Ain’t you glad you are in this exciting business? ;o)
Tip – Great stats for you when preparing your decks!

Assuming the agency has the following departments/ teams:-
1) Business development / Sales
2) Account servicing / Project management
3) Creative / Technical

Here is the recommendation:-

1) Divide the agency into 2 groups. Put BD as one group, the rest as the 2nd group.

2) Business Development – These people brings in the dough, or should I say new dough. They ‘run’ the marketing department of the agency, making sure the agency is always on the radar and sales leads flow in on a regular basis. They follow up on leads, cultivate them into business opportunities and eventually brings in business.

The commission structure can be structured based on the projected profit for each job. First, the costing for each project needs to be proper and the method to proper costing for digital projects can be found here. The commission for the business development team is based on a certain percentage of the the profit margin. For example, if the base cost of the project is $10,000 and the mark-up margin is 1.8x @ $18,000, the profit margin is $8,000. If the commission is fixed at 3%, the commission payable upon awardment of the project is $240.

Commission should be payable for jobs from new clients for the next 6 consecutive months after the 1st project. Reason is that for new clients, they usually start with small jobs and progressively increase the volume. This will also create the motivation for BD team to follow-up with the client until a more robust relationship is forged. Even though over this 6 months, it can be argued that it may be the Operations team doing most of the job, it is clear that they are also remunerated accordingly.

3) Operations (comprising of AMs/PMs and Production) – The key is to motivate the team to be more efficient, prudent and even to push them harder to put in a few more hours per week. After all, they are the ones delivering at the end of the day.

If the total overheads of the agency is $30k per month, the team will be required to produce work worth that amount. This means that the monthly billing to clients need to be $30k before the incentive scheme kicks in. Incentives are tier-based. I will show you how it works:-

Agency’s overheads = $30k
Monthly billings = $30k to  $40k (first $10k profit entitles the team to 5%) = $500
Monthly billings = $40k to $50k (2nd $10k profit entitles the team to another 10%) = $1k
Monthly billings = $50k to $60k (3rd $10k profit entitles the team to an additional 12%) = $1.2k
Monthly billings = $60k and above (Every additional $10k entitles the team to 15% for each $10k)

Assuming the billing of this month is $80k, the incentive will be calculated as:-
1st $10k profit @ 5% ($30k to  $40k) = $500
2nd $10k profit @ 10% ($40k to $50k) = $1k
3rd $10k profit @ 12% ($50k to $60k) = $1.2k
4th $10k profit @ 15% ($60k to $70k) = $1.5k
5th $10k profit @ 15% ($70k to $80k) = $1.5k
Total incentive payable to the team = $5.7k

One important point to note is that any outsourced work will have to be deducted off the profits as accordance to the sequence it is being paid out to the external suppliers.

Synergy among different teams
To some extent, structuring the incentive scheme this way creates synergy between the BD and Operations team. Operations will now be willing to push a little harder for sales pitches since whatever that will be brought in will goes into their billable work as well.

Possible pitfalls
Bear in mind that this model is a $-driven model. It does not encourage quality of the work being done. Instead, teams may overly driven to deliver and neglect quality, from customer service perspective to production quality perspective. To ensure the loop is closed, other feedback mechanisms need to be in place:-

1) Customer feedback form / survey
2) Awards

These feedback mechanism be incorporated into the criteria to evaluate individuals for promotions, remuneration reviews and variable bonus at the end of the year.

Not just $$ please…
At the end of the day, it is not just money that motivates people. Middle level managers who lacks managerial skills or motivational skills may solely relying on this as the key driving force and that’s 99% going to backfire. Understanding of individual team members’ need is important. Structuring proper rest/recharge schedule for all is key to rejuvenation. Workshops, seminars and conferences are brain food for the people. When it comes to motivation, think macro and micro.

Marketing
I did a quick search on google “digital agency singapore“.  The 1st page contains 5 local digital agencies (I have filtered out those non-agency results):-

• Profero Singapore
• Above 1
• Adwright
• Oasis Interactive
• Method Media

There is no doubt that all these agencies are established and respectable companies that serves some of the best brands in the Singapore. My question is – if we are are digital marketers, shouldn’t the agency be embracing digital media to the fullest, including social media? Blogs, LinkedIn, Twitter feeds, facebook, etc….

People
Like our clients, we started off with people that are not exactly into social media. There is a phase where existing team members need to ‘educated’ on social media marketing and I have been through that myself. Implementing social media to a group of team members that have their primary jobs to perform is not exactly the easiest task around. People that live on social media do not need to be reminded to tweet, update their blogs, tag their friends of flickr & facebook… I would see the shift in recruitment criteria in digital agencies to include being ’sm-savvy’ as one of the primary criteria soon.

To be continued…

Honestly, it is not about thee fees. It is about the agency’s base costs. Just like any other businesses, there are costs to run the business. Only by knowing these costs can the agency derive a formula to calculate it’s base cost for taking on each project. This is how I have done it.

1. Establish daily rate of each headcount
Assuming>> CD – $8,000/month ; AD – S$6,000/mth ; AM – $4,000 ; AE – $2,500 ; Programmer – $3,000
The formula to calculate daily rate is [(monthly rate x cpf rate x 14)/12]/22
CD’s daily rate = [(8,000 x 1.15 x 14)/12]/22 = $488

2. Estimate each headcount’s involvement
By scoping up the requirements, you should be able to estimate who should be involved in which part of the project and how long it will take. The amount of man-days required per headcount should be based on working on the job full-time. Seek help from seniors and even the respective headcounts to get a more accurate estimate.

3. The Base Cost
Add all headcount costs and that’s your Base Cost. This Base Cost gives you an indication that your project fees cannot go lower than this. Base Cost already exceed client’s budget? – Go to Pt 6.

4. Margins
With the Base Cost derived, multiply it with margins at 1.6x. This 60% margin is added for creating a buffer for miscalculation of man-days, underestimation of scope and clients’ change of specs. If the client’s budget is tight, stay at 1.6. If there are rooms to play, go all the way to 2.2.

5. Use this to monitor profitability
Assuming the project is awarded, PMs need to use the estimated man-days as a gauge to monitor productivity / profitability. Remember – overruns will erode the margin!

6. Be Flexible
There are many occasions that Base Costs already exceeds client’s budget. Be flexible to review the man-days estimation, evaluate the importance of this client vs margins, explore alternative development methods and sources, reduce scope with client, etc. There are many areas that can be trimmed so Base Cost can be reduced. Key is to be flexible and make a continuous effort to everyone’s expectations.

So you see, only when you know how much it costs you to take on the project can you then decide how much to charge, and then know how much you can earn. The question is not really about to reduce or not to reduce.

It struck me hard that most of the time, digital agencies believe their scope of service ends at the launch of the website. The team’s just dying to move on once the site is launched and little attention is spent on it thereafter.

To me, the launch of the website marks the beginning of part 2 of the job. It is when real users start interacting and consuming contents that we have created. This engagement will need to be measured through properly defined tracking metrics so we can learn if the information architecture is doing its job, if we are really getting that conversion we want, or simply put, if we are meeting our goals.

It is only through this form of tracking that the team (and the client as well) can learn and make changes. That’s the beauty of digital. Track-n-Tweak!

The mindset shift that we need to do this remaining 50% job so that we can really deliver an experience to the client’s audiences and eventually, deliver results to the client impacts a number of things. It changes the way the team works, in terms of scheduling and tasks allocation, it creates the need to think deeper in terms of tracking metrics & it changes the way we do our costings.

More importantly, it changes the way clients see the agency. Which client will not be appreciative of an agency that follow-through the entire campaign, constantly on the lookout for potholes and proactively making tweaks to make sure we see results.

I believe the first step is a mindset change from the top. The rest will follow suit.