It’s that time of year when every marketing procurement professional thinks in earnest about their budgets, targets, scopes, and agency fees for the year ahead. It is time to open the door and negotiate.
However, this year, more than others, will be a difficult one with some parts of the world in recession or will enter it very shortly. The conflict in Ukraine and associated energy crises have heavily impacted key manufacturing and other costs. And if that were not enough, “The Great Resignation” or “Quiet Quitting” is employment trends that have surfaced since the pandemic that are impacting agency staff costs.
Marketing Procurement teams are “in a fix”, faced with the dilemma where they desperately need to cut agency and technology costs due to sales reductions because of the pending/current recession and managing their own rising internal costs whilst being asked for big rate rises from suppliers.
Based on what have we seen, the work we are doing on behalf of our clients, and how are we interacting with agencies to understand their needs, we have put together a list of expectations to look out for this season.
- Fighting for the Best Talent – with agency churn in some markets approaching 40-50% we are advising all our clients to play a stronger role in getting the best talent on their business, holding them on it, and motivating them to do an excellent job, in a gratifying way. We have contracted key people clauses, churn rates etc but also spend a lot of time looking at training spends, and motivating personal bonus/incentives (often using a client’s products and services). We have a library of innovative ways to get and hold the best talent, that we deploy. What are you doing to fight for the best talent?
- Transparency is Important – Agencies are increasingly trying to move to remuneration agreements that do not disclose fee components. They are giving only two or three seniority bands (Senior/Junior), using non-standard titles and seniority, mixing freelance and full-time staff, and refraining from disclosing overheads. And how can you blame them? They are a business trying to make a profit, but a lack of transparency stifles trust and partnership. It also really hampers fast constructive fee conversations. We have one client whose principal agency has asked for a rate increase of +20% year on year citing talent as the reason for cost increases. That agency’s company report shows its operational costs have been reduced by 20%. Now as we have helped our client gain transparency with labour costs, overhead, and profit, we were able to offset talent cost increases with lower overheads essentially keeping costs the same. This is why transparency matters!
- Benchmarking Gives Confidence – The market is volatile. On one hand, we have seen overheads dramatically reduce in some markets, agency groups, and disciplines, on the other, labour costs rocket for some job functions. Benchmarking your agency rates gives you confidence that your core fee components (labour costs, overhead, profit, working hours) are competitive. With that being said, not all “benchmarks” are what they seem. The Flock Agency Scoping Tool uses live negotiated rates of over $1.8billion under management, from which we construct bespoke benchmarks appropriate to your scope of work. How are you benchmarking your rates during this volatile period?
- Meaningful Incentives Can Close Cost Gaps – It may be that you find yourself at an impasse in your negotiations with your agency. There might be a gap between what they want to be paid, and what you will offer. Building meaningful incentive programs is a great way to close these cost gaps. There are a host of great KPIs, gates, triggers, boosters, ladders, top spinners, and fizzers that can be combined into a great incentive scheme. Of course, a great incentive scheme needs good KPIs so you may wish to consider using the Flock Agency Appraisal Tool to provide an assessment of your agency’s work.
This list should help to provide some balance and better prepare you for the season to come but should you need further assistance, here are more blogs on procurement to see you through.
- Top 8 Marketing Procurement Trends
- Do Procurement and Finance People Know Anything About the Marketing Ecosystem?
- Agency Fee Benchmarking: Top Tips
If you’d like to speak with us in person, join us at ProcureCon Marketing 2nd – 3rd November 2022 at The Westin Rancho Mirage Golf Resort & Spa, Rancho Mirage, CA. Use our exclusive code PMK22SPONSOR for a 20% discount on tickets here.