Madison Avenue Needs a Moneyball Transformation
Needed: Courageous leaders like Oakland's 2002 general manager, Billy Beane; new SOW metrics; and a revised concept about what creates success in client-agency relationships.
Credit: Joseph Mirachi, The New Yorker, The Cartoon Bank
Before Billy Beane introduced new metrics to baseball in 2002, baseball players were evaluated on the basis of their batting averages and runs batted in (RBIs). Baseball scouts scoured the nation for prospects — high school or college players who “looked right” and had high batting averages and RBIs. All teams competed for this limited pool of high performing players. Negotiating with the players was getting to be ridiculously expensive, and the low-budget Oakland A’s were not in a position to compete with their better-funded competitors.
Beane reasoned that “on base percentage (OBP),” whether from hits or walks, and “slugging percentage” (the total number of bases a player records per at-bat) were better measures of player performance, and he recruited or traded for low-cost players who scored well on these metrics, using the Bill James “sabermetrics” data ignored by other teams.
Beane not only improved the A’s performance, but he led a revolution in baseball.
A similar situation exists in the advertising industry today. Advertisers and agencies measure campaign success by the number of “clicks” achieved, or by a campaign’s success in winning creative awards. Agencies evaluate clients by the level of fees they pay and the operating margins they represent (even though margins can and are manipulated by understaffing SOWs). Clicks and margins are very flawed metrics for a number of reasons.
Rarely do agencies (or their clients) 1) measure the amount of SOW work that agencies are being paid for, or 2) measure the appropriateness of agency staffing for the SOW work, or 3) evaluate the growth of brand revenues from the success or failure of the brands’ SOWs.
New metrics are required to accurately assess the state of client-agency relationships and to make appropriate adjustments so that better performance can be achieved.
Measuring the amount of work in a SOW. Neither agencies nor their clients do a good job documenting the deliverables in a SOW, or measuring the “amount of work” that they represent.
Pricing. Imagine, for a moment, that the amount of work in a SOW could be measured in kilograms. It is a ridiculous notion, but stick with me. If this could be done, then the Price of a SOW could be measured, using Price per Kilo, and agencies could develop pricing policies when negotiating with clients. “Our minimum standard is a Price per Kilo of $175,000 for the work we do. This SOW of 800 deliverables is 20 kilos. Our proposed price is $3,500,000.” Agencies need to charge for the work they do, not for a guesstimate of the man-hours that an unknown quantity of work might take.
Resourcing. How many kilos of work should a creative do in a given year? What if each creative should complete 5 kilos of SOW work per year, given normal productivity levels and a normal amount of rework? Then a 20 kilo SOW would require 4 creatives. Add in (say) 3 Client Service FTEs, 1 Strategic Planner and 1.5 production people and total staffing would be 9.5 FTEs. Typically, this could give the agency a 17.5% operating margin for $3.5 million in fees, but happily this pricing approach would require no negotiations over man-hours or FTEs or overhead rates or profit margins or billing rates. A price per product is a price per product, and a kilo of thoughtfully-designed work is the product.
The ScopeMetric® Unit (SMU). Instead of the fictitious SOW “kilo,” an actual SOW workload unit exists, the ScopeMetric® Unit (SMU), developed over the past 20 years by Farmer & Company and its clients. One SMU is about the size of a typical TV:30 origination. A typical banner ad is only 1/137th of an SMU, or 0.0073 of a SMU. The Farmer & Company database contains about 3,000 unique types of deliverables, each with a unique SMU value. Agencies and their clients can determine SMU values for an entire SOW, and agree on agency fees, using Price per SMU, and agency staffing, using agreed productivity standards.
Growth of Sales. The other area that requires more scrutiny is the sales performance of brands. Currently, 42% of the top fifty advertisers increased their sales by less than 2% over the last 13 years despite media spend increases of 300%, increases in SOW deliverables of 300%, and GDP growth of 31%. Although there are many reasons other than marketing for the poor sales performance, marketing surely bears some responsibility. The massive increase in media spend and SOW deliverables generated poor yields for nearly half of the world’s top advertisers.
Badly designed SOWs are surely one major cause. Too many SOWs are simply designed to “cover all media channels,” as if total channel coverage were the route to brand success. Too much media money is being spent for meager returns.
Madison Avenue Moneyball. Madison Avenue needs a Moneyball transformation based on better metrics, revised SOW pricing, more focused resourcing and better brand outcomes.
Who is the industry’s Billy Beane? Who is ready to use ScopeMetrics® for SOW pricing and resourcing, which will improve industry business economics significantly? Which advertiser will begin to grow again by having more focused SOWs, designed to drive brand growth?
The industry is poised for this type of change, but nothing will happen without the right kind of leadership and a suite of Moneyball metrics to make it possible.
Fantastic parallel, Michael!
Love this analogy! Part of the issue is a need for new metrics that reflect the brand reach of a campaign. (No idea how you do this)
The other issue is, the folks currently hocking metrics are doing so entirely for their own gain. Be it media programmers, web seo, or retail media. All of those metrics operate under the assumption that more media, more seo, more retail media results in more ROI. Which yes, there is a relationship between more and more.
BUT- there’s also something much more tangible which isn’t being tracked.
For example. More spend on web, for say a ‘poor creative campaign’ will still ultimately increase exposure and have some kind of residual effect on effect on sales. Because more is more. BUT, say more spend on web, for a ‘great creative campaign’ and you could very well get a huge upspike in sales for the same price of exposure.
So yes. Completely agree. Something more tangible needs to be tracked by somebody. If not, for at the very least, so the brand hockers have something to compete with- with the folk hocking every other advertising service.