Agencies want to capture more of the value they create for their clients; in other words, earn more for what they do. The important first step is to understand the nature of value, including how, when, and where value is created.
Value is created outside, not inside
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.
We’re counting the wrong things
A survey by the 4As asked agencies “What information do you track?” Here’s what they 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.
Knowing what you’re really selling
A critical 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.