FREE – Nothing gets you nothing with agency compensation

In the past year or so I have noticed agencies putting forward remuneration proposals that provide senior agency resources at significantly discounted prices – FREE!

It is seen as a discount. But experience shows that often the resources you don’t pay for, you don’t get.

Very recently an agency proposed 15% of a Managing Director (Yes, the MD should be in the retainer) and 30% of the Head of Strategy at no cost.

FREE!

Pay_nothing_get_nothing.jpg

Now as Professor Dan Ariely points out, getting something for nothing is a powerful offer.

But how was the marketer going to make sure they get the benefit of this offer?

Lets looks at the agency offering more more details:

1. The total cost of the proposal was just under $2 million per annum.

2. The discount / bonus was valued at about 10% of the total proposal

3. The client represented about 8% of the agencies annual remuneration.

So here are the issues:

1. The value offered free is less than 10% of the total cost. Yet, if delivered this would reduce the projected profitability by 75% and at best 50%. If they lose profit here they will need to make it up elsewhere.

2. The level of MD resources is almost double the size of the account in the agency, so what is happening with his other clients, especially the larger or more profitable clients?

3. From personal knowledge, the Head of Strategy was already committed by almost 120% on other client agreements so the extra 30% means he would need to work solid 48 hour weeks with no holidays, public holidays, sick days or any non-billable work.

What to do?

1. Always get the agency to value the resource and then add this as a discount to the overall remuneration. That way when you feel you are not getting the resources you can feel that you can complain because you are paying for it.

2. Work out and agree with the agency how these “free” resources will be delivered. Is it weekly / fortnightly meetings or quarterly / half yearly reviews or specific projects.

3. Make sure everything is committed in writing within the contract, including discounts, agreed use, etc as invariably when the annual or contract review comes up this will become the first point of contention because either the resources were not provided or the agency will feel the deal is not sustainable in the current form.

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About Darren Woolley

Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com
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3 Responses to FREE – Nothing gets you nothing with agency compensation

  1. KK Santhanam says:

    Darren,
    Very good article. This the reason clients need pitch consultant like you to look into the finer details.
    Does this happen with traditional agencies alone? Or extends to digital agencies or Social Media agencies like ours?
    KK Santhanam
    MD http://www.Additude.com.au

  2. This happens across the range of agencies KK – creative, digital, CRM etc.
    The interesting thing is that while I understand it is a way of offering a discount to the client, the message it really sends is that these are resources you do not need to pay for and so often we find procurement suggesting that senior agency management should not be included in retainers.
    If you want to offer a discount, offer a discount. But free senior resources sends a very poor message and sets a dangerous precedent.

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