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Overcharged   an r3 presentation at ana afm 2014 Overcharged an r3 presentation at ana afm 2014 Presentation Transcript

  • 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 2 1 2 3 4 5
  • THE SITUATION Digital has never been more important
  • THE SITUATION 58% 4 Clients unhappy with the way their digital agency charges them CMO Council Study 2013
  • Agencies don’t see client transformations 5 THE SITUATION SOURCE : 2014 SoDa Report
  • 6 THE SITUATION Clients and Agencies differ on what matters SOURCE : 2014 SoDa Report Marketing creativity Product/Service Innovation Expertise in emerging trends 1 2 3 4 5 6 7 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
  • 7 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 1
  • What % of US marketers pay for digital on fee basis? A. What’s a fee basis? B. 28% C. 82% D. 102% 9 POP QUIZ #1
  • Not so “unique” after all – MACRO LEVEL 10
  • Not so “unique” after all – MICRO LEVEL 11 AGENCY STAFF 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 Gap 13 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 agencies oPaying multiple agencies for similar services? oLack of agency revenue transparency? Fees on top of other agency revenue sources? 14 Digital vs Traditional Why is my agency expensive?
  • Digital vs Traditional Take-aways No need to vary from your preferred method of agency compensation 15 1 2 3 4 If your digital agency is perceived to be more expensive than your traditional agency, there are likely other factors Don’t forget importance of incentives Work harder to reduce turnover
  • RATECARD vs RETAINER 2
  • 17 What is the typical premium of Ratecard over Retainer? A. We have to pay agencies? B. 0% C. 30% D. 100% POP QUIZ #2
  • 18 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 19
  • The Digital SOW AREA EXPLANATION TECHNOLOGY Most 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 PROCESS Invest time to understand how it can impact your final fees DATA Know which data you have, what you need, who owns it , and what is costs to maintain 20
  • 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 21
  • 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 22
  • 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) 23 • 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 24 • 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 25 1 2 3 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) 26 4
  • FEES vs PRODUCTION 3
  • 28 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 29 TRADITIONAL AGENCY DIGITAL AGENCY ACTIVITY FEE 3RD PARTY PRODUCTION FEE 3RD PARTY PRODUCTION 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 production 30 TRADITIONAL AGENCY DIGITAL AGENCY ACTIVITY FEE 3RD PARTY PRODUCTION FEE 3RD PARTY PRODUCTION 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 31 Fees vs Production Take-aways
  • MAKE vs BUY 4
  • 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 services of ANA members This 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 34  - “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 35 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 36 Make vs Buy Various digital services lend themselves to in-house solution
  • Related to digital agency fee planning and negotiation: 37 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 Buy Take-aways
  • Commercial Break 38
  • 39
  • 40
  • TRANSPARENCY vs OPAQUENESS 5
  • 42 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
  • 43
  • FastBoys vs Madmen 44
  • 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 45
  • RTB Revenue Streams PROFESSIONA L FEES and/or commissions 46 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 Research 47
  • How Agencies are Aligning on RTB GROUP 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 48
  • How Clients are Not Aligning on RTB 49
  • 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 50
  • 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 Opaqueness Take-aways Have a conversation. Know the issues 52 1 2 3 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 5
  • IPG? 54
  • Peets and Razorfish 55
  • 56 • “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 control Tightly customized to client needs ADVERTISING Quantitative E.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 ADVERTISER Quantitative E.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
  • Unilever 60
  • Samsung 61
  • Summary 62 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
  • 63