Are you paying your agencies based on their costs? Do you struggle with finding value in your agency retainers? Are agency remuneration discussions something you would rather avoid? The fact is that sustainable agency remuneration is essential for delivering high performing relationships.
Rather than focusing on cost, we have spent the past decade helping marketers unlock the value of their agencies with value based and performance based remuneration models. These models align agency outputs to the brand and business value and the outcomes to performance.
In the majority of cases agency remuneration is either based on commissions (a percentage of your spend) or agency costs (the predicted agency costs including overhead and profit factors). But with the increased demand and expectation on marketing 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 finding more value and performance-based models for agency remuneration. This approach is about moving away from the resource cost-based approach and remunerating agencies for the value of the work they deliver and the results that work contributes towards delivering. This approach aligns and rewards your agencies for delivering value and performance and not simply recovering their costs.
Adopting a value-based or performance-based agency 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 marketing and the organisation.
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