comp panel 4 as presentation 04 07rev2

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Getting Paid What You’re Worth

2007 AAAA Management ConferenceCompensation Panel

April 19, 2007Naples, Florida

Steve Koskela, Ground Zero Advertising

A New Focus……Finally

• Labor Theory of Value has too long dominated the agency compensation dialogue

• Endless debate of the “reasonableness” of costs and the significance of “agency transparency”

History’s First Client Compensation Consultant

• “Relative value (of any product or service) depends on the relative mass of labor necessary for its production.”

• Fair Value = Labor Costs(Hours x Cost of Hours)

A New Focus……Finally

• Now Moving from Defense to Offense

• Thought Leadership Contributions from OtherIndustry Professionals

• Leading Edge Agencies Challenging the Old Model

Changing the Compensation Course

• Value is Subjective (a vastly different Theory)

• Focus Now on the Worth of the Benefits v. Cost of the Inputs

• One Very Serviceable Definition….

Pricing for Value: Method of pricing products (or services) in which companies first try to determine how much the products (or services) are worth to their customers. The goal is to avoid setting prices that are either too high for customers, or lower than they would be willing to pay if they knew what kind of benefits they could realize by using a product (or service).

A New Compensation Doctrine• Agencies should be paid for providing

solutions and enhancing the wealth of its clients, rather than the doing of things measured by time.

• Reject the notion that value of agency services is predicated on the cost of producing an end product or result.

• Labor cost focus and selling of time = devaluation of agency services and commoditization.

A New Compensation Doctrine

• Benchmarking and agency cost standardization should be rejected as unacceptable practices aimed at eliminating agency differentiation.

• Compensation consultants and procurement specialists have a key role to play in assessing value - has nothing to do with cost analysis.

• Pricing is a specialized skill and discipline that agencies must develop. Whose your CVO?

Essentials of Benefits-Focused Pricing

• Goals, Outcomes, and Effectiveness v. the cost of doing things.

• Heart of the Plan = Well-Defined, Specific and Measurable Scope of Benefits.

• Agency should be ready, able, and WILLING to establish a guaranteed fixed price (fee).

Essentials of Benefits-Focused Pricing• Price adjustments through Change Orders.• Alternative IP ownership ground rules

should be considered and may be necessary.

• Anticipated cost of labor as measured by anticipated time investment is only one consideration in the pricing strategy.

Getting from Here to There

• Recognize it’s a revolution, not an evolution.• Be confident that agency services are unique

AND valuable. Believe in your own brand.• Recognize that some of the best deals are those

that are not done.• More Doing, Less Talking - Let’s Get On With It