How to Win in the Sport of Advertising
Last week I had the pleasure to participate in an Ad Age webcast alongside Michael Farmer, renowned business strategist and advertising industry expert. I’ve been pondering our discussion about hidden metrics ever since. If you were unable to join, you can listen to a recording of the session here.
The question we set out to answer in the webcast was; “Is there a moneyball strategy for the game of advertising?” Or put another way, what are the hidden metrics we should consider to improve operations and therefore the overall success of our agencies?
Advertising is a Sport and a Business
We both agree advertising is a sport and a business, hence the moneyball reference. The sport is winning new clients and awards because they have better ideas than the competition. To enable creativity on the field, the business behind it needs to make data-driven decisions to ensure the right resources, or team players, are in the right place at the right time for the right fee. Without project data, there is no way to predict how much time, from who, is needed for a given client.
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“Three P” Metrics for Agency Management
Michael was clear that we need a data-driven, or moneyball, approach to managing agencies. However, every company needs to start with some basics to ensure they understand the key aspects of their business before undertaking such an approach. He describes these as the Three P’s:
- Price – fee income divided by number of deliverables or SMUs (scope metric units)
- Productivity – how much work is delivered
- Profitability – the difference between the fee and common costs
Michael has tracked the advertising industry price for 25 years and has observed a downward trend from $435K per SMU in 1992 to $135K per SMU today. He attributes the decline to decreasing fees and increased workload. He passionately told our audience that without knowing the output of each team member per client it is impossible to manage an agency well. We are in an era of steep profit decline and Michael feels the responsibility for this sits squarely with inaccurate and unmonitored Scopes of Work (SOWs), which boils down to agencies continuing to assign a guesstimated time allocation to tasks.
Action Plan to Change the Trajectory
The question (loud and clear from the audience) was how to get started. In the words of one agency leader on the call – how do we avoid running before we can walk?
The answer is to start by acknowledging the problem; agencies don’t truly measure how much work they are doing. During the session we asked, “how difficult would tighter management of Scopes of Work be for your agency?” The overwhelming response was, “somewhat difficult.” While this may sound discouraging, you can develop a clear action plan to follow if you want to see improvement in this area:
How to Improve SOW Accuracy:
- Document Scopes of Work in a uniform format
- Make Client Leads accountable for Scopes of Work, fees and resources
- Review SOW metrics at regular intervals with top management
- Develop action plans to correct under-performing clients
- Be accountable for success, i.e. delivery of the SOW to budget
You Must be Able to Trust the Data
For me, this is where the tools come in. Transparency is vital for you to really know your business. To gain this kind of transparency you must give your teams access to online and mobile software so that they can record their efforts in real time. You don’t want them waiting until the end of the week, by which point time allocation is no more than a best guess.
69% of agencies report too many guesstimates in their estimates.
Multiple systems are also a killer. You need one single interface with a clear dashboard that alerts you when you are in danger of going over or under budget. It’s only when you start trusting the data you are recording that you can put it to good use, create realistic SOWs and accurately measure against them to avoid unexpected over or under-service.
Moneyball strategy = consistency of delivery
So, what’s the measure of success? If you implement a moneyball strategy what can you expect to achieve? The answer – consistency. When you achieve consistency, your price of output per client will be the same. You won’t have a few toxic clients detracting from your hard work elsewhere. The quality of creative work will be reliably high because your people won’t be over-stretched, and you can plan your resources with ease and precision.
If you’d like to know more about how the Deltek WorkBook tools we’ve developed can help you win the sport of advertising, please don’t hesitate to get in touch.