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Monday, January 19, 2009

Advertising Agency Compensation - Exploring Alternatives

The premise here is simple: aligning agencies and clients around results, rather than squabbling about costs and time, which further drives the commoditization of agency services, is a win/win situation. Ad agencies are in a fight for survival. The opportunity for the brave and innovative to flourish has never been greater than right now. For those who don't/can't start thinking differently, look out for the tar pits.

This post takes up on some of themes introduced in the December 5th post, Achieving Balance in an Agency, where the value of certain agency activities and deliverables (e.g. a breakthrough idea) was examined.

Value-based pricing is not a new idea, but it's a good one that has been in place for a long time in the consulting and pharmaceutical manufacturing arenas among others. Many agencies and clients are stuck in the familiar worlds of commission-based or hours/labor-based compensation. At their worst, these approaches encourage reach-oriented (i.e. tonnage) marketing programs, support running up the clock to justify billable hours and perhaps worst, crush innovation and performance.

The barriers and risks to adopting this approach are not insignificant and include:
  • Agency and client comfort/momentum in doing things the way they've always been done.
  • Having enough influence on an overall program so that the value you envision and agree upon with a client can actually be created.
  • Clearly defining success and therefore value (raise your hand if you've been part of a view-through debate)
  • Determining pricing so that nobody loses their shirt and the agency doesn't miss out on the upside.
There are various individuals and groups that are promoting this approach. Ignition Consulting Group and The Verasage Institue spring to the top of searches on the topic. Ignition even has a presentation on the topic posted on slideshare.net that is quite informative: Burying the Billable Hour.

So, what does this have to do with Project Management? In a study that Ignition and VeraSage conducted on behalf of the American Association of Advertising Agencies (AAAA) and the Association of National Advertiser's (ANA), the 2, top-rated agency value-drivers according to marketers were:
  1. Working in a collaborative way with the client by creating an environment of mutual respect.
  2. Ensuring that agency functions are integrated and agency divisions collaborate on behalf of the client
Along with the fact that Project Managers are often at the heart of conversations around pricing, these two tidbits should help give you voice on important discussions about evolving your agency's relationship with its clients. On the business development front, RFP's almost always allow responses for alternative means of compensation beyond the cost+ calculations they require. Putting a value-based option in front of a prospect isn't likely to get taken up at the outset, but at least it will show that your agency has some life.

Speak up. Watch out for the tar pits!

6 comments:

  1. I enjoyed your post about value pricing and how it relates to project management.

    The survey we did for the AAAA/ANA clearly showed that agencies chronically undervalue the importance of efficient and effective project management.

    I also admire the fact that you're devoting a blog to this critical agency function. In our consulting work with agencies, we recommend that project management be taken much more seriously as a discipline in its own right, and we've helped quite a few agencies make this transformation. I'd be interested in any resources you have on this topic, and will follow your blog postings as well.

    I blog about value pricing at http://propulsion.typepad.com. We also publish a quarterly magazine called "Creating Value" that explores the topic in depth.

    Keep up the great work.

    Tim Williams
    Ignition Consulting Group
    twilliams@ignitiongroup.com

    ReplyDelete
    Replies

    1. Tag: PM201A54. Let me share all of you about #5 Tips for Project Management Success,, I hope you enjoy it

      1. Plan your day using time management techniques

      As a project manager, time management skills are essential because you are dealing with a wide range of tasks that demand a quick turnaround time. Planning your day will go a long way in keeping you organized and increasing your productivity. Assist your task planning by using project management software which helps you track the work of you and your team.

      If you are not very tech savvy, a simple to-do list can also be a great organizational tool. Prioritize your most important tasks by putting them at the top of the list and less important ones at the bottom. Having a visual plan of your daily tasks helps to keep you on track and aware of time.

      Related post: Free ebook 104 secrets to become a great project manager

      2. Include stakeholders in important project conversations

      While you will have plenty of responsibilities regarding the project, don’t neglect your clients.

      Good communication is essential is keeping both parties informed of project progression, curtailing scope creep, and apprised of changing requirements. Some clients may have different expectations when it comes to communication, so make sure to establish the frequency and type of communication (like emails, phone calls, and face-to-face conversations) at the beginning of your project.

      Establishing communication expectations early helps alleviate stakeholder uncertainty about communication frequency and delivery.

      3. Regularly communicate with your team

      Daily team communication helps keep misunderstandings and unclear requirements under control. Keeping your team informed in every step of the project is essential to project management success.

      For example, a study published by Procedia Technology found that good communication skills were the cornerstone of project management. The study examined over 300 “construction project managers, architects, construction managers, engineers and quantity surveyors” and their successes and failures on various construction projects.

      4. Anticipate project setbacks

      Even the best-laid plans often go awry.

      Remember that even with a high amount of planning and attention to detail, your project may still encounter some challenges. Pay attention to complaints from stakeholders or colleagues, and other warning signs, like a missed deadline or cost overrun, that there may be a problem.

      Preventing a crisis will keep your project running smoothly, save you a lot of time, and keep you, your team, and your stakeholders confident in progressing with the project.

      Unfortunately not every complication can be avoided. Crisis management skills are essential for dealing with the unexpected. Project managers need to be flexible and pragmatic. Improvise and make sharp decisions when needed.

      Related post: 92 free project management templates

      5. Stay focused on the details

      A common problem project managers encounter is having the project aims not aligned with the organization’s objectives. A great project manager will strategize a plan for the project to lead back to the overall success of the business.

      Know your project’s scope by heart and avoid wandering outside of the project’s requirements. It’s too easy to get lost in minor details and forget what your focus is, so a well-planned project scope is essential for success.

      And final, you should use KPI to measure effectiveness of the project, here are full list: 76 project management KPIs


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  2. Here's a question. Boil value pricing down to a single tactic: a press release or an email newsletter.

    What is the value of a press release? Is a mention in the WSJ more valueable than a blog mention? What if the blog drives more traffic?

    How granular should we be?

    The nice thing about having the conversation is that you force the client to define the things they value.

    That at least is the start of good project management.

    http://maconraine.com/2009/04/29/what-do-you-value-in-agency-compensation/

    Ben Bradley
    ben@maconraine.com

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  3. Thanks for your comment Ben. Couldn't agree more that the focus this type of thinking promotes/forces conversations and definitions that will benefit a myriad of things.

    I applaud the approach that you take at Macon Raine by putting your fees at risk based on your company's performance.

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  4. Sometime it becomes very hard to find a well written and well established bog which give you correct and useful information. However, I found this blog and got some relevant information which are really helpful for me.
    Agile Project Management

    ReplyDelete
  5. Ah! This is nice. Will this help in getting more traffic as well? I also have a meeting with an Adwords Management this week and I am going to get more information regarding this because my business is at a downfall and it needs to rise as soon as possible.

    ReplyDelete