How can I manage staff costs and churn better?
Staff are the single biggest cost of any agency - from around 50% for the best-run up to 70%+ for those that don't get it quite so right.
The £184m figure that got all the attention was calculated on an average of 30% churn in our industry adding the direct costs of recruitment plus the time to find and onboard new staff.
In this context, the monthly P&L is a blunt tool for managing personnel costs. It gives almost no information about the causes of churn and if anything, reinforces an overly simplistic focus on short-term cost control.
More insightful is to look at the underlying drivers of staff costs in general and churn in particular - that is, to consider development and retention issues.
In my experience, people will tend to stay longer in a successful role if they are doing meaningful work for a manager they respect, are developing themselves and being rewarded fairly.
In any role, there is inevitably a mixture of rewarding activity and grunt work - the challenge is to identify the right personality types for different purposes. Some people cope better with the rigidity of a very process-driven client, others enjoy the unpredictability of a more fluid environment.
Once you have the right people in the right roles, it is about getting the best out of them. An organisation needs a proper assessment process, one that identifies the employee’s successes and areas to work on as well as training requirements.
Unlike other professions - such as Chartered Accountancy, Law or Banking - advertising as an industry does not always focus so extensively on training and development. And then we wonder why churn is so high.
In part, the reason lies in the fixation we have with the 50% staff cost ratio and the resulting short-term approach to staff.
Ours is not the only industry in which our primary asset leaves the building every evening, so our challenges are not unique.
A longer-term approach looks at increasing the investment in staff development and ensuring it is linked to overall business objectives, that there is some review of pay-back and that the investment is protected.
This will inevitably require an element of up-front investment - in a more rigorous talent management process, in development and in rewards for performance - one that, by definition will take some time to pay back.
So the challenge is not whether to do it rather, the long-term benefits of the investment in training and development need to be balanced off against the short-term need to remain profitable and solvent. As proof, IPA Gold CPD case studies have shown for years that investment in talent pays off.
Finally, don't forget that an element of churn is a good thing. Certainly not the 30% that is our industry average. But periodically businesses need to let weaker performers go and bring in fresh thinking.
As David Ogilvy said: “When you are appointed to head an office in the Ogilvy & Mather chain, I send you one of these Russian dolls. Inside the smallest you will find this message: If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, Ogilvy & Mather will become a company of giants.”
Top FD Tips
Include a talent management plan in your annual budget process. Ensure both are aligned to your overall business objectives.
Put metrics in your talent management plan and check them as regularly as your financial progress.
Ensure someone has responsibility for delivering the talent management results.
The IPA has some free training to get you started, and the CPD Gold booklet explains why investment in training pays and how to make the most of it.
Keep up with the conversation about the value of people and relationships by attending the 2015 Commercial Conference.
To find out more about how agencies can deliver and invest in building commercial success for their organisations and their client brands, attend the IPA Commercial Conference on Wed 8th July.
If you have any agency questions about enhancing your commercial performance, email the IPA’s Commercial Acuman at email@example.com. All questions will appear anonymously.
View more Commercial Acuman columns from our FD Tom Lewis.