4A’s Labor Billing Rate Survey & Market Based Labor ... · 4A’s Labor Billing Rate Survey &...

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4A’s Labor Billing Rate Survey & Market Based Labor Guidance Webinar

J U N E 2 7 , 2 0 1 7

§  Introduction to LBRSR

Tom Finneran, 4A’s

§  Market-Based Labor Rates Guidance

Ann Garreaud, Publicis

Rick Weber, Interpublic

§  The 2016 Labor Rate Benchmarks

Rick Brook, WPP

Dana Perry, BBDO

§  Q & A

4A’s Webinar Content

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§  Introduction

§  Why Labor Billing Rate Information Is Important

§  Survey Design & Data Collection

§  Survey Census

§  Methodology: Data Reporting

§  Transparency & Credibility

4A’s LBRSR Information Overview

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Introduction

§  Labor Based Pricing is predominant -  In the marketing services industry -  In other professional services industries

§  Opportunity to evolve industry labor billing process:

-  Best practice guidance: Market-Based Labor Rates -  Best Practice Guidance | Agency Compensation: Market-Based

Labor Rates -  Transparent industry labor rate benchmarks

§  Mutually Beneficial: -  …Due diligence information

Let’s Focus on SOB, SOW & Service Expectations 4

Why Labor Billing Rate Information Is So Important?

§  Many comp arrangements based on labor …there is a need for reliable labor rate information

§  Agencies under pressure to justify rates §  Marketers want to understand and benchmark rates §  All stakeholders benefit from transparent credible benchmarks §  Agency labor rates are derived based on a range of factors: …rate cards, value provided, opportunity costs, budget, costs, etc. …actual rates charged i.e. market rates=common denominator §  Cost-based construct not ideal for agencies or clients The 4A’s LBRSR provides relevant benchmark range parameters in the context of service functions, size groups and geographic regions

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Survey Design & Data Collection

§  Every 4A’s member invited to participate

§  Data on actual hourly billing rates agreed upon in 2016

§  No need to calculate weighted averages for each position

§  Information based on multiple significant representative clients

§  Information collected during March-June 2017

§  Rates for staff positions based on consistent job specifications

§  Data collected for 111 positions within 16 service departments

§  Data collected for blended rates

§  Expanded data points for each position

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Survey Census

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§  366 agency offices ─  Service offering representative of 4A’s members ─  35% Independents ─  65% Owned by public companies

§  Agency Size Groups # Participants % Total –  Up to 100 Employees 187 51% –  101-400 Employees 119 33% –  + 400 Employees 60 16%

§  Geographic Regions # Participants % Total ─  New York City 94 26% ─  East, South, South East 106 29% ─  Central 76 21% ─  California & West 90 24%

34,000 billing rate data points

Survey Methodology: Data Reporting

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§  Data Reporting ─ Benchmark ranges ─ Upper range…+1 Standard deviation ─ Mid (average/mean) ─ Lower range… -1 Standard deviation ─ Statistically relevant…represents 70% of data values ─ Rates by agency size ─ Rates for geographic regions ─ Data sets (number of agreed rates) for each category

Information Transparency & Credibility

TransparentCredibleInforma:onFramework:§  Allsurveypar:cipantsdelineated §  Datacollec:onandrateagreement:meframesclearly

specified§  Actualagreeduponrates§  Surveyedjobfunc:onspreciselydefined§  Sta:s:callyrelevantrepor:ngmethodology§  Robustdatasets…34,000rates§  Informa:onpublicallyavailabletoallindustrystakeholders

Relevant,*mely,credibleinforma*onfromareliablesource9

Market-BasedLaborRatesGuidance

AnnGarreaud,Publicis&RickWeber,Interpublic


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Market-Based Labor Rates Guidance

§  Objective & Background

§  Market Rates are Strategically Appropriate

§  Why Cost-Based Labor Rates Are Suboptimal:

…For Clients

…For Agencies

§  Billing Practices: “Other” Services Industries

§  How to Leverage the 4A’s Guidance Discussion Tool

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Guidance: Objective & Background

Objective: §  Streamline agency billing rate process and evaluation

“4A’srecommendsthatagencylaborbillingratesshouldbebasedonprevailingmarketratessetinthemarketplaceandreflec;ngthevalue,complexityandsophis;ca;onofservicesprovidedratherthanbeingbasedondeconstructedagencycostandprofitcomponents.”

Background:

-Labor-basedfeearrangementsentailagencyandclientagreementon:(1)scopeofbenefits(2)servicestobeprovidedbytheagency(3)anagencystaffingplanand(4)laborrateschargedbytheagency.-Laborratesarederivedbasedonarangeofconsidera:ons:agencyreputa:onandgotomarketpricingstrategies,servicesprovided,marketforces,compe::velandscape,budgets,opportunitycost,agencycostandprofitobjec:ves,etc.-TheprocessisbeingmademorecomplicatedthanisnecessaryasthediscussionoVenshiVstobystrategicallyflaweddeconstruc:onofagencylaborratesintoagencyinternalcostandprofitcomponents.

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Market-Based Labor Rates are… Strategically Appropriate“Thepriceofanagency’slaborshouldbebasedonthevalueprovidedbythatlaborratherthantheagency’sinternalcoststructure.” §  Healthiest model…marketplace reflecting:

… the value of services and deliverables

…quality and reputation of the agency

§  Focus on cost does not ensure clients will get services they want

§  Market-based rates increases the focus on value

§  All agencies are not equal…this needs to be considered

§  Avoid the distraction of debating salary, overhead and profit

§  Market based labor rates can be efficiently and accurately benchmarked

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Cost-Based Labor Rates are… Suboptimal for AgenciesCost-based arrangements can weaken agency focus on key indicators of performance §  Deconstruction of labor rates is inefficient & ineffective:

─  Inappropriate focus on cost components ─  Complex, burdensome and one-dimensional

§  Disclosure of salaries by individual or title is always inappropriate

§  Cost based arrangements can adversely impact agency employee compensation

§  Agency costs and profit is confidential information

§  Agency costs and profit should not be determined by individual clients

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Cost-Based Labor Rates are… Suboptimal for Clients

“Cost-plus models do not pull through to market value” §  Cost-based labor is as likely to lead to overpricing as underpricing §  Cost-plus can create an incentive to “load” more costly staff on

assignments

§  Too much energy is wasted wrestling with cost components §  Administration of cost-based arrangements adds little value and

creates unnecessary cost/time and distraction

Streamlined market-based labor methodology frees up resources to focus on marketing implementation

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Labor Billing Practices in “Other” Professional Services IndustriesLawyers, Accountants, Consultants all utilize labor-based pricing Principles followed by Other Professionals: §  They do not normally deconstruct rates §  They establish rate cards which they benchmark against publicly

available industry labor rates §  They have simplified rate structures §  They have floor rates

Floor rates, for junior/new associates, at many law firms are $125-$150 per hour

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Labor Rate Principles: Senior Partners lead discussion on value §  Partners have access to client C-Suite. Vendors Don’t

Document Their Pricing Policies §  Adhere to pricing policy & rate cards §  Have a process that gets to “No” Do Not Normally Deconstruct Rates Proactively Discuss Efficiency Possibilities

Prioritize Better Value over Cheaper Prices

Other Professional Services Industries

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Labor Rate Structures Accountants, Lawyers, Architects, Consultants all price based on labor and industry publishes labor rates Simplified Rate Tiers §  4-8 levels Significant Range in Hourly Rates: Legal Firms: High Low §  Partners $1,000 $300 §  Associates $ 400 $150

Rates vary by practices area, geography, experience level and reputation Many/most establish floor rates §  $125-$150 per hour §  Blended rates, for all staff, at many agencies $150 per hour

Other Professional Services Industries

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§  Clients use cost-based components as a default technique for understanding agency labor and as a way to conduct due diligence review of agency labor rates

§  Knowledgeable clients are aware of the shortcomings of cost-based labor

Use the 4A’s guidance to:

--Initiate dialogue with clients

--Engage clients on market-based methodology advantages

--Discuss shortcomings related to cost-based compensation

--Recommend the use of market-based labor rates

Link market-based methodology to the availability of credible market-based rate information from the 4A’s

How to Use the 4A’s Guidance As A Discussion Tool with Clients

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The2016LaborRateBenchmarks

RickBrook,WPP&DanaPerry,BBDO


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The 2016 Labor Rate Benchmarks

§ The Benchmark Ranges

§ Labor Rate Ranges by Size of Agency

§ Labor Rate Ranges by Region

§ Ranges vs. a Single Average

§ How to Use LBRSR Information

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AlldataisreportedwithStandardDeviaIon

Standard Deviation is a Measure of Dispersion

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Average: $115/hour

StdDevia:on $30/hour

Rel.Devia:on 26%

+1StdDev.

-1StdDev.

Average: $115/hour

StdDevia:on $10/hour

Rel.Devia:on 9%

+1StdDev.

-1StdDev.

Quick Reference

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NarrowDispersion WideDispersionSmall Large DEVIATION STANDARD

ofDataPoints70% Standard

DeviaIon

StandardDeviaIon+1

-1BENCHMARK RANGE

15%

~

~ datapointsareabovetheupperlevel

datapointsarebelowthelowerlevel

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n= 295Mean= $121

StdDev= $30

n= 235Mean= $104

StdDev= $26

n= 98Mean= $93

StdDev= $24

75 100 125 150 175

--- 70% ofData---

Upper$151

Lower$90

Mean$121

75 100 125 150 175

--- 70% ofData---

Upper$131

Lower$78

Mean$104

--- 70% ofData---

Upper$117

Lower$69

Mean$93

ACCOUNTEXECUTIVE

How to Read the ReportOfficeSize

lessthan100employees

between100to400

over400employees

Account Executive Benchmark Range §  Upper (+1 Std Dev); Mid; Lower (-1 Std Dev)

No.ofUpperMidLower AgreedRates +1SDMean-1SD Upto100Employees #295 $151$121 $90 101-400Employees #235 $131 $104 $78Morethan400Employees #98 $117 $93 $69NewYorkCity#171 $140$109$77East,SE,Mid-So#177 $140$113 $87Central#145 $138$107$76Calif,FarWest,SW #135 $142$112$82

The Benchmark Ranges

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Benchmark Ranges Versus a Single Average / MidpointSignificant Rate Variation Between Mid (Average) and Upper/Lower Ranges

Mid StdDevia:on+/-1Mean $%AccountExecu:ve Upto100Employees$121 $30 25%101-400Employees 104 $2625%Morethan400Employees93 $2426%

NewYorkCity$109 $3229% East,SE,Mid-So 113 $2623%Central107 $3129%Calif,FarWest,SW112$3027%

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A normal data distribution: +1 standard deviation…to… – 1 standard deviation Represents 70 % of the data universe §  Approximately 15% of rate data will be above the upper (+1 std dev)

benchmark range §  Approximately 15% of rate data will be below the lower (-1 std dev)

benchmark range

Premier Talent & Premier Services may be above the upper benchmark range Commodity Services may be below the lower benchmark range

What If The Agency Rate is above the Benchmark Range?

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2016 Labor Rate Ranges: By Size of Agency Benchmark Range Can Vary by Agency Size (Variations are not always predictable)

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Chief Creative Director No.ofAgreedRates Upper+1SD MidMean Lower-1SD

Up to 100 Employees #249 $515 $369 $224

101-400 Employees #185 $687 $479 $270

More than 400 Employees #69 $849 $591 $334

$ Diff +400 vs <100 +$334 +$222 +$110

% Diff +400 vs <100 +64% +60% +49%

Art Director

Up to 100 Employees #270 $189 $150 $112

101-400 Employees #240 $167 $135 $104


$ Diff +400 vs <100 -$15 -$15 -$15

% Diff +400 vs <100 -8% -10% -13%

Copywriter

Up to 100 Employees #261 $174 $140 $107

101-400 Employees #231 $161 $129 $98


$ Diff +400 vs <100 -$12 -$13 -$14

% Diff +400 vs <100 -7% -9% -13%

2016 Labor Rate Ranges: By Size of Agency Rates Can Vary by Agency Size

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Executive Media Director No.ofAgreedRates Upper+1SD MidMean Lower-1SD

Up to 100 Employees #128 $441 $325 $210

101-400 Employees #86 $440 $341 $242


$ Diff +400 vs <100 +$59 +$74 +$87

% Diff +400 vs <100 +13% +23% +41%

Media Planner No.ofAgreedRates Upper+1SD MidMean Lower-1SD

Up to 100 Employees #175 $163 $127 $91

101-400 Employees #126 $141 $108 $74


$ Diff +400 vs <100 -$47 -$37 -$28

% Diff +400 vs <100 -29% -29% -31%

Media Buyer No.ofAgreedRates Upper+1SD MidMean Lower-1SD

Up to 100 Employees #156 $143 $112 $81

101-400 Employees #92 $135 $107 $79


$ Diff +400 vs <100 -$31 -$25 -$20

% Diff +400 vs <100 -22% -22% -25%

2016 Labor Rate Ranges: By RegionRates Vary by Region: Variations have Patterns but no Absolutes

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ChiefCreaIveDirector No.ofAgreedRates Upper+1SD MidMean Lower-1SD

NewYorkCity #125 $775 $523 $271

East,SE,Mid-So #145 $552 $379 $207

Central #115 $608 $423 $238

CA,FarWest,SW #118 $611 $442 $274

$DiffNYCvsCentral +$167 +$100 +$33

%DiffNYCvsCentral +27% +24% +14%

ArtDirector No.ofAgreedRates Upper+1SD MidMean Lower-1SD

NewYorkCity #160 $191 $149 $107

East,SE,Mid-So #173 $174 $143 $112

Central #136 $163 $130 $97

CA,FarWest,SW #139 $181 $145 $109



Copywriter No.ofAgreedRates Upper+1SD MidMean Lower-1SD

NewYorkCity #152 $179 $141 $103

East,SE,Mid-So #163 $161 $132 $103

Central #137 $155 $124 $94

CA,FarWest,SW #140 $170 $137 $104



2016 Labor Rate Ranges: By RegionRates Vary by Region: Variation Patterns but no Absolutes

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ExecuIveMediaDirector No.ofAgreedRates Upper+1SD MidMean Lower-1SD

NewYorkCity #73 $493 $394 $296

East,SE,Mid-So #74 $417 $313 $210

Central #71 $452 $344 $237

CA,FarWest,SW #76 $468 $348 $228



MediaPlanner No.ofAgreedRates Upper+1SD MidMean Lower-1SD

NewYorkCity #93 $138 $103 $69

East,SE,Mid-So #103 $160 $122 $84

Central #93 $140 $106 $73

CA,FarWest,SW #97 $154 $117 $81

$DiffNYCvsCentral -$2 -$3 -$4

%DiffNYCvsCentral -1% -3% -5%

MediaBuyer No.ofAgreedRates Upper+1SD MidMean Lower-1SD

NewYorkCity #70 $124 $94 $64

East,SE,Mid-So #92 $139 $113 $87

Central #83 $134 $105 $76

CA,FarWest,SW #76 $139 $104 $70

$DiffNYCvsCentral -$10 -$11 -$12

%DiffNYCvsCentral -7% -10% -15%

2017 survey rate ranges, for many positions, are remarkably consistent with the 2015 survey report ranges

A few observations: §  Technical Services, Project Management & PR function rates have

increased consistently §  Social Media rates are flat §  Executive billing rates (highest billing rate jobs) for Account Mgt,

Account Planning, Creative & Media are stable §  Mid & lower range (-1 Std Dev) rates have increased slightly for the

majority of positions…Upper range rates (+1 Std Dev) are flat §  Blended rates for overall agency are flat §  Departmental blended rates are up modestly

How Do the 2017 Survey Rates (Relating to 2016) Compare with the 2015 Survey Rates (Which Related to 2014)?

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How to Use the Benchmark Range Information

Tool for Assessing Labor Rates

Assess Your Labor Rates §  Rates vary from client assignment to client assignment §  Rates vary by type of deliverable & service §  Rates vary by task complexity & value of deliverables §  PxP and Retainer rates likely vary

Discuss Rate Ranges with Clients & Consultants

§  Frame your rate proposal within context of the range §  34,000 data points makes this the most robust data source §  There is no single benchmark rate—there are benchmark

ranges

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QuesIons???

RickWeber,InterpublicRickBrook,WPP

AnnGarreaud,Publicis

DanaPerry,BBDOTomFinneran,4A’s


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4A’s Labor Billing Rate Survey & Market Based Labor ... · 4A’s Labor Billing Rate Survey &...

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