Many marketers have moved from media commissions and service fees to retainer based remuneration models. Yet although retainers often provide a minimum of management during the course of the agreement, the can become problematic at renewal or review time, especially if there are reductions in the marketing budget, requiring reductions in the retainer.

Recently these have been highlighted to our clients in a number of ways:

1. Retainer reduction negotiation:
A client had a Retainer based on the delivery of a number of full time equivalent staff (FTEs) of 6.8 to deliver all of the account management, strategy and creative concept work required. There was no defined scope of work other than a loose description of the services to be provided under the contract.

With the reduction in the overall marketing budget of 25%, the client wanted to reduce the agency retainer by the same amount. However, the agency responded that the actual FTE level had been running at 9.18 (supported by timesheets) or 35% higher than contracted and that a 25% reduction in spend and associated work would require a 10% increase in the current retainer and an increase in FTEs to 7.5 to be equitable.

2. Reduction in scope of work:
Faced with 20% in marketing budget year on year the client had reduced the number of projects under the contracted scope of work from 243 to 195 to reflect the 20%. These projects also contributed to a 22% reduction production costs based on the previous year.

However, when presenting the new scope of work to the agency, they responded with a reduction in retainer fee of only 9% as they maintained that the mix and associated complexity of the work included in the new scope was labour intensive and not reflective of the resource reduction required.

Continue reading "Retainers: good to better, better to best" »

I know everyone is under pressure, but clearly this is having a real impact on marketers around the world, with many facing budget reductions and yet desparately trying to maintain their marketing plans.

Here is a new clip on YouTube that made me laugh, because many of the things marketers believe about their agencies and their remuneration really do look as crazy as they sound when you put them into real life situations.

The fact is, you do only get what you pay for. If someone is offering you a deal that looks too good to be true, it probably is. But if you want to make sure you get what you pay for from your agency call me.

In The Australian Media Section today was an article titles "STW and News promote cuts to working week" the story highlights the trend for many marketing service providers to move to a nine day fortnight to reduce costs.

This is admirable in the current market, unless you have retainer agreements with your clients. In which case, a nine day fortnight for retainer staff without a corresponding reduction in the retainer fee, effectively rips off the client 10% on their fees? How?

Continue reading "9-day fortnights are potentially ripping marketers off!" »

I just got this email from Matt Ryan at Euro RSCG titled "Driving efficiencies at Euro RSCG". It seems that Euro RSCG has discovered that cost efficiency is as important as cost effectiveness.

By finding ways of reducing costs without impacting on effectiveness you are potentially improving cost effectiveness at best and mitigating cost of failure at the least.

For ten years, during the boom years, agencies have often criticised TrinityP3 for finding ways to reduce cost without impacting quality of idea or execution, purely by eliminating waste and inefficiency.

Now reading through the suggestions supplied by Euro RSCG, it looks like at least one agency is doing the same. Have a look and then find out what your agencies are doing to reduce your costs.

Continue reading "Now ad agencies are finding ways to reduce costs" »

Ever wondered how the agency finance director can explain an increase in the retainer when the scope of work they are delivering for you in the coming year is falling?

Then watch this.

Well, it makes about as much sense.

These days, everyone's trying to squeeze more out of their marketing budget than ever before. From reviewing agencies to evaluating internal relationships, there's plenty of scope for improvement in all areas of the marketing communication mix.

So we look at the ten best and simplest ways to achieve maximum value for your marketing budget and improve your ROI.

The top ten ways to maximise your marketing value are:

Continue reading "Top 10 Steps to Maximum Marketing Value" »

It is a common practice in procurement to reward procurement consultants by paying a percent of the savings they have identified. But in the marketing space this is a practice that is fraught with danger for the client, while highly lucrative for the consultant.

In the realms of marketing communications, unlike many other areas of traditional procurement, it can be incredibly difficult to provide a measure of quality. Quality of people, quality of outputs, quality of relationships are often highly subjective or difficult to measure. Therefore developing a value proposition is also difficult or at best highly subjective.

Rewarding the consultant on purely financial criteria, such as savings, without taking into consideration the other important component of value, being quality, the client will often end up paying for marketing services that are ineffective and unsustainable because the consultant as screwed the supplier to the Nth degree to maximise their payment.

A classic example was an FMCG client who engaged a well-know procurement consulting company to review all of their print requirements, both marketing and non-marketing. The final solution saw the appointment of a print management company with no experience of packaging printing, which is one of the more technical demanding print disciplines and one that poorly executed can risk many millions of dollars in costs. By the time this eventuated, the consultants had been paid and moved on to the next client, championing the work they had done and leaving the FMCG client to fix their solution, too embarrassed to tell anyone of their experience.

Instead, we recommend a more accountable and sustainable approach to the process.

Continue reading "The difference between paying consultants on percentage of savings and success fees" »

In AdAge today is a report that Leo Burnett has paid the US Government $USD 15.5 million to settle a legal dispute on over billing for the "Army of One" campaign.

While the agency denies any wrong doing, it does not reflect well on the professionalism of the agency or the industry when such high profile occur. But it does make you wonder how many other smaller instances of over-billing occur on a day to day basis without being detected?

TrinityP3 do not undertake financial audits, we leave that work to more qualified accountants like Firm Decisions ASJP and the like.

In our experience performing agency remuneration reviews, over billing is usually caused by misunderstanding of either the terms of the contract, or is because retainers are often negotiated so incredibly lean that the agency is forced to try and recoup revenue through services outside of the retainer such as production and third party services.

There are a number of things a marketer can and should do to insure the agency remuneration is transparent and fair:

Continue reading "Leo Burnett Pay Up to the US Government for Alleged Over Billing" »

With the world economy teetering on the edge of recession and with many organisations looking to cut expenditure, the biggest mistake is to immediately go for the lowest price.

The saying "you get what you pay for" applies in booms and busts. And while during recessions the market is more competitively priced and bargains are available, the problem is that you can also get false economy from simply selecting the cheapest offering.

The smart strategy is to negotiate on value, rather than simply price. By way of example, lets look at a retailer who is reviewing their electronic art and print management.

Continue reading "Even facing recession, price should not be the final or only criteria" »

We are all aware of the direction the world wide economy is heading. But in the past two months it appears that agency fees are going the same way during the pitch process. But the same cannot be said for agency fees when discussing the negotiations with an incumbent agency.

It appears in their desire to win, or some may say buy, business, some agencies are slashing their overheads in their retainer proposals and offering key senior staff for free to make their remuneration proposals more desirable.

But when the same agencies come to renegotiating their fees with an existing client they scream "blue murder" when it is suggested they could look at any change but an increase to their existing fee structure.

Are they that secure in the relationship that they think that in these difficult times, their existing client would not put the business out to pitch?

Continue reading "The power of competitive pressure on advertising agency fees" »

Wikipedia says an SLA is a formally negotiated agreement between two parties. It is a contract that exists between customers and their service provider, client or between service providers. It records the common understanding about services, priorities, responsibilities, guarantee, and such — collectively, the level of service. For example, it may specify the levels of availability, serviceability, performance, operation, or other attributes of the service.

SLAs were first introduced in the 1980s in the telecommunications industry, but are now wide spread throughout business. But in our experience, traditional SLA formats are not relevant in advertising and marketing, where the level of service delivery is directly influenced and impacted by the behaviour and actions of the buyer.
In these circumstances, we recommend an engagement agreement, defining requirements of both parties.

Continue reading "Why service level agreements ( SLAs ) are not relevant to marketing services contracts" »

Many advertisers have moved from the old fashion media commission and service fee to retainers based on retaining a set resource, the cost of which is calculated based on the direct salary costs of those resources, multiplied by the overhead cost of the company and then multiplied by the profit margin.

Retainers are generally considered to be easy to manage as for most advertisers they are set and forget. But two recent case studies highlight why retainers are not the ideal remuneration model for many advertisers and that the best remuneration model depends on their needs and circumstances.

Continue reading "Advertising agency remuneration problems - Retainers" »

With media commissions becoming virtually non-existent, the two main remuneration models for advertising service providers is either retainers or project fees specified in rate cards.

Some advertisers retain all of the resources they need, others will have no retainer and have a detailed and substantial project rate carte card, while the biggest group will have a combination of some retained services and some services specified in a rate card or project fees.

But which is the best model if any?

Continue reading "Rate cards versus retainers: evaluating the best model for advertising" »

One of the catch cries of many agencies is that they practice financial transparency. However, the practice is less common than the rhetoric in the cases we review.

One of the services offered by P3 and decried by many agencies is our production assessments where we review the proposed costs and estimates prepared by the agencies prior to the advertiser approving the cost.

This assessment is designed to provide the advertiser with the reassurance that the proposed cost represents good value for money. It is a service that would be less popular with advertisers if agencies actually did practice financial transparency and provided estimates and quotations that were detailed and clear.

Continue reading "Why do agencies talk of financial transparency and do not deliver it!" »

Across the Asia region and in fact globally, there is a huge dissatisfaction with the concept of performance based remuneration or payment by results (PBR) from both the agency and advertiser perspective.

This is due to the number of factors, including:
1. It is often difficult to reach agreement on what the metrics should be
2. PBR is often used to reduce agency profitability rather than provide an incentive
3. Measurement can be complex and complicated to measure
4. Advertisers often feel they over pay, while agencies feel under rewarded
5. Marketing budgets lack the elasticity to accommodate the payment

In our experience, the fundamental problem is that PBR is more about stick than carrot and that perhaps a better approach is to forget performance and focus on profit sharing.

Continue reading "Performance based agency remuneration or profit sharing?" »

In a recent discussion with an agency managing director they were again talking about the value of their ideas and how they should be remunerated for the value of these ideas.

I have two problems with this:

1. As you will hear in this interview with Trevor Choy of Choy Lawyers, there is no copyright in an "idea". Copyright and IP exists in the works produced from the idea.

2. The advertisers usually assumes that they have paid for the value of the IP in their existing remuneration. That is why there is usually a clause assigning all IP to the advertiser on payment of the agency fee.

Continue reading "Intellectual Property in Advertising" »

Single client agencies are created when either an advertisers funds the establishment of an agency either from a green field around a few key agency people (usually from their existing agency) or an agency opens a new office simply to service a single client.

There are some obvious and notable examples of where advertisers have created agencies to service their business, such as the now defunct 360 for the Commonwealth Bank and the still operating Media Store of Toyota.

While obviously some of these are successful, these arrangements are more likely to suffer a series of issues that means they often fail to thrive.

Continue reading "The curse of the single client agency" »

With the increased complexity of marketing requirements, more and more advertisers and their agencies are moving to an "all you can eat" approach to their remuneration model.

This has the advertiser paying a fixed retainer for a year to secure a fix agency resource to deliver all of the advertisers needs from strategy planning, creative devleopment through to production supervision and in some cases all of those small but essential jobs like presentation development.

Although the simplicity of the "all you can eat" model is attractive there are some fundamental issues that quickly arise from this approach.

Continue reading "The dangers of the "all you can eat" agency remuneration" »

One of the criteria in developing a resource based retainer model is the number of hours one person could be reasonably expected to bill in a year. This becomes their 100% billable time level or one FTE (Full time equivalent).

Take a year = 52 weeks.

In Australia 4 weeks of that year are for annual leave (so no billing there)

2 weeks a year, or more precisely ten working days, for sick leave (heaven forbid)

A week of public holidays (go on count them up, in most states there is a little more than five)

Suddenly we are down to 45 weeks of work a year.

Continue reading "How many billable hours are there in a year?" »

There are many pseudo-scientific terms used in marketing, especially in market research and strategy. But lets look at what these terms actually means:

Hypothesis: A tentative explanation of observed facts.

Theory: A hypothesis tested by experiements and to which exceptions have been found.

Scientific Law: A theory that has been verified mathematically.

Model: A mathematical or visual picture (physical)  of a particular set of phenomena. Models are never perfect and may be continually updated on the basis of new observations.

Postulate or axiom: A generally accepted principle or proposition.

Theorem: A statement of a mathematical truth together with any quantifing conditions.

System: A part of the material world selected for study and experiementation.

Anyone that tries to apply scientific rigour to the system of marketing and advertising process quickly realises that they are operating in the world of hypothesis and models. The lack of true and valid experimentation in this space means there are no theories, laws or theorems. At best it is observation and hypothesis.

No wonder Bill Bernbach said "I warn you against believing that advertising is a science. Advertising is fundamentally persuasion and persuasion happens to be not a science, but an art".

In developing models of structure, remuneration, process and benchmarking, P3 uses observation and forms hypothesis to develop models. The value in the process comes in the deversity and volume of these observations and hypothesis.

Author: Darren Woolley

It is now mid-February and already we have been asked to benchmark the fees paid by four clients to their agencies because they believe they are paying too much. The thing that make these four unique is that they all have contracts that do not define what they get, just what they pay and in most cases they have not recorded what the agency actually delivered for the retainer beyond "developing and producing advertising ideas" or "planning and buying $X million in media".

This is like me saying "last year I spend $12,000 at restaurants" and asking you if I got good value for money. Well that depends on whether I used the money to buy 1,000 $12 take away meals, 2,000 McDonald's burger meals, or for one huge no expenses spared meal at Tetsuya's or est.

See, how can you calculate value unless you have either quantity or volume? And how meaningful is value without the context of the strategy or objectives of the company or business?

P3 does not simply benchmark cost, we benchmark value delivered and place this within the context of the objectives and strategy the client requires.

In regards to my restaurant bill, I enjoyed a full range of meals, from take away to a big breakfast to fine dining. While I may have spent more or less than others, in the majority of cases the restaurant / food services industry delivered what I needed when I needed it representing value to me. But then I got to choose the supplier when I needed them. I was not locked into one relationship like most advertisers are locked into with their agency providers.

What do you think?

Author: Darren Woolley

In the last few months we have undertaken millions of dollars in agency remuneration benchmarking on behalf of our clients. One of the core processes is benchmarking the agency salaries against the resource plan. This is were the agency or advertiser supply the number and type of resources to be provided under the retainer and using our salary benchmarks and the agreed overhead and profit margin we calculate the retainer.

The problem is that the salary benchmarks use traditional agency titles - account executive, account manager, account director, group account director, strategy planner, strategy director etc etc. Then there is the complexity of junior and senior roles, although you almost never see any junior resources anymore. (Perhaps it is lack of talent development or perhaps with the talent shortage university graduates do not want to be a junior anything or perhaps agencies have realised advertisers do not want any juniors working on their business).

But adding further to the complexity is the "new" titles that are increasingly common in agencies, or actually are more common in companies who are forgoing the title "advertising agency" for something as esoteric and brand consultants or communication specialists. Gone are the account directors in favour of Business Directors. Who's business are they directing the advertiser or the agency? Gone are the account managers to be replaced by Project Managers and Campaign Managers. The interesting thing is that the term manager and director are still maintained, while executive is more commonly project co-ordinator or facilitator.

It certainly makes benchmarking like-for-like salaries more challenging. In matching salaries to titles, some consultants use experience (how many years experience does the person have?) or job descriptions (what is the person's role and responsibility?). We use these and add one other, which is the context of the organisational chart for the agency and how this interfaces with the advertisers team. Any one of these and you can have a distorted view of the value of the individual, but combine together you get a very clear view of the relative value of the individual in that role.

The question of it that individual is worth that value can only be answered by the advertiser and if they are happy with the quality of the job that person is doing in that role.

One of the best titles I have seen is "National Research, Insights and Planning Director" which is not so much a title as a job description. But what are the best titles you have seen? Let me know.

Author: Darren Woolley

Fermi Questions are named after 1938 Nobel Prize Winner Enrico Fermi. A Fermi Question can be answered by making reasonable assumptions, approximations, inspired guesses and statistical estimates and not necessarily relying upon definitive knowledge for an accurate answer.

Much of the work P3 does in developing remuneration models is based on posing Fermi Questions. How many hours does a creative team need to develop a multimedia campaign? How many and what type of people would be required to plan and spend $20 million in media? How long does it take to develop and launch a new campaign?

All these questions would typically be thought of as impossible to answer. But just as Enrico Fermi discovered, each question gives rise to further questions to develop parameteres, set criteria, make informed assumptions, use approximations and statistical estimates to develop an accurate answer.

I find it incredibly amusing that in an industry as imprecise as advertising, when being benchmarked and measured, many people demand definitive data, yet Nobel Laureate Enrico Fermi proved that accurate answered do not rely on this.

Author: Darren Woolley

It is amazing how most marketers can tell me how much thay have spent with their agency in the past 12 months but few can say what they got for that spend. Sure, they can describe the services provided and perhaps even the resources, but not the amount of deliverables.

This is like me saying "I spent $5000 last year eating out at restaurants and had a great time". But does this mean that I ate out twice at $2,500 each time or did I eat out 500 times at $10 each? Or did I have a three course meal each time, or just an entree or a degustation menu of 20 courses?

See, how much you spend does not allow you to determine value unless you have a measure of deliverables. This can be executional outcomes, project types or even results.

Instead of simply focusing on the spend (which is important) marketers should also capture volume and type of work to be able to calculate value. Agencies and marketing should have rigourous reporting protocol to be able to measure value.

It is like when clients' ask us to benchmark hourly rates. This is useful in a limited way. The problem is that low rates can be over quoted and so represent false value. Also, hourly or head hour rates need to be reviewed in the context of the total remuneration and more importantly outcomes and deliverables before you can determine the value being delivered.

Can you determine the value of your marketing communications providers, or simply the cost?

Author: Darren Woolley

Very occasionally an advertiser will develop a rapport with an agency team that leads to them convincing that client to follow them into a new agency that agency team are setting up and become their foundation client.

While we understand that the marcomms category is a "people" business there are some inherent dangers in doing this.

Effectively what the advertiser is doing is "bank rolling" the creation of a new advertising agency, design company, media agency, PR company or the like. The key word here is "Bank Rolling" for the following reasons:

1. As a foundation client, you will be paying all of the establishment and on-going overhead costs of the agency in their fees. After all, if you are the only client initially, then to be profitable all of the company's costs will be covered by you or it will quickly go out of business.

2. While intention is for the new company to grow and add additional clients, this is usually at the expense of the initial reason the advertiser entered into the new arrangement in the first place - ie. To continue to work closely with the team they had the rapport with. As the principals of the new company their time will now be spread over a number of clients as the company grows and adds clients.

3. Okay, so it doesn't grow and you stay their foundation and only client. How long will you tolerate paying all of the overhead costs for the existence of the company. Also, if they do not add new clients, then the only growth will come from getting more of your business or increasing their rates.

4. So you give the company more of your business to provide growth and yet they still do not add any major new business. Suddenly you are in the position of having most of your eggs in one basket and now your interest in the agency is more to make sure they continue to thrive rather than deliver the best possible service because if the business fails you have to lift your whole business out and onto a new provider.

5. As a company with only one major client or only one client it is harder for them to attract and hold good people because most marcomms professionals are attracted to variety rather than working on the same account day in and day out. So you may end up paying a premium to get the calibre of people you want and need on your business.
There is a track record of this behaviour and the subsequent failures of this. The highest profile example in recent times has been the Commonwealth Bank. Graham Ford drove a strategy of creating new entities IKON Media and 360 creative agency. Here is a 50:50 success rate.

IKON went on from strength to strength picking up new business and clients and building a successful media agency. 360 struggled to establish and major business outside the bank and closed when the CBA moved the creative business to STW. Interestingly STW was recently reported buying a majority shareholding of IKON.

But there are plenty of other examples were becoming a foundation client of a new agency has let the advertiser trapped in a unhealthy relationship.

Author: Darren Woolley

Earlier this week the AFA launched their Advertising Effectiveness Awards, of which P3 is an official supporter.

It is interesting looking at the discussions around effectiveness - primarily the results achieved.

As the chairman of the AFA Effectivness Awards, Matthew Melhuish said "Advertising, in all its forms, is a powerful tool capable of transforming businesses and significantly adding to top-line growth. The ongoing challenge is to effectively demonstrate this power and prove ROI not just to marketers but to Chief Executives, Chief Financial Officers and the entire business community."

But when it comes to ROI it is often a greater struggle to account for the created value against the incurred cost. ROI has two components.

1. The value of the return - how has the activity added value or created wealth to the business.

2. The cost of the investment - what was spend and what costs should be apportioned to the base cost to calculate the ROI.

Of course, while many focus on the outcomes, it is equally important to focus on the cost control. Not at the expense of effectiveness, but certainly eliminating waste and avarice is an effective way to control costs and thereby improve ROI. Especially in situations with high or uncertain outcomes. By managing costs you minimise the cost of failure, which is a possible outcome in any marketing activity.

Author: Darren Woolley

The marketing process

While marketing is more than simply marketing communications such as advertising and direct marketing, the marketing processes invariably leads to a point where external provider are engaged, be that to plan and buy media, create advertising, undertake market research, public relations, sales promotions and more. The efficacy of the Marketing Communications process is directly impacted by the other marketing disciplines.

Measuring process efficacy

While internal marketing processes can be mapped, reviewed, benchmarked and re-engineered, the measure of efficiency is often measured in the reduction of resources. While this is a valid measure of financial impact, it pale into insignificance compared to the impact poor process has on the efficiency of engaging external providers, where the total spend (especially in media) can be significantly higher and therefore the impact of poor process is significantly larger in financial terms.

Benchmarking external providers relationships

There are two types of expenditure with external providers being:
1. The remuneration paid to the provider for their services. Eg. Retainers, Fees, Head hours etc
2. Third party costs spent through the provider eg. Media, Production, Promotional items etc

Poor marketing process invariably leads to increases in both expenditures. In remuneration, we see resource requirement rise above the benchmark requirements. In the second we see either premium rates being levied or missed opportunities to yield the typical discounts available in the market place.

By benchmarking these relationships, P3 is able to quantify the level of inefficiency in the current process and determine the drivers. The three main drivers of inefficiency are: poor time and project management, lack of transparency, measurability and accountability and poor strategy execution. All of these are influenced or driven directly by the internal marketing process. Therefore quantifying the current inefficiencies and the drivers creates the basis of a strategy for reviewing the internal marketing processes to deliver the benefits.

External provider benchmarking process

The P3 benchmarking process captures retrospective data on:
1. What services were provided?
2. What resources were required?
3. What costs were incurred?

These are then benchmarked to determine and quantify the efficiency against the industry practice. Interviews are undertaken to identify which drivers are influencing this result and then these are reported to the marketer with recommendation on how to correct and realise the identified efficiencies.

Author: Darren Woolley

In AdAge this week, it was reported that as Sony struggles "to transform itself into a digital powerhouse, Sony Corp. is reaching out to multiple ad agencies to create its first corporate branding campaign in years."

"The effort will be designed to create a common message for a sprawling company infamous for siloed business units".

Siloed business units and multiple stakeholders is not a new challenge for marketers.
But what is becoming an increasing challenge in executing a cohesive brand communication campaign is managing the increasing number of specialist suppliers involved in the process.

There was a time when marketers could execute a communication campaign with their agency (creative & media) and perhaps one or two specialist suppliers. Today, the explosion of channel specialist means that marketers may be managing five or more specialist suppliers in the execution of one campaign.

This creates a huge amount of management and co-ordination and then often the result is disappointing for the effort as each supplier has been working to their own end rather than to a collaborative end.

On Wednesday 25 October, 2006 @ 1pm AEST you are invited to participate in a webinar (online seminar) hosted by Premiere Global Services.

In this seminar I will be talking about the various agency management models we have reviewed and developed and provide insights into what makes them work and how to avoid failure.

For more information on the webinar click here.
I hope you can join in.

Author: Darren Woolley

Marking up external costs when a client has the expectation that they are passed on at net.

While it may have been standard industry practice to mark up external costs as a 10% commission (or 11.1% mark up) this is no longer considered standard practice by most marketers and advertisers.

Many advertisers are surprised when they hear that their agency is adding a 10% "commssion" to their external costs. The tell tail sign in the estimate is a figure like $5,555, where $5,000 has been marked up 11.1% to create a 10% margin.
In fact in an age of retainers and project fees the expectation is usually that external costs are passed on at net to the client. That is the cost paid by the agency is the cost charged to the client, with no mark ups, commissions and any discounts or rebates passed to the client.

Many contracts have clauses that clearly state the expected practice is to pass costs on at net, in which case non-compliance is a breach of the contract.

Agencies need to also be careful that this clause can also mean that if an external cost is provided in a quote and the final supplier invoice is less than the original estimate, then the difference should be returned to the client, even if the agency practice is to bill to estimate only.

Author: Darren Woolley

Billing services provided under a different job even at the clients request.

There are times when a client may request the agency postpone billing or to pre-bill an amount to assist in the management of their budget. But when this extends to providing estimates and invoices for services onto other jobs or accounts, issues can arise.

This extends to the practice of "budget smoothing" where because one project has gone over budget, the client or agency add the excess to another job that is either under budget or has a more flexible budget. While the net result is the same for the advertiser, it defeats the purpose of the accounting process to be an accountable record of the costs and therefore the circumstances of each transaction.

While it might be seen as accommodating the client's needs, or even to do the client a favour in return for a favour in the future, the measure of the ethics of this behaviour is "Would you and the client feel comfortable if it was detected in a financial audit?" Increasingly advertisers are undertaking financial audits for probity and governance purposes.

In the short term it may seem as helping out the client, in the longer term when they have perhaps moved on and the audit detects this practice, it could be seen as suspicious accounting practices.

Author: Darren Woolley

Advertising agency conduct is governed by both the terms of the agreement with the advertiser and those set out in the law. Both are subject to interpretation and it is normally an interpretation that favours the agency rather than the advertiser.

Over the next five posts I will be desribing the top 5 no nos we have observed in agency / advertiser behaviour in the past year or so.

While this is in no way a legal viewpoint, it is certainly a reflection of the type of behaviour that many advertisers feel is at best "not in the spirit" of the relationship and at worst is seen as blatantly unethical.

Certainly in our experience, these are not wide spread practices, being confined to isolated cases that reflect badly on the industry as a whole.

Irrespective of any legal issues, all of these practices can, and do, have seriously implications on the level of trust between the agency and the advertiser. Without trust the relationship becomes difficult and unproductive with resources devoted to the mistrust rather than the fundamental purpose of the relationship, to produce great advertising!

I would really be interested in your feedback in regards to this behaviour. Is it more wide spread than we believe? What do you think about this behaviour? Have you been confronted by this type and behaviour and how did you deal with it? Let us know.

Author: Darren Woolley

The objective between two parties entering into any long-term relationship is that both profit from the partnership.

The advertiser: increases sales through growth in their market share utilising effective advertising and marketing strategies.

The advertising agency: selling its knowledge and know-how in delivering these outcomes.

Therefore, the key question is what is a fair price to pay?

Any Remuneration Model must be fair to both parties, otherwise why would the agency do the work? There are varying ways to remunerate the Agency for work performed. One must pick the model that best suits both parties making sure that you achieve the objectives of the advertiser.

You can utilise any of the following or a combination thereof:

Fixed Retainer

With a fixed retainer the agency will ascertain and charge you for a perceived usage of their staff to deliver the work required.

Strength - one charge, consistent.

Weakness - cannot monitor performance and doesn't allow for low workload periods.

% Service Fee Charge

Favoured by primarily Media agencies, you will be charged as a percentage of spend.

Strength - consistent charge and therefore remuneration is in direct relation to spend trends, lower/higher.

Weakness - cannot monitor performance and gives rise to over remunerating for tasks that the agency had little or no input. Can also encourage agency to recommend more expensive options.

Head Hours Charge

You are charged for what you use.

Strength - You pay by project and utilisation and therefore remuneration is directly related to the size and number of tasks performed.

Weakness - Difficult to monitor efficiency and can in fact encourage agency to operate inefficiently to increase revenue.

Combination of the above

A combination approach can be utilised, with a cost effective mixture of fixed fee, variable rate per hour and external costs recharged at net for the service required.

In creating an effective Remuneration Strategy, the advertiser must undertake to achieve a combination of the following:

- No degradation of service and quality of advertising

- Creation of more effective communication strategies

- Lower cost per campaign

- Make the agency accountable for costs

P3Biz has assisted many advertisers to develop remuneration agreements using our benchmark models based on industry surveys and financial modelling.
What remuneration models have people had success with and even what are some of the short comings people have found?

Author: Darren Woolley

In yesterday's Australian Financial Review on page 52 in the marketing section, Neil Shoebridge reported that DJs has reappointed Team Saatchi and in the process employed the Creative Director - Andrew Henderson.

Damian Eales from David Jones said "Andrew's a strategic asset for our company, so it makes sense for him to work for us directly". That makes business sense. But what is the difference between contracting Andrew through the agency and employing him directly?

I worked with Andrew in 1987 in Melbourne agency Mattingly and Partners when we both commenced in the advertising industry. I wonder now how Andrew feels being employed by his client but working still within the agency?

Perhaps this is the start of a new remuneration model. With the move to resource based retainers based on direct salary plus overhead (including indirect salary costs) perhaps David Jones has found a way to reduce their agency remuneration.

If instead of paying the direct salary costs of your retained agency resources, multiplied by the overheads (utilities, rent etc 50% - 70%) and the indirect salary costs (admin, finance staff etc 30% - 40%) plus profit, perhaps the model is higher all the agency staff direct and pay the agency just the overheads to accommodate them and save yourself the 30% - 40% indirect salary costs.

Mind you, it does mean that suddenly all these agency people appear in your head count. I guess it is just a case of wait and see if this works.

Mind you, it is not the first time DJs have done this. They have been retaining Ted Horton's services for years.

Author: Darren Woolley

A friend of mine, Shawn Callahan from Anecdote, drew my attention to Lovaglia's Law and sent me this link.

Lovaglia's Law: The more important the outcome of a decision, the more people will resist using evidence to make it.

It got me thinking about how this applies to marketing. Especially as in a recent Adage audio interview with Greg Stuart, co-author of the new book "What sticks", he says that "the practice of basing advertising-campaign decisions on gut instinct rather than scientific research is responsible for the massive waste of marketers' money".

Is Lovaglia's Law the driver that will often see marketers reject research that does not support their beliefs or "gut instinct"? Or commission research with a predetermined outcome to support their decision?

Occasionally after benchmarking or reporting an obvious cost savings that can be achieved in their advertising spend, we have seen marketers ignore the recommendations based on "gut instinct" rather than minimize their exposure to failure through adopting our recommendations.

Author: Darren Woolley

With the increasing role of procurement in the marketing category, it is funny to witness some of the mistakes they make in this area. Don't get me wrong, I think procurement has a valuable role to play in bringing process rigor, accountability and transparency to this category, but unless the procurement professional has a deep understanding of the category they can be quickly made to look a fool.

Here are three great traps for the uninitiated:

1. Many time we have seen RFTs and draft contracts sent out during the tender process that have absolutely no relationship to the engagement of a professional services supplier. Usually what has happened is the procurement professional has selected a "standard" supply contract or RFP full of references to plant and equipment and contingency plans for the failure of the same. Imagine sending this type of contract to your lawyer or accountant? The advertising agency, and especially the incumbent, is looking for any opportunity to demonstrate how out of touch or irrelevant procurement is to the process, don't give them any ammunition.

2. The cost of acquisition or cost per transaction is a great measure if you are comparing like with like. Unfortunately much of the media and services purchased are not like with like in the advertising space. I had a procurement team ask my advice on the calculations they had run on the number of media transactions during the year against the media budget. The figure they arrived at was totally meaningless as the cost per transaction of a Zone 1 TV spot was being compared with one of 30 run of station radio spots. Measurement is good and insightful as long as you understand what you are measuring.

3. Agency remuneration is often a point of contention between the advertiser and the agency and the procurement depart has much value to add in this process of developing a fair and equitable remuneration. But it is surprising how little many procurement people do not understand the drivers within an advertising agency. Of course agencies, like all businesses need to make a profit, but many agencies will sacrifice profit (reluctantly) for the opportunity to do great creative work. Understand the agency and what drives it and you will develop better remuneration that foster the relationship, not just lower the cost.

There are plenty more to tell. Let me know your examples of funny procurement stories. Or to hear more come to the CIPSA conference in Melbourne in October.

Author: Darren Woolley

While many marketers may argue that they need to have the flexibility to react to the market place, this is certainly no excuse for the lack of a marketing communications plan.

Some marketers have even countered that there is no point planning, because the plans are out of date before they are even completed. This represents a marketing department that is totally reactive with little or no strategic planning, yet often responsible for spending millions of dollars in the provision of marketing communications.

With the move to resource based agency remuneration, the agency needs to understand the scope of work for the coming year to they can estimate the level of resources required.

However, some marketers are unable to provide a scope of work because they do not have a plan. Instead in these circumstances, the marketing department, like the agency, is effectively providers of advertising services, rather than strategic partners.

But what is the cost to the advertiser? In our experience this lack or activity planning leads to huge waste in:

1. premium payments to secure short term delivery

2. wasted resources through the need for re-work and mistakes

3. over-investment due to an isolated or myopic view of the project with a broarder strategic context

So what does this represent in real terms? Again, purely as a worst case scenario, many advertisers are wasting up to 30% in production and agency remuneration costs and potentially up to 50% in media planning and buying.

Yet all it would take to reduce this waste is a comprehensive marketing activity plan.

Author: Darren Woolley

Both Lord Leverhulme and American John Wanamaker are credited with saying ""I know half my advertising is wasted. I just don't know which half."

But a new book to be published next week has researched $1 billion in advertising spend across 36 marketers and found that rather than 50% waste, the figure is 37.3%.

AdAge reports that "What Sticks: Why Most Advertising Fails and How to Guarantee Yours Succeeds," is to be released next month by Kaplan Publishing, and is the result of five years of research on campaigns from 36 of the nation's top advertisers. The book, penned by Rex Briggs, a veteran market researcher and founder of the firm Marketing Evolution, and Greg Stuart, CEO of the Interactive Advertising Bureau, may well be the most important advertising research since the "How Advertising Works" study of the early 1990s.

Footnote: On Google there are 296 hits for "Half my advertising is wasted"+Wanamaker, 36 hits for "Half my advertising is wasted"+Leverhulme and the Sydney Morning Herald attributes it to Frank W Woolworth.

Author: Darren Woolley

When we speak of time sheets, we think of professionals such as lawyers and accountants or business consultants recording and billing their time in 10 minute blocks. The detail of these time sheets is then analysed by the companies these people work for to determine their billing ratios and proftability.

Advertising and the marketing communications category has in the past ten years moved from a commission based system to a time resource form of remuneration. Yet often the culture within this creative category does not support the rigor and detail of the tradional timesheet process.

Creativity in recording resource time is a major issue which undoes much of the analysis done by the procurement professionals involved in the marjketing and advertising category.

Examples are:

1. Overstating - an account director who logged 185% of their billable time on a client because they recorded their time sheet from the time they arrived at work to the time they left each day against the client, even though much of this time was taken up with non-client activities.

2. Understating - a creative director who while attending every client creative presentation and all major TV shoots, recorded less than 10 hours in time on their time sheet for the year.

3. Fraudulent - in a celebrated case in 2005, O&M account executives in the US were charged with defrauding the Government by falsifying timesheets to support their fees.

Unfortunately, the facts are that many agencies are poor resource and financial managers, often due to the unique creative culture that exists within the agencies. The problem with this is when procurement and accounting start to use the resource data provided by the agency, without any benchamrks to check if ths data is accurate then the basis for the whole remuneration model can be flawed.

The other problem for agencies is that, with salaries continuing to represent the majority of their costs, without this accurate data how can the agency have a clear understanding of their cost based and revenue or profit position?

Author: Darren Woolley

Tomorrow I am participating in a panel discussion on the future agency model as part of the Advertising Marketing & Media Summit in Melbourne.

On the panel there are three agency heads, a media agency head and me, but no advertisers, making this a relatively introspective discussion on the future structure of advertising.

The fact is that all most advertisers want is the same thing thay have always wanted, which is someone who can solve their business problems with creative, strategic communications solutions. In the past the main tool at their disposal was mass marketing media solutions and direct marketing.

Today the options have exploded through technology and most advertisers are questioning if their one agency has the skills and expertise to completely leverage all of the options available to their benefit. A fair question and one that is answered by the increased number of advertisers appointing a range of providers. This could be by core competency - media, creative advertising, direct marketing, digtal and the like or by perceieved strengths - such as strategy, creativity, production, speed to market etc.

Either way two problems arise with multiple provider:

1. Increased total cost of service with duplication of support resources within each provider being recovered in each overhead


2. The time and effort managing the various providers to eliminate canabilism and extract maximum value from the various resources.

Author: Darren Woolley

Business consultants are increasingly focusing on the marketing and advertising category both here and in the US. A recent discussion in AdAge highlighted the increasing use of business consultants like IBM, Accenture and McKinsey in the advertising space.

Locally, Booz Allen Hamilton released a white discussion paper that maintained that many marketing departments are out of sync with the business objectives.

The problem is that most of these consultants have little or no understanding of the advertising process. While many business consultants have marketing degrees and qualifications, few have practical experience in the advertising space.

In selecting a consultant in the advertising space you should look for:
1. Consultants that have practical, current experience in the area of interest
2. Consultants that are remunerated on delivery of results, not savings
3. Consultants that are totally independent and do not get remunerated by suppliers

Author: Darren Woolley

The Advertising Federation of Australia undertakes an annual salary survey amongst their members for the exclusive and confidential use of their members. But not all of the members use the survey salaries in negotiations with their clients.

It has become a bit of a standing joke that when the agency say they have used the AFA rates in their retainer calculations it is because they actually pay less than the AFA rate.

Likewise, when they say they have used actual rates it is because they pay their people higher than the AFA rate.

Personally I think that if an agency is using the AFA survey rates they should provide those rates, which of course they can not, as the survey is the intellectual property of the AFA and not for general use. In which case, why not just use summed actual salaries. At least these can be verified by audit.

Author: Darren Woolley

Why is it that agencies continue the practice of "grossing up" profit margins? - so 12% becomes 13.6% - small but it mounts up.....

Author: Tony Quail