This post is by Darren Woolley, Founder of TrinityP3. With 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.
How are you paying your agencies?
Is it a retainer? Or project fees?
And why did you use that particular model to pay the fees?
Did the agency suggest it?
Or is it how you always paid agency fees?
Or was it recommended to you?
And how many agency fee models do you know and use? A handful? Or are you using some of the hundreds of hybrid models that exist?
How do you get to that perfect agency fee model destination?
In our almost twenty years of experience in developing, designing, implementing and benchmarking agency fees there are about ten main models and then literally hundreds of hybrid combinations of these models available to advertisers, marketers and procurement professionals.
These agency fee models are not just for media and creative agencies, but can be used across the entire marketing supply chain for public relations, digital and mobile, content marketing, influencer marketing, social media and more.
Each one of these models has its advantages and disadvantages making them great in some circumstances and completely wrong for other situations. So how do you decide what is the best agency fee model for you and your particular agency?
We have combined our vast experience across multiple agency disciplines, markets and advertiser requirements and developed an Agency Fee Decision Tree.
The choices in agency fee models
While the industry increasingly talks about turning away from retainer fee models they are still incredibly popular and used in the majority of cases for creative and media agencies. But few may realise that there are really two approaches to the retainer, one being a top down approach and the other a bottom up model.
But which one is best? And can you achieve it?
Contrary to popular belief, media commissions are making a return, especially in regards to programmatic buying, where fees of up to 30% and more have been declared. But beyond commissions there is also the choice of disclosed and non-disclosed media fees that can be based on a CPM, CPI or even CPA.
Again, which of these are best for you? And what is needed to achieve these?
Project fees are increasingly popular, beyond just for digital, sales activation and the like. These project fees, either estimated or fixed are being used across a wide range of marketing suppliers and agencies now.
But when is it right and how is it best used?
But when is this the right model? And what needs to be considered?
Finally the fee models growing in popularity are value based fee models where pricing is used to set the value of the output, rather than the cost of the input. These allow the advertiser to set the agency fee up front, making it ideal to support Zero Based Budgeting.
But how does it work? And when does it work best?
With a greater focus on marketing performance, performance based fee models that link the agency fee to the marketing and financial performance of the advertiser are also increasingly popular. Often these performance models are used to create a hybrid model. In fact it is hybrid fee models that combine two or more of any of these fee models that are invariably the best solution to meet the complex needs of the agency fee.
But in what combinations? How best to be designed?
Agency Fee Decision Tree
It is because of the complexity of the various fee model choices and the multitude of hybrid combinations that we undertook the process to design the Agency Fee Decision Tree to make this process of model consideration easier and more accessible.
The idea is that instead of simply repeating the same model over and over again, there is an easy opportunity to explore different agency fee models, their strengths and limitations and understand the circumstances where each model works best.
By using the Agency Fee Decision Tree, it will inform your decisions on which models are available to you and which ones are best suited to your needs and circumstances. It could be that there are a couple of models that have great advantages and so the process will highlight these and become the basis of a customised hybrid model.
The Agency Fee Decision Tree is completely free and so we encourage you to try it out. Simply follow the link and read through the instructions before proceeding. It is simply a matter of answering straight forward questions until you get to a fee model recommendation, where you can then simply start over again.
Navigate your way through the Agency Fee Decision Tree for your media agency arrangements, your creative agency arrangements, digital and mobile fee models and more. Once you have had a chance to use the Agency Fee Decision Tree please feel free to provide feedback here. And if you like what you find we ask you to share it with your colleagues and connections on LinkedIn and social media with the hashtag #agencyfeedecisiontree
For assistance or advice on agency fee models and contracts you can find more information here.