How To Benchmarking Your Marketing Suppliers Based on Cost & Quality
When benchmarking your marketing suppliers, it can be tempting to focus on costs alone. But quality, performance, and results are also important factors when analyzing the agency landscape.
Benchmarking is a method to identify areas of improvement in the supply chain and address them as part of a process of continuous improvement. It's also a useful way of comparing offers from different suppliers, whether those offers differ in price, quality, or other criteria.
As benchmarking is applicable to any group of suppliers in the supply chain, it is also applicable to marketing suppliers — typically marketing agencies or marketing consultants.
Procurement professionals can use marketing benchmarking data for a number of purposes, whether they are looking for additional leverage before entering negotiations with an agency, attempting to set standards with an existing marketing supplier, or simply analyzing the current field of marketing options.
However, marketing supplier benchmarking often ends up being a race to the bottom in an attempt to reduce costs. Marketing budgets are tight and getting tighter. Additionally, more and more organizations are choosing to allocate more of their marketing spend to technology rather than people and services.
According to a survey of senior marketing executives in the U.S. and the U.K., marketing technology took up 29% of marketing expenditures in 2018. That's up from 22% in 2017. Furthermore, just 23% of marketing budgets were earmarked for external marketing suppliers, down from 25% in 2017.
How can organizations use benchmarking to get the best services for the best price?
Finding best-in-class marketing suppliers (who are also affordable) is no easy task, and high costs don't always correlate to high performance. There is no set pricing for marketing services. Most suppliers will set their prices based on their needs and their own internal deliberations about their value and their place in the industry.
But certain marketing agency billing practices are riskier for advertisers than they are for agencies, and vice versa.
In a 2018 Agency Council post, Forbes laid out several of the most popular agency payment models and what they mean for the current marketing landscape. A few of these include:
- Payment Based on Campaign-Specific Metrics
- Multi-Channel Attribution
- Cost Per Sales Transaction
- Flat Rates for Deliverables
- Flat Fee Based on Media Spend and Engagement
- Payment Based on Revenue Generated
- Flat Rates Plus Bonus Payments Based on Results
- Cost Per Lead
- Service-Based Payments
- Hourly Fees
Charging flat rates for deliverables and fees for hourly work are beginning to fall by the wayside for agencies. They are more often attributed to freelance work.
Performance-based agency billing practices, like payment based on campaign specific metrics, cost per sales transaction, and payments based on revenue generated, place the impetus on the agency to help the organization succeed. Flat fees eliminate any confusions about cost for the organization, but the agency would require a robust scope of work (SOW) agreement to avoid scope creep.
There are other benchmarking metrics to utilize other than cost. Performance benchmarking is now an essential step to take when evaluating an agency relationship or searching for new marketing suppliers.
Mattel was hit particularly hard after the fall of toy retail giant Toys R Us. But some experts say the American toy manufacturing brand is showing some promising signs of recovery, in part thanks to a strong Easter season in the spring and due to the success of Pixar's Toy Story 4.
But Mattel's marketing procurement practices could also be a factor.
"Tigran had found with the rates-per-hour model, that spreadsheets of details, charge backs, sometimes very small, all led to dissatisfaction on both sides and eventually led to the breakup of the relationship and termination of the contract. Spending time building rate cards is definitely not the answer."
Performance-based models also fell flat, as they "also bred dissatisfaction, as one agency may regard their reward as being 'stolen' by another."
The panel agreed that forming partnerships with marketing suppliers was key to maintaining a healthy relationship and building success:
"Overall, it's not just about paying the agency for their work, it's about encouraging the right behaviour and the alignment of expectations through remuneration. They felt strongly that, whatever the model, you need make sure the details of the agreed remuneration are captured fully in the contract."
Marketers and advertisers have more data at their fingertips than ever before, but there is an abundance of marketing suppliers around the world to choose from. While it can be tempting to stick with an existing supplier because it's always been done that way, organizations must take a hard look at their relationships if they want to improve ROI and stay competitive.
Thankfully, because of insights and data-driven tools from experts like Beekman Associates and Flock Associates, organizations have plenty of tools available to conduct benchmarking analyses, appraisals, and performance reviews of all their marketing suppliers.