Value is created outside the agency
May 8, 2012 | Author: Tim Williams
Agencies want to capture more of the value they create for their clients; in other words, earn more for what they do. The first step is to understand the nature of value, including how, when, and where value is created.
The truth is, almost all agencies are looking in the wrong place for value. Their compensation agreements are based on hours worked, FTE’s assigned, and costs incurred. Hours and costs look inside the agency, but value is created outside the agency. In other words, value is created outside your four walls. Agencies and their clients are therefore usually looking in the wrong place for the basis of pricing and compensation.
In order for an agency’s compensation to be based on the value it creates, the agency needs the necessary knowledge and skills to identify and measure the drivers of a brand’s success. If you don’t understand how you create value for your clients, you’ll never succeed in being paid for it.
Counting the wrong things
A survey by the American Association of Advertising Agencies asked agencies “What information do you track?” Here’s what the agencies said:
|
Job Estimates |
98% |
|
Labor hours and costs |
94% |
|
Staffing plans |
82% |
|
Client business results |
22% |
These results make it painfully clear that agencies believe value is created inside, rather than outside, their organizations, because they’re paying close attention to internal activities and very little attention to external outcomes.
Investing your time in ways that create and capture more value
By some estimates, the average agency spends up to 20% of its time and energy recording, tracking, capturing, estimating, billing, and adjusting it’s time. Imagine if you took that same time and energy and instead invested it in doing a better job of creating marketplace value. What if you traded the time spent in column A for time spent in column B?
| A: Internally-Focused Agency | B: Externally-Focused Agency |
|---|---|
|
Asking team members for estimated hours Preparing an estimate of hours Tracking actual hours spent Logging hours on timesheets Collecting and policing timesheets Inputting time in the software system Producing timesheet reports Reviewing time reports Reconciling actual hours against estimated hours Justifying hours to the client Transferring or writing off hours |
Identifying scope of value (expected outcomes) Clarifying scope of work Collecting complete information about assignment Developing more complete briefs Conducting better briefings Previewing the direction with the client Investing more effort in presenting the work Pricing (not estimating) the assignment Pricing and billing the work in phases Paying more attention to scope creep Re-pricing work that exceeds scope |
If you turned your agency’s focus to column B, would the quality of your work be better? Would the client receive better value from the agency? Would you earn better margins on each assignment, and therefore on the client as a whole? The answer to all of these questions is yes. Why should we stay trapped in a model that serves neither party well?
Knowing what you’re really selling
The critical first step on the path to becoming a value-based agency is to start turning your attention and energies to what clients are really buying from you; business success. And as soon as you become as expert in identifying, measuring, and analyzing client business results as you are in crunching your agency’s cost accounting data, you will be infinitely more valuable to clients and prospects.
