Over the last few years, more and more fee agreements are negotiated using scope of work and Full Time Equivalents (FTE’s) to arrive at a number.

In many markets around the world it has become the standard way of agreeing on compensation with the Agency.

From the Client perspective it seems to work. It gives them a predictable (and typically smaller number) to build into their budgets.

From an Agency perspective I believe that this is a big mistake.

Here are my reasons.

There is no way to know how many FTE’s will be required for a specific job.

Most Agencies still struggle with getting employees to correctly report how they have spent their time. Additionally, Agency Management Information Systems continue to be quite rudimentary and unreliable. Finally, given the nature of the business, it is very hard to predict with any accuracy how much time will be spent doing the next job. All of these factors put together make projected FTE estimate highly inaccurate.

FTE’s assume all talent is equivalent.

This is simply not true. Different employees will do the same job differently. Some will do it better and some worse. Some will be faster and others slower.

FTE’s divert the focus from the value of an Idea to the cost of an hour.

The implicit assumption here is that Ideas as like consumer packaged goods that come of a production line with identical quality. This is simply not true. All Ideas are different and better ones should be worth more.

A fee based on scope of work and FTE’s has very limited upside.

Since the Agency is charging for man hours, the compensation is capped, no matter how well the Brand does.

Playing the FTE game changes allows Clients to get big Ideas for the price of small ones.

It is not in the Agency’s interest.

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