Since creative services is probably not a core competency of your enterprise, it is likely you will need to continually defend your resource allocation and possibly the team's existence. If you are unable to show the value you add the discussion will likely turn to how much you cost the organization. It is not in our interest to argue from this point of view as we are in a much stronger position to defend our resources from a position of the value our team adds. A few weeks ago my colleague Jackie Schaffer wrote a post entitled "How to Calculate Cost Savings." It's a great article giving a detailed description of how to calculate this very important metric that most in-house creative leaders should be calculating. But as more internal agencies begin to use this metric, we are starting to hear challenges to the calculation methodology. In a recent presentation on metrics I made a point that your methodology must be clear and transparent and it is likely you will need to defend it at some point. In order to successfully defend it you must proactively prepare by understanding the likely challenges and by compiling the necessary data to support your rationale.
One set of possible challenges commonly assert that the cost of internal agency labor is unequal to an hour of external agency labor. For example, it is likely that your cost of labor is significantly less than the external agency. There may be many reasons for this. One specific challenge is that the internal agency cost of labor is not fully loaded. Costs like overhead expenses for rent, utilities, accounting and IT support and even some services like account management may be subsidized by the enterprise. If you are not including these costs in your calculation you may be challenged.
Another specific challenge is that the external agency is more efficient. This is relatively easy to test if you are tracking time by project. Select a set of completed projects of various deliverable types and clearly define the specs. Then get external estimates and match them against your actual performance. Or if you have the ability to send projects to external agencies, send projects with similar specs to your sample projects and match performance. If it is found that the external agency is more or less efficient you can use these tests to quantify that deferential and apply it to your cost savings calculation.
Another challenge is that the external agency may be more effective or more creative. This is tougher to measure since creativity is often subjective and controlled testing is more difficult. But it is not impossible. A focus group conducted by an independent third party, to avoid bias, could be a cost effective defensible solution if other analytics are unavailable.
Another possible challenge is that the blended rate used for external agencies in the calculation is not accurate. We recommend using the 4A's Labor Billing Rate Survey but it is possible that your enterprise has significant buying power resulting in lower than published rates. In that case, work with procurement and client partners to get actual agency rate cards to calculate the local agency blended rate.
In our opinion, the internal agency has access to the same pool of resources as the local agency and may have significant advantages making them more efficient and more effective. Advantages like deeper institutional knowledge, better access to internal resources and the lack of a profit requirement. Cost savings or cost avoidance is a powerful metric quantifying the value you bring to your organizations and your partners through cost savings. If you aren't calculating it, you should be...and you need to be prepared to defend against challenges to the methodology or risk its validity.
