The latest trends in agency remuneration

This post is by Darren Woolley, Founder of TrinityP3With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

This is the first in the series of TrinityP3 Webinars.

Today we’re talking about the latest trends in agency remuneration and each fortnight we’ll be covering different issues such as media transparency and accountability, roster management, digital integration and sustainability.

The first thing is, what we’re going to discuss today is remuneration considerations. What is it that we should be looking for when we’re looking at developing a remuneration model for our agencies and our client relationships?

Trends in agency remuneration

Then I want to briefly talk about the difference between remuneration and compensation because our friends in the US call it compensation whereas in the rest of the English speaking world it’s called remuneration.

Then we’ll go through the various models.  We’ll look at what the models are, their strengths and weaknesses, the trends and some of the applications of where they work best.

And then we’ll be taking questions and talking about future sessions.

What makes a successful agency remuneration model?

When we consider remuneration there’s quite a bit of work done in the past few years by the ANA and ISBA in the US and UK and also the IPA and the 4As in each of those markets. And what they were looking at is; what are the things that need to be considered if you’re going to have a successful agency remuneration model?

Well the first one seems simple to understand and easy to administer and this has become a real challenge because it seems to point to the demise of the media commission. Remuneration models have been getting incredibly complex.

The next one is also controversial which is fair to both advertiser and agency.  And the reason it’s controversial is that while most marketers will say that yes, they want fair remuneration, when we start talking about what’s a fair level of profit or margin for the agency, it can become a point of contention.

I remember a client for a very large advertiser, a global advertiser, turning over 16 billion dollars a year said that 8% profit margin is what they operated on and they didn’t want any of their suppliers earning more than 8%.  But if you scale that right down to the revenue of an agency on their particular business, we’re talking about 8% of a couple of hundred thousand dollars and you have to take in the economies of scale into that.

Next is aligning advertiser and agencies’ interests and priorities and I think this is a key area.  Many people will say that remuneration is simply about paying the agency for the work that they do.  In fact, the right remuneration model can help foster and generate and encourage the right behaviours and alignment of expectations and dollars.

The importance of contracts

The next point is to finalise before the agency resources are committed.  And I have to say that while that seems quite obvious, very often we find ourselves involved in situations where the agency and the advertiser have started working together and there’s never been a final agreement and so there’s often disagreement moving forward.

And a way around that is to record in a ratified agency/advertiser contract.  I know contracts are pretty boring, but in actual fact, you need to start making sure that all the details of your agreed remuneration model are captured in the contract.  And not just the general principles, but in fact the detail of how the remuneration model works and how it can be changed.

Because it needs to be flexible enough to accommodate changes in the future.  Every day, every week, there are new ways of working, there are new channels, there are new innovations and so we need to be able to change the remuneration model to suit the changing needs.

And it also needs to have senior management involvement.  Senior management on both agency and advertiser side so that they can clearly agree on the principles of the remuneration model.  Because if we do all that, it will be capable of standing the test of time and more importantly, being understood by the people who inherit this remuneration model.

It’s unbelievable the number of times that someone has taken on a new position within an organisation and when they look at the contract or look at the remuneration model, the problems are often that it’s never been clearly articulated.  So it’s very hard for someone to pick it up and manage it.  And some of that is also the language you choose.  Based on agreed and understood terms and definitions.  Language, plain English or plain use of language is really important because sometimes terms can get in the way and in fact, I think the most onerous contract I ever saw was for a bank and it was over 200 pages and of those 200 pages, about 60 or 70 pages were defining the remuneration model but in actual fact, there was nowhere you could actually work out what the basis for remuneration was.

And finally, it needs to be inclusive of specified tracking and review dates because remuneration can never be set and forget.  You need to be able to track and review and adjust that model going forward.

Agency remuneration or agency compensation?

Remuneration versus compensation, and I know a lot of us have trouble with the word remuneration.  In actual fact, the two words are not necessarily synonyms.

Compensation is the act of compensating which is to make good for debt, loss, injury or suffering.  So really, to compensate an agency is to somehow make good for damage that’s been done to them.

Whereas remuneration, the act of remunerating is actually about rewarding someone and paying them.  And I know that this conversation I’ve had in the US, people say, “Oh no, the two are interchangeable” but in fact, I once said to one of my competitors in the US, “If these two words are interchangeable, then did you buy that expensive imported sports car to remunerate or compensate for your small genitals?”

And I think in that moment, I proved my point.  The two words aren’t complete synonyms of each other.  So our attitude is that remuneration is a much more positive way of thinking about paying agencies than compensation because what we should be doing is not just paying people for their time and their effort, but actually looking for ways to reward and incentivise the agencies for the contribution that they make to the overall marketing strategy and the results that it produces.

Current remuneration models

So let’s look at some of the remuneration models that are currently in the marketplace.

The first one is, the commission and service fee and this was around for over 100 years before it was dismantled at the end of the 20th Century.  So we’ve had about 15-20 years of working without the commission system in place.  The fact is that it’s still being used in many markets in the world and the most obvious ones are India and Brazil and in fact, in Brazil, it’s in government legislation that the commission system is still used.  And what we’re actually finding is that it’s making a bit of a resurgence in other markets too but I’ll come back to that later.

The most popular remuneration model is the resource packaging of fees or the retainer. Retainers are very popular and we’ll talk about that.  But in actual fact, they’re a little on the wane as many marketers are finding them incredibly inflexible to be able to deal with the issues that they have found new channels engaging the consumer across various channels in market.

That’s why we’ve seen a rise of variable fees based on actual hours, but more importantly, project fees where there’s actually a fee associated with a particular project.

Any one of these is most usually used as a hybrid, in fact, we can see remuneration models that could have a component of commission, may have a base retainer and then either project fees and hourly rates on top of that. The variable fee model is most likely used even when there is a retainer for things like production and we see that a lot.

Media commissions and programmatic buying

But the three big trends that we’ve noticed in the last two to three years is; one, it’s moved from a cost to a value based model and we’ll talk about that more. The second one is the return of the commission and media commission, especially in relation to digital media. And the third is the incentive based models that are very popular. In fact, at the AMA Advertising Financial Management Conference in May this year in the US, there was a lot of discussion around incentive based models.

But let’s look at the first one which is the commission system and everyone knows this is based on the traditional media commission paid by the media proprietor.  In actual fact, today it could be any form of commission, but it’s making a comeback in digital media and the reason for this is because of things like programmatic buying and trading desks and you’d be aware of the discussions around the lack of transparency.

But what we’ve found and this is a conversation that we first heard about in the US, is that marketers are looking at having multiple contracts with different relationships in those contracts to be able to better manage and create transparency.  And one of those key areas with digital media is to actually have a contract with the programmatic buying or trading desk that actually makes them an agent of the principal, being the client.

And the reason for that is that they can actually then agree a marginal commission that the agency, the trading desk can use through programmatic trading which is better than the relationships that people have at the moment which is often with the media agency and then the trading desk programmatic supplier acts as the independent third party.

But I’ve also seen commission being used in a combination with other models in the media space where often there’ll be a retainer for key services like account management and strategy and then this commission system being added on top of it, specifically around media trading.

Now there are some advantages, the clear one is that if you’ve got a media driven account, then it certainly makes it quite easy to calculate and administer.  The parties are focused on the quality and not just the cost of the media because the remuneration comes from the total spend and in some ways, it’s a crude form of performance based remuneration because when an advertiser is successful, they’ll pay more or invest more into media so then the agency earns more.

The trouble is that there are a lot of disadvantages still associated with it and what we’d say is that the application of a media commission should be used in a very narrow focus.

So for instance, just around programmatic buying, just around the trading desk, because it’s based on the volume of media, not the scope of work. It’s inappropriate when media’s not the major component of the output and it doesn’t encourage media neutral solutions.

So in some ways, you need to separate the media planning and media strategy from this remuneration model.  And of course, the big problem for agencies has always been that if there’s a cancellation of the spend, then it has a huge impact on agency income.  And I don’t think we’ll ever get back to the days of the agency getting you know, 10% plus 7.5% or 8% service fee on top of it but I have heard of some of the trading desks and programmatic buying teams getting approved 20 and 30% commission on top of the transaction so perhaps it will but in a very narrow casting.

The retainer remuneration model

Retainers; this is the most common remuneration model and it’s ideally based on an agreed scope of work but it’s not necessarily based on that scope of work and this is where a lot of the problems arise because when it’s a, what we call, “all you can eat” model, that you pay the agency an agreed retainer and they do as much work as possible, as soon as the agency starts to run out of resources covered by that retainer, you start getting Excel spreadsheets being presented to show you how many hours were used.

So without this agreed scope of work and this detailed scope of work, it does become problematic.  It’s also based around this idea of what are the resources I’ll need? What percentage or variable hours do I need?  What’s the overhead factor and the agreed profit margin?  And these areas are constantly under pressure.

In fact, it wasn’t that many years ago that we would see overhead and profit margins in multiples of 2.2 and 2.4 but you know, we’ve seen those collapse in some cases down to 1.4 which in our opinion is completely unsustainable.  In fact, agencies are still doing work at that level.

Now just to put that into context, that means that each dollar paid in someone’s salary, the company, the agency is only paid $1.40 and that included their overhead cost and their profit margin.  So you can see why you’d start to think that that’s unsustainable.

So the advantages, agencies still seem to want a retainer because they get to know what the income is and they can resource appropriately to this income.  Advertisers know the costs and can budget appropriately.  You know that each month you’ll be paying your retainer and it encourages more media neutral solutions because what you get paid is not based on what media channels you recommend.  But it does require a scope of work to be accurate.

We found especially in the services industries; financial services, telcos for instance and in some cases retail, it’s incredibly difficult for people to define it accurately.  It doesn’t allow for major changes in scope of work and in fact, this is one of the key areas where there is a break down.  Either because the scope of work goes upwards and the agency complains, or the scope of work falls and the advertiser complains that they’re paying for something that they’re not getting.

And it’s input based therefore it’s less accountable.  And this is why, how many hours does it take to come up with a big idea?  Well, unless you can find some way of quantifying that, it becomes a circular discussion as to whether the agency really has used up all their time.

So a lot of marketers are moving away from the retainer because they’re finding it incredibly time consuming to negotiate and then incredibly frustrating to administer because there’s a whole lot of questions about, are we overpaying?  Are we using too many resources? And, could we get it cheaper?

The variable fee model

The next area is the variable fees based on actual hours.  This is literally hourly rates for individual staff and you know, talking about hybrids, in fact, where most people have retainers, they’re not actually retaining production people, and so often you’ll have a retainer and then pay by the hour for the agency producer, the head of the studio, and even for the artwork to be made up.

The thing is that the confusion here is that while people have retainers that have an overhead and profit multiple based on or tied to salary.  The problem here is that often these rates aren’t based on salary, they’re just based on what the market will tolerate.  And in fact, a project that we did in the Nordic States, we found that these charge outlays, these hourly rates, were running at the equivalent of 4 and 5 times multiple on the underlying salary.

So they were making terrific margins because the rates were just whatever the market would tolerate.  So we see this in production and marketing services generally.  It’s relatively easy to administer and it reflects what the needs are of the advertiser, it allows flexibility because you only pay for the hours used and allows the agency’s return based on clearly defined process and actual deliverables.

But it’s just too difficult to administer the budget.  You know, it’s very difficult to start a project and not know how many hours it will take.  And also, it raises questions around accountability.  Lawyers and accountants seem to get away with this model but agencies increasingly are finding disputes which will lead to an audit and there’s really no accountability in the system to incentivise efficiency.  So it’s certainly there and it’s being used, but it’s something that most people are avoiding.

The project fee model

This is the hot remuneration model at the moment and it’s project fees.  You may have read a number of advertisers are looking at moving purely to project fees.  So the idea of the agency of record is being lost and they’re looking at a project fee which is either a fixed annual fee or a fixed project fee paid for a specific outcome.  And that could be an ad-hoc project or it could be paid on completion of each individual project on a monthly, quarterly or annual basis.

This is moving more and more away from the input model of how many hours does it take and starts to put a fee for the delivery of that project.  So it starts to talk to the issue of what is the value of doing this work?  What is the value of having the agency produce this particular outcome?

It certainly has advantages for advertisers; it’s easy to control expenditure because each thing that you ask for has a cost associated with it.  It’s often used, there may be an underlying retainer and it will allow you then to top up the retainer for additional work based on the pre-agreed project fees.

It reflects the specific advertiser’s needs because you will base projects around things that you typically want.  But it really suits integrated or niche services.  It could be paid for creative, it could be paid for production.

It’s very difficult if you’re putting through hundreds or thousands of projects through in a year, this project model becomes incredibly difficult to be handled on a mass basis.  The disadvantages; well, from a relationship point of view, it does encourage short term thinking rather than longer term relationships.  It becomes a project by project relationship.

Agencies also don’t have the same level of confidence in the remuneration because being a project basis, it could dry up at any moment. You could have a lot of work one month and very little the next.  And also, because of that, because of the lack of commitment, that means that it often comes at a high cost.  If you’ve got a retainer that’s running about 2 to 2.2 multiple, you could be paying 2.4 as the underlying calculation in the project fee if you continue to use an hourly rate basis or resource basis.

The hybrid remuneration model

Now, this is a good example of a hybrid model because typically what we’re seeing is when people move from say a retainer to a project fee, if they did just project fee alone, the agency would be very nervous about being able to commit the resources they need to handle the account.

So what the interim step often is, is to reduce the retainer away from retaining all agency services just down to a key account management fee to be available on a day to day basis to manage the account, and then all other services based on a pre-agreed project cost.  So that’s a hybrid model there.

You then lay over the top, production on an hourly rate card and even a media commission and you see all four models coming together in a single hybrid model.  Project fees are becoming the main way that we see many advertisers moving in the future as they move away from their agency of record concept.

Moving from input cost to outcome value

If the big trend, the first big trend is the move from the input cost model to the outcome value model.  Because most of the existing models that we’ve talked about, about the cost of the resource and it rewards a volume of work.  The more I can get my people to work in the agency, the more billable hours they have and the more work I get through and then I just have to manage the margin to make a profit.

But there’s no focus on effectiveness and when marketers are facing increased demands for measuring and being accountable to effectiveness, they’re looking for ways of moving away from this cost based model into a model where they share the rewards with the agency.

So current best practice is to move from output, to an output or pricing based model that fixes the value based on the output.  So what that is, is in the past, and here’s a good example; if you had two campaigns and one has a budget of 10 million dollars and one has a budget of a million dollars, then producing the same types of content for both of them should cost the same.

But in actual fact, one of those campaigns is already perceived to be worth ten times more because you’re investing 10 million dollars into it.  So you would hope that the investment of the budget would be returning on a return that’s ten times higher.  But under the input or cost based model, the cost of producing the work would be exactly the same no matter what.

What the pricing model says is, “If I’m going to invest more money, then it’s more valuable to me so I’ll spend more with the agency to do it”.  Where if it’s a lower cost area, I’m investing less money, then the cost should be less as well.  From the agency’s point of view, they’re saying, “Well, we used the same people, they have the same cost base, so we need to be paid the same whether it’s a million-dollar job or a ten-million-dollar job”.  And so this is where there’s this conflict in moving in the input or cost based model moving to the output or cost based model.

The next step is to then go to what are the outcomes delivered?  Because hopefully everything we’re doing in marketing is actually being driven by producing an outcome that we want for the business and so that’s really the next big step.

Value based compensation

And this is being called, and it was coined by the Coca Cola Company about six or seven years ago, it’s called, “value based compensation“. There’s that word again, compensation. But we can call it value based remuneration.

This is quite a busy chart but let me take you through it.  What we’ve got here going from top to bottom is input or cost based model, output cost based model and outcomes value based model.  And then as we move across, it describes the type of model, how it works, the positives and the negatives.  So we’ve already covered the input or cost based model. It’s head hours, it’s resources.

The outputs model is about defining what are the agreed outputs or deliverables and setting a price based on the historical basis but also the strategic importance.  So if we had a brain campaign for the brain and then we had a tactical campaign that was going to run six months later, would we want the cost of both of those to be the same?  No we wouldn’t.

We’d probably invest heavier in the brain campaign and then lighter and the pricing base model allows us to do it because it values the output rather than the cost.  It makes budgeting easier and it allows you to adjust remuneration.

The negatives are, it rewards increased volume rather than effectiveness.  Of course, the more work the agency does, the more they get paid, but that’s the same as the input or cost based model.  And issues arise when work is commissioned and then cancelled because if the agency does the work, even though you don’t then use it, there’s still a requirement to pay them if they deliver the output.

The outcomes are value based models based on the value created by the activity.  Now especially, this has been around for a long time to direct response.  Direct response marketing and advertising has worked on this basis for many years but data and being able to track the effectiveness of the campaign and the activity, means that we can now apply it to more and more areas of advertising and communications.

The application of this is either to do it as all in or the agency’s profit and I’ll get to that more in detail, and you have to think of it more as profit sharing than a bonus.

It leaves the agency remuneration to the outcomes value but it brings alignment between suppliers and marketers if it’s correctly implemented and it requires, the downside is it does require you to actually measure marketing effectiveness and I know there’s still many marketers that are struggling with this.

It is difficult to get many agencies to agree on the measures because if you’re in some way asking them to share in the profits, they’re also sharing in the downside as well.

Incentive based models

Now, performance or incentive, this idea of sharing in profitability or sharing in the results has become really a big topic in the US where they’ve started to move away from the idea of performance and talk about incentive.  And what that means is, it’s about rewarding improved agency performance and sharing improved advertiser performance.

It’s about aligning goals and getting this congruence between marketer and the agencies and in fact, we’ve found that where the KPIs that are used for the agency payments, incentives, are the same as the senior marketing team, you get incredible alignment.

Because suddenly you’ve got the agency and the marketers sitting there looking at the same set of performance data, trying to move that forward rather than what often happens in the current model which is the agency is simply looking to do more work for the market irrespective of what the results are because that’s a way of getting and driving additional revenue.  So there are various types of incentive models.

The first one, the first two in fact, are probably the preferred options from our perspective, and that is to offer a bonus on top of the agreed profit margin for great performance.

Another way is to actually talk to the agency about covering the base costs and then making all of the profit an upside.  So what that means is that instead of the agency maybe making 10-15%, if the work together with the marketers over delivers, they could share in something like 20, 30, 40 or even 50% for reaching stretch objectives.

The next two are actually the way that most of these models are being applied in the past. The first is shared risk and reward where the agency puts up some of its margin and then the advertiser meets that in the pool.  So the conversation will go along the lines of, “Well, you give up 10% of your profit, and we’ll match that with 10%”.

Now what I’d say to you is, if your employer offered you that on your salary, would you take it?  And I think most of us would say no because you want to know, well, what’s the criteria and how often is it going to be measured?  One of the key issues of this area is that if it’s only paid once a year, the agency’s waiting up to a year to get their bonus.  And so that’s one of the other things about this model, it’s about increasingly making it focused on doing it quarterly or six monthly at the very least.

The other one is the earn back model and this is very popular with some of the procurement teams but very unpopular with the agency and I think when I explain it you’ll understand why.  You put a percentage of your margin at risk and then we’ll pay you if you hit the results.  So it means that the agency’s putting at risk where profit that they would ordinarily earn and then incredibly, have to wait to see if they meet the criteria to see if they get it and I don’t think anyone would agree with that.

Performance measurement

Performance criteria has traditionally been broken into 3 areas; the business performance which is hard measures, advertising or marketing performance which is medium measures, and agency performance which is often called soft measures.  These are around meeting expectations.

Increasingly, we’re seeing a move towards increasing the number of measures that are in the hard to medium area and reducing the focus on the soft.  But in the past, most of the focus has been on the soft measure which is to incentivise the agency to do a better job.

But in some ways, it doesn’t recognise the fact that the marketers and the agency work together.  The agency’s ability to do a better job is directly impacted by the marketer’s ability to work with the agency well. Brief them well, encourage creative ideas, give appropriate times and approvals to be able to get the work done.

So there’s a move away from these soft measures.  The soft measures are still important, they’re just not incentivised with a bonus as much now.  I remember about 5 or 6 years ago, seeing a performance based model that had more than 60% of the bonus paid based on a score card which was the marketer scoring the agency on how well they did their job.

Now, in my mind, the agency needs to do a good job to keep the business.  So that’s why we’re seeing this move, this trend towards business performance and in fact, all of the work around digital and data is making it easier and easier for businesses to be able to track the impact that the marketing advertising is having on things as hard edged as sales volumes but also market share, brand share, customer loyalty, brand equity and brand profitability.

And also, advertising performance around awareness, brand image shifts, attitude ratings, that type of thing and away from this measure of agency service.

Don’t get me wrong, it’s important to measure agency’s performance, but the danger is if you incentivise the agency to get their payment based on these criteria, sometimes it actually creates more problems than it solves.

And overview of remuneration models

That gives you an overview of the remuneration models and also some of the trends that are happening so by way of summary, the market continues to evolve, but there still isn’t yet one model that suits everyone.

There are certainly people that are looking for more effective remuneration models and there’s a trend away from retainers to a composite model like project fees and a retainer.

There’s a rise in the number of people using commissions, specifically around digital media.  And there’s also a trend towards moving away from the cost or input based models to a value or output based model.

It’s still early days, because there’s still a lot of challenges that have to be overcome but increasingly, we’re finding marketers are now looking for ways to incentivise the agency to help them drive results, not just do their job.

There are no perfect models, but there are some popular models.  It’s important to actually understand each model and apply it to the best situation.  There are the latest trends, I’m now going to open it up for questions if anyone has any specific questions that they’d like to ask.  Thank you.

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Q&A session

The big issue has been that the US markets seem to have more flexibility around the way they structure a lot of these deals.  Some of that could be due to the size, I mean, the US market is a large advertiser, over there it’s billions of dollars in expenditure rather than hundreds of millions of dollars.  The largest advertiser in Australia I think is about 180 million or 200, 180-200 depending on who you believe.  I think that scale means that they’re able to be more progressive and more flexible in their approach.  The other thing is that the agencies there seem to be more open to embracing performance based or incentive based models and in fact, just saw St Martin come out recently saying he sees all of media moving to that model in the future.

So how is the scope work typically defined for retainer model?  You need to be very specific.  There’s a couple of ways of doing this.  The problem in the past is that many people have just created a list of the types of jobs they’d like the agency to do.  You also need to have the number of jobs you want them to do.  So it could be very granular. You could get down to defining the very specific outputs and an example of that, let’s say DL brochures for point of sale, you could have a 6-page DL brochure, an 8-page DL brochure, a 12-page DL brochure and the number of those.  That’s very, very granular.

The other way of doing it is to define the typical outputs for a campaign or an activity that you would do. Display advertising for digital there is a certain resizes that are needed. Websites, there can be numbers of pages.  E-commerce sites, I know a lot of these things are incredibly variable, but there are ways of being able to categorise the very specific outputs.  So that’s how I define scopes of work.  In fact, we’ve done some global projects for some of the large FMCGs where we could across the globe, categorise almost all of the agency outputs into and around 40-50 specifically defined outputs and then the number of those so that we could then work out what the remuneration model would be.

So I mentioned before the multiples that we’re seeing in the marketplace.  There was a time, 2.4 was standard, now what’s 2.4 mean?  That could be 100% mark-up on selling costs for overhead and a 20% mark-up for profits.  And in fact, we’ve seen that collapse generally down to around a 2 times multiple which is about a 80%, roughly an 80% mark-up and 15% profit margin.

So as far as performance mark-ups go, the big mistake people make with performance mark-ups is that they make them too small.  If you want a performance mark-up to work, it needs to be an incentive, it needs to be carrots, not a stick.  And in fact, later in the series, I’m going to do a webinar like this that is just about the incentive based model because there’s some really key learnings that we’ve had around how to make that work and also how to fund it because a lot of marketers find it incredibly difficult to fund a bonus out of their marketing budget and there are ways around that in a conversation with the CFO that makes it a lot better.

Profit margin; I think any agency should be targeting at least a 15% margin as that’s before tax and if not, you know, 20%.  But then the overhead is the area where we’ve seen a collapse.  Yeah, look, and this is why this model has failed.

I think a lot of people, and especially procurement people, introduce this type of performance model purely as a way of trying to drive the cost of the agencies down.  But in fact, where we see the model working better is where there’s a much bigger upside for reaching stretch objectives and in fact, I think this is going to be the area of the future as we move more and more into a data driven world whether we can see a customer performance and actually track their behaviours and be able to see the contribution at each stage, we’ll be able to start paying agencies and rewarding agencies based on leads and sales and value, lifetime value of a customer, rather than just simply the work that they do.

And I think that would be a big incentive.  But the danger is, as long as people are dis-incentivising the agencies by using the process to just pay them less, it’s mad.  You’re right, the bigger the risk, the bigger the reward, but that hasn’t happened as yet.

Look, that’s a really great question because the keys or the secret here, is not to have different incentive models for different agencies, but have all of the agencies sharing the same measures.  So, and what I mean by that is, I think I mentioned before, where we found this works best is where we get the senior marketer’s KPIs and apply that to all of the key agencies; so media, content, video, digital and you then incentivise them for their contribution.  Where you can do it on an individual basis is where you can actually separate specific channels and that’s usually in the digital space that you can do that.

I’ll explain it this way; if the media agency do a great job at planning and buying media, but there’s no content to run in it, should you incentivise them just for what they’ve done, or should it be about how they’ve then worked with you and the creative agency to produce great content to go in the right channel to be delivered to the audience at the right time to actually get the response that you wanted?  And that’s what we should be incentivising. Let’s stop incentivising people for doing their job well.

Yeah, when we’re talking to our clients about retainers and slimming those down, what we say is that we usually ask them to get a core team, usually a senior account management person, depending on the size of the account, we work out the number of FTEs.  Now in some cases, it’s just one FTE and what we’d say is, that should be an account manager.  If it’s two or three FTEs then you would structure it along an account manager, account director and account executive.

It could be that if it’s particularly complex piece of business or particularly large piece of business, you might have a senior account director or group account director, overseeing two or three account directors or account managers.  It really comes down to what is the team that you need and can justify to service the business on a day to day basis.  And ideally, whole people, not a share of people.  I always laugh when I see retainers for 52% of a person because I just wonder where I’m going to cut them to make 52% of them committed to my business and it’s also an area of where it becomes incredibly difficult to be able to quantify.

If that’s true, the obstacle here is, there’s multiple obstacles.  One is first of all agreeing what success looks like.  That’s where the conversation starts.  A training session about it would be a bit hypothetical; the best way would be if there’s an advertiser, an agency, that are interested in exploring this we could certainly help create a framework on those conversations to actually help them move forward.

One of the key areas is having a budget for that because really, the problem with marketing budgets are that they are a budget and they should increasingly become a cost of goods sold because the success of marketing is actually driving volume and margin and so they increasingly drive the profitability of the organisation.  And so, that’s where we’ll move forward.

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There are more webinars in this series to come.  Look out for webinars on creating transparency and trust in media, transforming and production for the 21st century, how many agencies do you need and how to get there, so all about your roster management.  Aligning your digital marketing to marketing is next then supercharge your agency with incentive based remuneration.  And the challenges for marketers in the carbon constrained future so all about sustainability.

To find out how TrinityP3 can help with your agency remuneration models click here

 

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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