Agency remuneration benchmarking can be quite a controversial topic, especially for agencies. But it is also a point of contention for procurement and consultants.
You see there are many people who purport to have robust agency benchmarks and will talk about their thousands of benchmark data samples. In fact it can ironically become a game of “who has the biggest pool of data wins” as tall tales are told about their data samples in an effort to get credibility.
Of course this is one extreme end of the industry offering. At the other end there are a selection of procurement teams and one-man band consultants who have a data sample of one, or sometimes less, who are simply ‘benchmarking’ the agency against the agency they used to work for or the incumbent agency or a friend’s agency or even the imaginary agency they made up.
To eliminate all doubt and because benchmarking is important and deserves to be managed professionally, we invested significantly in developing the online Ad Cost Checker rates benchmarking system. You can read about the system and how it works here.
Not all agency benchmarks are the same
I remember discussing the benchmark sample process with a competitor overseas. They had built up an impressive range of benchmark data through benchmarking some major global clients and their network agency agreements.
While the data size was impressive, it was interesting that often when applied on a market by market basis their benchmarks were significantly lower. This is often preferred by some, even if it proves unsustainable.
But it made sense, as large global advertisers are often able to negotiate lower rates (either lower overhead and profit multiples on salary costs or simply lower rates) due to the size of the engagement over multiple markets. But just the sheer apparent size of their data sample, even if it is not representative of the full range of agency rates within any one market, gives them credibility.
But likewise, we have heard of a number of consultants who proclaim to have hundreds of benchmark data sources, when in actual fact they have data for hundreds of roles and rates.
One of our clients asked us to prove we had the data required to do the job and we were able to demonstrate this by simply using the Ad Cost Checker system for the markets they were interested in. (See the current range of markets and the benchmark roles and rate here).
When they asked the same question of our competitor they were suddenly unable to provide any proof of either the size or significance (statistical or otherwise) of their agency benchmark samples.
Not just averages but actual benchmarks
During the past 15 years we have collected and analysed rates across a multitude of various agency sizes and ownership types and a number of different advertiser sizes and types.
Rather than simply using benchmarks as averages, we have developed low, medium and high. The application of these benchmarks are then specific to the particular circumstances and arrangements we are assessing. This analysis allows us to provide and apply the benchmarks specific to the situation and arrangements.
What we found is that the following criteria influence the application of these benchmarks within a given market, including:
- The size of the agency (small, medium, large and huge within the market)
- The ownership of the agency (network or independent)
- Size of the engagement (allowing for economy of scale)
- Capabilities and requirements (strategic versus more tactical or transactional)
- Category of advertiser (some categories can demand a premium rate)
- Profile of the advertiser (high profile brands can negotiate discounted rates)
- Remuneration model (some approaches demand a premium fee)
- Schedule of work (seasonal or peaks and troughs can impact fees)
The use of the high, medium and low benchmarks also allow marketers to make more informed decisions on the quality of the resources. Rather then reducing the rates to the average, or lowest common denominator, it means that marketers can remunerate against the roles and disciplines they perceive the most valuable.
The importance of getting it right
On quite a number of occasions we have been called in to help marketers find out why their agency relationship is under performing only to discover that the agency is hopelessly under paid.
This has led the agency to find other ways to make the margin they lost in the benchmarking process including under-resourcing the account or finding ways to overcharge in other areas.
Either way the advertiser pays. And worse still, the person who provided the low benchmarks has in some cases walked away with a bonus for reducing the cost (or delivering savings).
If you are going to use a benchmarking process, make sure you have agency benchmarks that reflect your requirements and not just the ones that reduce the cost. Because there are consequences in the longer term.
Transcript:
Are you paying too much for your agency services?
Or are your agency services too high compared to your competitors?
There is a lot of discussion about agency rates and fees.
After all, no advertiser wants to be paying more than they should.
And no agency wants to lose business because their rates are perceived as too high.
So what do you do? Most people try to benchmark them.
That is why we created the Ad Cost Checker system.
It is an online application driven by a database of all of the data we have collected on agency rates.
From agencies big and small.
Local and multinational.
Independent and globally aligned.
So you don’t have to compare to a sample of one.
But likewise you don’t have to compare it to a huge sample of big multinational advertisers.
Or an enormous pool of small local advertisers.
Instead you can compare it to a statistically significant sample of all types.
And the technology ensures all of the data is up to date.
And only provides benchmarks for data that has a statistically significant sample.
Currently we have data for more than 20 markets and growing.
Across more than several hundred agency rates and costs.
And you can access it now instantly.
Just go to adcostchecker.com and register.
You can also ensure that the way in which you pay your agency is optimal with TrinityP3’s Agency Remuneration and Negotiation service