Is your agency’s profit margin from client’s being based on your cost of delivering marketing outcomes? Do you struggle to justify your agency’s retainers? Are agency remuneration discussions with your client something you would rather avoid? The fact is that sustainable agency remuneration is essential for running a profitable business as well as ensuring a long-term client relationship.
Rather than just focusing on cost, we have spent the past decade helping unlock the value agencies deliver to their clients’ with value based and performance based remuneration models. These models align your agency outputs to the clients’ brand and business value and the outcomes to performance.
In the majority of cases agency remuneration is either based on commissions (a percentage of spend) or agency costs (the predicted agency costs including overhead and profit factors). But with the increased demand and expectation on marketing departments, and therefore their agency partners, to deliver value and results, and the more widespread use of Zero Based Budgeting (ZBB) to allocate marketing budget, there is a significant trend towards developing value and performance-based agency remuneration models. This approach moves agencies away from the resource cost-based approach and remunerates your agency for the value of the work delivered and the results that work contributes towards improving clients’ market performance. This approach rewards your agency for delivering value and performance for the client and is not simply about recovering your costs.
Adopting a value-based or performance-based remuneration model can be undertaken any number of ways, but we have found the ideal approaches include:
We use a qualitative and quantitative approach to developing value and performance-based models. An essential first step is to understand the existing cost and value within the current remuneration model, which we achieve by benchmarking the current Scope of Work using our Scope Monitor .Qualitatively we need to understand the quantity and quality expectations of the marketers and the agency, which we obtain through one-on-one interviews.
Performance-based models require an additional understanding of performance metrics and their value to the clients marketing and wider organisation.
Read more on Performance & Value Based Agency Remuneration for Agencies here
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