We have written extensively about developing a scope of work for media, creative and digital agencies. This could be to calculate agency fees during a pitch or tender process. It could be to set agency fees for the year ahead. Or it could be part of a budgeting process.
But managing agency scope of work is essential not only for determining agency fees but also for managing productivity and agency performance.
In a recent conversation with the very experienced procurement team from a major manufacturer, they were sharing with me how they had invested in developing a data cube capturing all marketing expenditure by the supplier. It had been a massive project and was seen as invaluable – until I asked if it also provided descriptions of what was actually delivered for the spend.
There was silence. I pointed out that a significant cost of the advertising process is much like manufacturing. What would happen to the manager who knew to the cent what was spent, yet had no idea of what was actually produced?
For something that is so essential to the effective management of the advertising process, it is often either overlooked because it is difficult or it is undertaken poorly, leading to a less than optimal outcome and disappointment with the methodology.
While we have spent the last two decades developing and refining a highly accurate way to calculate the agency resources and associated costs to deliver any combination of advertiser scope of work anywhere in the world, we are often disappointed at the way scopes of work are defined. Here we review some of the more common mistakes incurred when tasked with developing a scope of work for a brand or product by an advertiser.
One of the great disappointments for any advertiser moving to a defined scope of work for their agencies is the sudden realisation that they cannot afford to do everything they had wished to do. Many advertisers have become used to an agency retainer where anything and everything they have ever requested is simply covered by the retainer.
But when you actually map out the scope of the work delivered and then apply the resources required to deliver this work, it typically proves the value hidden in the retainer model approach. Is it no wonder that agency staff continue to suffer burnout from over-work and stress?
In one particularly telling case, the cost of a scope of work detailed by the brand team was calculated at twice their budget. On reviewing it with the team, it became clear they had actually provided their wish list rather than a realistic scope of what was required.
Under budget pressure, some marketers are inclined to significantly understate their scope of work for the agency to land a fee significantly less than they are currently paying. Often when reviewing a scope of work prepared by an advertiser with their agency, the agency will highlight gaps and inconsistencies.
Typically the client scope of work will only focus on the core outputs, such as a television commercial and a few supporting media executions. The agency knows that the client will also want a “Behind the scenes of the shoot” video for internal promotion, a campaign guide for partner use and the like.
The problem with this strategy is it works very well for a traditional resource retainer, where the agency quotes the underestimated scope of work. But it never works where the scope of the agency outputs is clearly defined. In the former, the only reconciliation is agency hours, while in the latter the agency fee is reconciled against the actual outputs delivered.
Therefore, any scope of work creep will need to be paid for and any hope of reducing the agency fee is lost.
There are marketers who find it difficult, if not impossible, to define a scope of work for their agencies for the coming 90 days, let alone 12 months. You would think that having in place a marketing activity plan would be the perfect place to start in defining the work the agencies will need to do.
But for various reasons, such as the demand for marketing activity existing outside of marketing, in other parts of the organisation, marketing is unable to provide any detailed scope of work.
Without a scope of work, it is simply a guessing game as to the type, level and mix of agency resources required and therefore the cost. Often in these cases, a top-down approach is used with the agency developing a resource plan to fit the advertiser’s budget. This assumes that the budget should define the activities required.
But a better approach is to assess the agency fee for the previous year and – if approximately the same – then use the previous year of activity and agency output as the scope. Some marketers have objected to this approach on the belief that each year is different. However, by tracking year-on-year deliverables it is usual to find very little changes, beyond perhaps the content of the campaign, but not the composition of the campaign outputs.
Worse than no estimate is an estimate of agency scope of work with no quantities. While this may seem counter-intuitive, as we have shown, with no scope of work you have the possibility of creating one from the previous year.
With a vague scope of work with no clearly defined quantities, the solution is to quantify it. We call a scope of work that lacks any quantification of outputs a scope of services. It is more like a list of services you would want the agency to provide, but with no indication of how many or how often.
Scope of services is very common in agency contracts. Beyond defining the scope of agency responsibilities, it offers no value in calculating or agreeing on the agency resources required or the fee. Often, we find ourselves using this scope of services and any form of the marketing plan to provide a definition around the agency outputs to be delivered.
Define, measure and manage
So much of the agency fee model is guesswork when you cannot provide a defined scope of work. Both advertisers and agencies will be hoping that they have erred on the side of covering their exposure with advertisers not wanting to pay too much and agencies wanting to make sure they have covered their costs and maintained a profit.
Having a defined agency scope of work provides a baseline of measurability of the work of the agency, beyond the unreliable timesheets. It means both advertiser and agency can manage the resources, both financial and human, to deliver the advertiser’s needs.
There are many more reasons to give up on guessing a fee for the agency and take the time to develop a scope of work. Hopefully, this has provided not just a watch out for the common mistakes that are made when doing so but provided some solutions as well.
This post is by Darren Woolley, Founder of TrinityP3, our partners in Asia. With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimization.