R&F Series: Overlooked risks to better efficiency in client-agency relationships (Corp. Management, Finance Procurement)
It's impossible to hide from the news. Uncertainty (in global markets, the domestic economy, capital markets, etc.) is coming at us thick and fast and may stick with us for a while.
With the pressure to play offence into a recession, the best companies and proactive executive teams will not only refocus their investments and increase efficiency but also put the right processes in place to mitigate risk in the long run.
This is particularly so for Marcom spend. History and those with first-hand experience know that indiscriminate across-the-board cost-cutting ends up being a mistake in the long run.
So, where do advertisers' finance and procurement teams begin before making key spend decisions about major advertising services partners? In our experience, low-hanging fruit is found by taking stock of the status quo of commonly overlooked areas of your client-agency relationship.
Three commonly overlooked ad agency spend risks for Corp. Management, Finance and Procurement teams to check while planning for a downturn:
1. Compliance and Enforcement (of agency contract terms):
One of the most often overlooked risks in general, and certainly an item to address before making spend decisions, is awareness and understanding of your client and agency contract.
We know. ("Who has time?", "I think I know what I need to know," "This has to be a Corp Legal or Compliance concern, right? Right?", etc...). It was signed a few years ago. It's filed somewhere. The document is full of things that will never need to be dealt with (until they do).
Conduct an internal review of your client-agency contract. Consider, among others:
Compensation: Is there a clear understanding internally of key compensation terms and the makeup of the agency's remuneration? Are these terms being correctly followed? Are these terms being referenced during your annual compensation assessment? Are you able to measure and confirm the value delivery of agency services?
Corporate liability requirements (insurance, IP, privacy, etc.): Are these terms current and up to date, and are they being complied with by the agency?
Oversight: Who's responsible for compliance and enforcement internally? Are they the right individuals (knowledge, skill, experience, seniority)? What is the process in place to conduct compliance and enforcement? Are there gaps in oversight responsibility re. billing processing, contract renewals, contract revisions, performance reviews, termination, etc.
What to consider to prepare for a more efficient future:
Awareness and understanding of client-agency responsibilities, agency's cost of service/compensation and ability to measure value delivery, Corporate liability issues, and awareness of internal oversight 'gaps.'
2. Assessment of Retainer Fees:
If your agency's compensation includes any form of labour-hour-based fees, taking a closer look at your agency's retainer fee proposal can uncover often overlooked inefficiencies. Once approved, the agency's defined scope of work and corresponding staffing plan often sets the agency's annual Retainer Fee (and prorated monthly invoiced amounts).
The essential but complex details contained within the scope of work and staffing plan documents can be challenging to assess. Still, many companies are surprised at what they discover after taking a deep dive:
Have all projects been adequately described within a long-form agency-defined Scope of Work (meaning, project description, work dates, services, deliverables, assumptions, exclusions, third-party vendors identified, etc.)? Has every scoped project been included in the corresponding staffing plan? Has the agency provided the staffing plan in a format your team can use to reconcile going forward? Has the agency allocated appropriate staff and staff time across each project? Have hourly rates or blended rates been examined with the SOW and staffing plan in mind and against your contract's compensation and fee format terms? Has the agency been requested to revise its SOW and staffing plan within the last three months due to your team's new or changing direction YTD?
What to consider to help prepare for a more efficient future:
Awareness of the complex compilation of elements that make up the Retainer fee and the need to conduct appropriate due diligence every year (and when revised) before giving your approval. Assurance that you are being charged appropriately for all necessary services, skills and expertise for the work you've requested and not overpaying due to withheld or missing information required to confirm appropriate agency fees invoiced.
3. Review of your Billing and Reconciliation Processes:
Billing and Reconciliation processes are often overlooked and face a similar fate to compliance and enforcement risks: it's supposed to be someone's job to do the checking, but everyone thinks someone else is doing it. That's not to say existing internal processes are not meeting high professional accounting standards. Simply, it's the degree to which detailed marcom-related spend information should be readily available to make appropriately informed decisions.
Conduct a review and assessment of all agency cost data your team tracks. Are key agency fee and hard-cost details being tracked - from both agency estimates and invoices? Can you track total agency compensation (both in scope retainer and OOS/non-retainer), particularly to confirm that agency service fees are valid and non-duplicating? Are all necessary/required records, data and documentation being received, reviewed for accuracy and tracked? Is the agency reconciling against approved estimates and plans - and is your team conducting their own independent reconciliation?
Many marketing teams are surprised at their real ability to compare approved plans vs. 'actuals.' It's often hampered from the very beginning; overlooked lack of detail within the agency's annual fee proposal and ad-hoc OOS estimates significantly limits the ability to categorize and confirm important spend details. Coupled with sometimes limited or partial access to required agency supporting documentation (e.g. timely and accurate staff time data in support of Retainer fees), the problem of tracking and monitoring agency spend can quickly grow to become something beyond the scope of your team.
What to consider to help prepare for a more efficient future:
Awareness of what data from required records/documentation (plan/estimates and invoices, supporting documentation, etc.) is being tracked in detail and is used for regular reporting to support decision-making (or not). Awareness of reconciliations of approved plans/estimates vs 'actual.' Awareness and understanding of total agency fees being invoiced (including retainer and non-retainer) in detail, by staff, by function, by project, etc., to enable assessment of agency value delivery.
To be best placed to weather the impending downturn, there are better strategies than indiscriminate cost-cutting. Start by taking stock of overlooked areas of your client-agency relationship before making important marcom investment decisions. Opportunities for better efficiency and implementing improved processes to mitigate risk will build dividends for the long term, regardless of market pressures.
Reynolds & Fyshe has consulted with numerous top-tier Canadian brands on value delivery, contract compliance and oversight processes impacting client-agency relationships. We provide a wide range of advisory, marketing management and client-agency operations support services backed by extensive in-market experience. Contacts us for a discovery consultation.