#BigQ2020: It’s time we talked about money •

by MarkLives (@marklives) What are the industry expectations for the marketing and advertising industry in 2020? A panel of key agency and marketing execs discusses the macro environment, budgets, changes in messaging, movement in the industry and any consumer and communication trends they’ll be looking out for in the year ahead. Next up is Jupiter Cape Town‘s Michelle Beh.

Michelle Beh

With over 20 years of experience in the industry, Michelle Beh works with clients to drive business performance by building meaningful and distinctive brands. She is the managing and strategy director at The Jupiter Drawing Room (Cape Town) (@JupiterCT).

There have been many discussions about how the agency remuneration system is outdated and should be changed. On the one hand, clients are asking agencies to put skin on the game; agencies, on the other, are struggling to provide better service levels at lower fees. Although there’s been much talk, little is different.

Doesn’t make sense

Procurement managers are still asking for rate cards, trying to negotiate hourly rates down and comparing agencies based on their hourly rate card — yet the time-based retainer system just doesn’t make sense.

Imagine you’re building a house. To get a quote from the contractor, you provide the vision of the house that you want to build and maybe the architect’s drawing. Sometimes you don’t even have that and expect the contractor to help you to draw it.

Then you ask the contractor how many people she will need to build the house and how much time each person needs every day. For the contractor to make more money, she needs to put as many people she can on the project (and charge senior people’s rates but use junior people to save on salary) and then make sure her staff members spend as much time as possible. It doesn’t matter if she has the right people for the job or not; she just has to justify that she needs many layers of people — supervisors to oversee the builders and junior builders to report back to mid-level builders. As long as she builds more hierarchy and justify why she needs that amount of people, she will be able to drive up the fee. She will be penalised for delivering the house with less staff and in a shorter time, so why should she?

Why does it matter to the client if the contractor needs 10 people or two? Or if each staff member spends 400 hours vs 200 hours? Don’t you just want to know that you have a house built by your deadline, according to your requirements, with the number of bedrooms and bathrooms that you need, and the finishing and quality that you want? Isn’t it better for you if the house is completed earlier and faster, so why penalise the builder if she spends less time on it?

If I bring it back to our industry, is a logo conceptualised and designed in three days worse than a logo that takes three weeks to be developed?

Why are we still looking at agency’s fees based on its resources? That should be the agency’s problem. Clients should be focused on what they want to achieve, the annual plans that will achieve their goals and the right agencies which can help them get there.

Output-based

We should be moving from a resource-based remuneration model to an output-based model as a first step.

There may be complexity as clients will need to be confident of their scope since the discussion will not focus on the resources required but the outcome and deliverables. It means that marketers need to have plans in place before a retainer discussion can take place.

It could also make the procurement’s job difficult because how do you compare an agency which charges R500 000 for a brand campaign vs an agency which charges half or double that? How do you justify the value of the deliverables?

On the flip side, agencies will need to have strong capabilities in project scoping and resource management. Their project planning and management need to be effective, as they’re committed to deliverables and not time. Things could get out of hand and very costly for agencies if they’re unable to manage projects tightly. They stand to win if they deliver the project in less time than expected, but will the quality be as high?

However, what this model does is force both clients and agencies to focus on clients’ plans, what they want to achieve and the deliverables required. Is the scope right for clients’ goals? The discussion becomes more strategic, rather than focusing on resources.

Changes

Client has been asking for more accountability from agencies in terms of linking their fees or, at least, a portion of their fees to the performance of the brand and even business. In theory, it’s a great idea as it really makes the agencies think about the right solutions for the brand and business. However, if the agency doesn’t have control over decisions, clients’ resources and even how brands are being managed, is it fair for the agency? This is when agencies becomes more critical of clients’ success measures, how they are tracked and what business impact those measurements have to justify the remuneration value.

I believe performance-based remuneration does drive more accountability on both sides as it really drive both parties to set out and interrogate the plans to achieve them, ensure plans are executed as well as possible and track KPIs.

Changing remuneration model to an output-based and performance-based isn’t easy as it requires many other changes:

There must be a mindset shift from clients to understand the value that agencies can bring to their businesses. That it’s not just bums on seats and hours on timesheet. The solutions that agencies bring ultimately have business value.
There must be much more accountability on both sides. Clients need to know what they want to achieve, and their strategies and plans to achieve that. Agencies need to understand them to be able to scope and put together their fees. Both parties will definitely have robust discussions about what the KPIs are for the agency and what should be tracked if they’re being remunerated based on performance.
Agencies will need to restructure to be able to work within this model. First, the person discussing and negotiating with the agency will need to be able to think about the client’s plans strategically. There isn’t a need for all those layers of account executives, account managers, account directors, business directors and client service directors. Everyone needs to be adding value to the process and solution. Agencies will be looking to find the best person for the solution so they can get to the right and best solution in the shortest amount of time. Project planning becomes an important tool as you will need to be able to anticipate clients’ needs to plan who and how to deliver that in order to work out the fee.

By no means is this the best remuneration solution, nor is there a one-size-fits-all solution. But it’s time for agencies to seriously relook their remuneration model with their clients to show how they’re driving better value, interested in providing the right solutions and being more accountable.

Michelle Beh

Doesn’t make sense

Output-based

Changes

See also