Overcharged an r3 presentation at ana afm 2014
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Transcript of Overcharged an r3 presentation at ana afm 2014
DAVE BEALS & GREG PAULL R3 WORLDWIDE
Myths, Challenges & Best Practice
in Digital/Social Agency Compensation
#overcharged?
THE FIVE BATTLEGROUNDS OF
DIGITAL INVESTMENT ©®TM
Digital vs Traditional
Ratecard vs Retainer
Fees vs Production
Make vs Buy
Transparency vs
Opaqueness
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THE SITUATION Digital has never been more important
THE SITUATION
58%
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Clients unhappy with the way their digital agency charges them CMO Council Study 2013
Agencies don’t see client transformations
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THE SITUATION
SOURCE : 2014 SoDa Report
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THE SITUATION
Clients and Agencies differ on what matters
SOURCE : 2014 SoDa Report
Marketing creativity
Product/Service Innovation
Expertise in emerging trends
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Costumer-Centered Marketing
Process/Project Management
Market / Marketing research
Measurement Analytics Capabilites
CLIENTS AGENCIES
Marketing creativity
Expertise in emerging trends
Costumer-Centered Marketing
Product/Service Innovation
Process/Project Management
Market / Marketing research
Measurement Analytics Capabilites
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THE 3 DIGITAL BLACK BOXES
FEES PRODUCTION
MEDIA
Ratecards hours
Profit
margins
vs traditional
Make or buy
Mark ups
Rebates
RTB
Publisher
roles
DIGITAL vs TRADITIONAL
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What % of US marketers pay for digital on fee basis?
A. What’s a fee basis?
B. 28%
C. 82%
D.102%
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POP QUIZ #1
Not so “unique” after all – MACRO LEVEL
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Not so “unique” after all – MICRO LEVEL
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AGENCYSTAFF POSITION
SAMPLE DIGITAL AGENCIES (US$
range)
SAMPLE TRADITIONAL AGENCIES (US$
range)
Account Supervisor $125-175 $125-170
Sr. Account Planner $170-220 $185-240
Creative Director $250-325 $275-350
Copywriter $100-140 $105-160
Media Planner $95-125 $80-110
Comparing digital to traditional agencies
• Hourly rates for similar positions not that different (and sometimes less expensive)
• Overheads and margins not dramatically different either
Not so“unique” after all12
Basic compensation methods and financials far more alike than different, especially as:
Digital agencies are having to show sound,
internal cost management and
accounting
More marketers get comfortable with digital agency compensation
More digital agencies are bought by the holding companies
Understand the Talent Gap13
Work harder to identify,
nuture, reward
Massive squeeze from multiple sources
CLIENTS
OTHER AGENCIES
AD-TECH
GENERAL TECH
=
If your digital agency is perceived to be more expensive than your traditional agency, there are likely other factors :oPremiums paying by rate card?oPremiums paying project by project?oFees for digital production: apples to oranges vs. traditional agenciesoPaying multiple agencies for similar services?oLack of agency revenue transparency? Fees on top of other agency revenue sources?
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Digital vs Traditional Why is my agency expensive?
Digital vs Traditional Take-aways
No need to vary from your preferred method of agency compensation
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Don’t forget importance of incentives
Work harder to reduce turnover
RATECARD vs RETAINER
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What is the typical premium of Ratecard over Retainer?
A. We have to pay agencies?
B. 0%
C. 30%
D.100%
POP QUIZ #2
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Project vs. Retainer Rates
o Recent examples from R3 client-agency contract reviews
Proposed Project Staff Rate as % of Retainer Rate
Client A - Agency A 105-106%
Client B – Agency B 107-111%
Client C – Agency C 120-125%
So why not move to retainer?
• Difficult to plan ahead with confidence• Scope parameters and
requirements change rapidly in digital and social media
• Confusion over who does what (and best) -- fear of locking in retainer services• Internal vs. external agency• Multiple agency resources
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The Digital SOW
AREA EXPLANATION
TECHNOLOGYMost digital channels – SEO, PPC, Social, Display, Mobile, Affiliates – require the management of a technology platform
TALENT Just as for traditional agencies, retained digital shops should work on a Direct+OH+Profit basis
PROCESSInvest time to understand how it can impact your final fees
DATAKnow which data you have, what you need, who owns it , and what is costs to maintain
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Pro’s of Digital Retainer
• Lock in desired agency talent
• Generally less expensive than
project by project fees
Also, less administration
• Greater budget certainty and
financial transparency
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Con’s of Digital Retainer
• Potentially less flexible – changing digital landscape makes it harder to plan against highly variable and uncertain scope
• Potential for corresponding over-commitment (or misalignment) on agency staff/fees
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Retainer options for digital• Retain “talent” vs. set agency scope/hours
Combination of retainer (for key planning, concepting, design, account service talent) and project fees (for specialist staff against uncertain workload)
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• Adjust retainer scope/fees on “rolling” basis (e.g., every quarter)
• Use Scope Index to set workload/fee assumptions for various tasks
It’s “Launch and Live”Not “Launch and Leave”
• Plan ahead for the total digital lifecycle of your campaign
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• Budget for “evergreen” social the way you would for ongoing media flighting
• Find and lock in the right talent
Ratecard vs Retainer Take-aways
Rate card pricing often inflated
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Rate cards generally do not commit to specific agency talent – potential for less expensive/ freelance resource to be used
Retainer helps avoid overpaying for same agency staff across multiple project SOW’s
Ratecard vs Retainer Take-aways
Retainer requires thoughtful planning on digital roles, responsibilities, core competencies
•Clearly define and align on internal vs. agency roles
•Provide oversight of all digital activity and resourcing (vs. reviewing in silos)
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FEES vs PRODUCTION
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What did Mondelez decide to do in 2013?
A. Tweet “you can still procure
in the dark”
B. Hire a Social Media Head
C. Hire 20 internal twitter writers
D.Add 20m fake twitter
followers
POP QUIZ #3
“Fee” or “Production”Digital agency fees, in total, often seem more expensive than traditional agencies – however, digital agencies often do much of the production in-house vs. third parties
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TRADITIONAL AGENCY DIGITAL AGENCY
ACTIVITY FEE3RD PARTYPRODUCTION
FEE3RD PARTYPRODUCTION
Planning $100,000 $0 $95,000 $0
Video Concepts
$125,000 $0 $127,500 $0
Video Execution
$50,000 $250,000 $200,000 $0
TOTAL $275,000 $250,000 $422,500 $0
“Fee” or “Production”Best way to evaluate agency cost is the total investment in fees and 3rd party production30
TRADITIONAL AGENCY DIGITAL AGENCY
ACTIVITY FEE3RD PARTYPRODUCTION
FEE3RD PARTYPRODUCTION
Planning $100,000 $0 $95,000 $0
Video Concepts
$125,000 $0 $127,500 $0
Video Execution
$50,000 $250,000 $200,000 $0
TOTAL $275,000 $250,000 $422,500 $0
$525,000
1. Ensure your digital agency budget has addressed and accounted for any agency in-house production,
2. No right or wrong way to define, budget or account for it – as long as there is internal and agency alignment
3. And, applying traditional “fee vs. spend” metrics to digital agency activities is wrong
look at your total investment in agency fees and production, regardless of whether production is done in-house by agency and/or through third party suppliers
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Fees vs Production Take-aways
MAKE vs BUY
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Make vs Buy
“Do we need to pay an agency to do this?”
33 A recent ANA study suggested that:
53%REPLACED agencies with some in-house servicesof ANA
membersThis is certainly being felt in the digital space, and issues with digital agency compensation are increasingly being joined by the question of
Verbatims SoDa 2014 Survey
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- “Paid search” - “Plan to move most things in-house over next three years” - “SEM” - “Social media” - “We handle all digital services in house, aside from our
SEO efforts” - “Website, search and social” - “Everything!” - “We only outsource eCommerce and mobile - “Content creation and video production” - “All functions are now in-house”
Various digital services lend themselves to in-house solution•Those that involve regular, day-in, day-out activities
•Simple and high-volume production tasks that don’t have high-level “creative” demands
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Make vs Buy
Where are the shifts from agency to in-house taking place?•Website maintenance and basic content management•Social media monitoring and content management•Digital asset production/adaptation (especially for basic OLA – banner ads, simple videos)•Digital strategy
But, caution: some don’t: Those that require high level of
creative or technical expertise that would be more cost-prohibitive than hiring an agency
• Creative talent, digital or traditional, would prefer not getting locked into working with just one marketer – this has big cost/value implications for the marketer over the long-term
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Make vs Buy
Various digital services lend themselves to in-house solution
Related to digital agency fee planning and negotiation:
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Crucial to clearly define and align digital roles and responsibilities – between agencies (if more than one), and between client and agency
Multiple internal stakeholders need to be considered
Yes, marketing and PR (if a separate department from marketing)
But also internal IT Achieve clarity on agency roles
within the client’s digital “ecosystem” – and match the agency staffing and fees accordingly
Make vs BuyTake-aways
Commercial Break
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TRANSPARENCY vs OPAQUENESS
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What did digital guru Joe Mohen call RTB?
A. An airport in Honduras
B. The Reason To Believe
C. A Ready To Bake Cake
D.…...something else …..
POP QUIZ #3
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FastBoys vs Madmen44
Direct vs RTB
AREA DIRECT BUY RTB BUY
Targeting Websites Audiences
Supply Guaranteed Non-Guaranteed
Workflow Manual Programmatic
Pricing CPM eCPM
Best Suited For
Premium, Quality, Content Rich
Mass, Reach, Non Time
Specific
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RTB Revenue Streams
PROFESSIONAL FEES and/or commissions
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TECHNICAL FEES For access to the agency’s obvious investment in technology
INCREMENTAL MEDIA FEES Many RTB’s buy inventory and then onsell to others including their clients
Do Your Research47
How Agencies are Aligning on RTBGROUP RTB AGENCY ALIGNED TO
WPP Xaxis GroupM
Omnicom Accuen OMG
Publicis Vivaki AOD Vivaki
Interpublic Cadreon Mediabrands
Dentsu Amnet Dentsu Aegis Network
Havas Affiperf Havas Media
MDC Varick NA
Independent Accordant NA
Independent The Trade Desk NA
Independent Run NA
Independent Digilant NA
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How Clients are Not Aligning on RTB
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Digital Rebates
• Beyond RTB, there is so much competition for digital revenue Adtech running at loss to IPO Clients budget slow to move Agencies have strong control
• Media Rebates – in EVERY country – are inevitable
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Digital Rebates Returned? 51
Source – ANA 2012 Rebate Study
ALL THE TIME
SOME OF THE TIME
NO
ALL THE TIME
SOME OF THE TIME
NO
Transparency vs OpaquenessTake-aways
Have a conversation. Know the issues
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4 Be clear on metrics
Understand your own agency’s business model
Test and Learn – mutual learning center
5 Be clear on conflicts
6 Invest in a Financial Audit to ensure transparency
BEST PRACTICE
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IPG?54
Peets and Razorfish 55
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• “Pay for Performance” alone (PPP) is often not sustainable for long term agency relationships Incentivizes agencies to make the
wrong decision Encourages short term thinking
• Suddenly the model that was going to align the agency has the opposite effect
“Pay for Performance” (PPP)vs Pay for Performance (Incentives)
Incentive Compensation Best Practices57
Employ combination of quantitative and qualitative criteria
PERFORMANCE CRITERIA
METRICS RATIONALE
AGENCY Qualitative
Totally within agency’s controlTightly customized to client needs
ADVERTISING
QuantitativeE.g.: tracking of awareness, brand perceptions, copy testing, cost/lead, buying efficiency, etc.
Ties to desired marketing performance that is primarily affected by agency’s work
ADVERTISERQuantitativeE.g.: sales increase vs. target, share of market, etc.
Although influenced by many factors outside of agency control, aligns client and agency on a “shared agenda”
Impact of Incentives on Performance58
• Significant majority of those that use performance incentives continue to indicate they are working.
• But, uptick in those who claim the result was no change or poorer performance.
We don’t think that the toilet bowl has any unpleasant meaning. Human beings can live several days without food but toilet bowl even one day, otherwise the world must turn into the mess. The deep culture of toilet bowl is a criterion of the civilization. Equanimity and imperturbability being able to stand pressure with enthusiasm are the toilet bowl’s characters.The combination of responsibility, sacrifice and readiness is the spirit of toilet bowl. The Toilet Bowl can release the pressure and make you comfortable.The beauty of toilet is willing to clean itself and fresh forever! So! for our client, unconditional offerings is Meikao’s spirit
Unilever60
Samsung61
Summary62
Treat Digital Agencies the same as traditional FEE BASED
Plan for Launch and Live , Not Launch and
Leave
RETAIN TALENT
Invest time to understand fees vs
production
PLAN AHEAD
Set the right KPI’s and incentives
MONEY TALKS
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