate (one team only) 0.5 1 2Hours for Standard Rework 28 88 256
Total Creative Development Hours 84 176 512Total Creative FTEs (@ 1800 hours) 0.05 0.10 0.28
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The Process: Templates + Tracking
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Scope of Work Tracking: Essential!: online SOW tracking, maintained by agency
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Regular SOW Updates for agency & client
Detailed Workload Reconciliation Reports
Detailed SOW Profiles (by Business unit, Brand, Campaign, etc.)
Financial Reconciliation
Reports
SOW changes Workload
changes Resource
implications Fee implications Recommendation
s
Financial Reconciliation
Reports
SOW changes Workload
changes Resource
implications Fee implications Recommendation
s
Financial Reconciliation
Reports
SOW changes Workload
changes Resource
implications Fee implications Recommendation
s
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New Agency Business Model
1. Brand strategy & performance. The agency diagnoses brands and recommends marketing communications programs that address brand problems. Goal is to improve growth and profitability.
2. Marketing communications execution. The agency develops and produces ads (across all relevant media ) that solve the agreed brand problems.
3. Business model. The agency gets paid for its work and the ideas imbedded therein. (Part can be purely performance-based.) Metrics are fully transparent.
4. Billing rates. Each project has a defined fee. The agency bills out at X-times the cost of its resources for the SOW. The billing multiple quantifies the value-added of the agency.
5. ROI. Results are expected to be a substantial multiple of the fees involved.
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Conclusion: Hard Work Ahead
1. Understand your economics and your workloads by client2. Make Client Heads accountable for SOW3. Establish agency policies
– “Every client will have an agreed and tracked SOW”– “Resource standards will be determined for each project type”– “Prices will be developed for each project type”
4. Client Heads and their SOWs / Resources will be reviewed internally by Office Heads, CFO’s, and other senior execs
5. Efforts will begin on a case-by-case basis to renegotiate with clients and convert contracts from fee retainer to SOW-based
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But wait! Here’s more!
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But wait! Here’s more! Callers in the next 30 days will get this special offer!
– Free from Farmer & Company! SOW template! One hour consultation (phone) on SOW nitty-gritty! Don’t wait! This is a one-time offer!
Email or call: Michael Farmer (mfarmer@farmerandco.com) +1 (212) 909-2650 www.farmerandco.com
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Now – go out and do it!
Transform yourselves!
From Service to SOW…
…and get paid for all the work
you do!