Pretty much all marketing and marketing procurement teams have questions about their agencies’ fees:
“Am I paying my agencies the right amount?”
“Is there any efficiency to be found in my agency fees?”
“How do I validate my agency fees as being good value?”
“Are my agency fees truly transparent?”
And, without using some sort of comparison it is very hard to answer these questions. This can lead to a lack of confidence in the commercial aspects of the client-agency relationship, mistrust, or it could just lead to a waste of resources. There are different ways to get a comparison or benchmark on the fees an agency charges;
- Use informal rate benchmarking based on salary data from a third party provider. This may be ok for small scopes and very crude calculations, but will take a huge amount of time to manually extract the right job titles and compare to your own. It also does not give advertisers an insight into Overhead rates or Profit mark-ups/margins, that may make up as much of the fee as direct salary costs.
- Ask a trade body (like the ANA or ISBA) who may provide some “survey information” on agency rates. This may give some top-line comfort on some level, but because this is survey data it may not be accurate, timely or complete. The data will not give insight into the right mix of staff, or disciplines for your work, and it may aggregate job titles to give blended average that can be very misleading!
- Use a “black box” rate benchmarking service. There are services who claim to have historical data and to use that data to estimate what the cost should be for different deliverables and to be able to benchmark rate data. Some of these services are no doubt useful for some clients. But, due to the black box nature of the data and calculations many advertisers (and almost all agencies) are somewhat skeptical of the validity of the results.
- Use a fee benchmarking tool, like the one built into Flock’s Agency Scoping Tool. Flock’s service is “open and transparent”. Of the $1.5 billion of fees under management, all fees are negotiated and real (not claimed or ratecard), is less than three years old (most is very current) all data has consistent standard job descriptions, calculations and is therefore accurate. Use of data like this represents the “Gold Standard” but there are still some important Top Tips to acknowledge.
Top Tips for Agency Fee Benchmarking
Before embarking on an agency fee benchmarking exercise follow these top tips for a smooth ride and maximum success.
- Check your contract. Many agencies try to prevent audit or benchmarking by inserting clauses in their contracts that try to prevent you sharing your fee information with anyone, no matter how legitimate the use. Do check to see what, if any, limits you have on data use.
- Definitions & Calculations. Ensure you are clear on what is “in the fee” and “out of the fee”. Be clear on any definition of margin, mark-up, overhead and Direct Labour Costs. For commissions be clear on the definitions (like Net Net media spend) and calculations. Where discounts may be applied, make sure that it is clear on what aspect of fees, and how calculations work.
- Data aggregation. You may find that your data is not in one place, or is incomplete or inconsistent. By aggregating your data together you may be able to immediately get some quick wins by getting agencies to resubmit data in format that shows consistency and transparency.
- Agency Fee Benchmarking Service. Ok, we are biased but please do proper due diligence on the service and make sure that a) the data that they use is robust, clean, current, and consistent and b) they have experience of running agencies and client assignments and are genuine experts. We work with clients like McDonald’s, Ford, J&J, Nissan, Jaguar Landrover, MilkPEP, Nomad, Pepsi, Verizon and many others on agency remuneration. To learn more about our Remuneration Modelling, click here.
- Partnerships. As a house style at Flock we like to work in open partnership with the agencies. We like to solve problems together. As we have run agencies and so many assignments we tend to have very good relationships with the agencies. Some marketing and procurement teams, or Benchmarking companies are not so transparent which can cause tension, distrust and lead to poorer results.
- Be clear on what is benchmark and what is a comparison. There are some topics of agency fees that can be benchmarked (especially if the definitions of the data are all consistent like at Flock), and some that cannot. For example at Flock we do not “benchmark” the amount of effort (hours) for tasks. Lets take an example; “Create a TVC”. Some services will try to tell you how many hours it will take to make a TVC. We think each client and situation will be very different and so wielding a so called “benchmark” is unwise in this instance.
Agency Fee Benchmarking is a very useful way, if done well, to give confidence in the commercial aspects of a client-agency relationship and ultimately lead to better work. If you would like more information on Flock’s Agency Fee Benchmarking (within our Agency Scoping Tool), or any other aspects of agency fee and remuneration please fill in the form below: