When should you use performance-based fees in media?
Media is one of the largest investments for most advertisers. But if your media is an investment, then shouldn’t you be paying your media agency based on performance and not simply hours and resources? If you are looking to incentive your media agency to drive performance, find out how here in Media Minutes.
DARREN: Welcome to Media Minutes. I am Darren Woolley STEPHEN: And I am Stephen Wright DARREN: In the next few minutes we will share with you our view on using performance-based fees with media agencies. Stephen, what are your thoughts on performance? STEPHEN: Well Darren, increasingly advertisers and their agencies are looking for alternative to media commissions and retainers, which lock in the agency cost based on the spend. DARREN: And what is the problem with that, Stephen? STEPHEN: Well Darren, with media often amongst the single largest marketing investment for advertisers, most are looking to either reduce their cost or increase their return on media investment. DARREN: That seems to make sense to me? STEPHEN: But really, what you should be looking to do is encourage and reward performance. Incentivise the media agency to drive media value and performance. DARREN: Makes a lot of sense, Stephen. Reward and incentivise the agency based on performance, right? STEPHEN: We yes, and no, Darren. Often agency performance deals are focused on reducing media cost. Reducing CPM and other media cost has been the focus of media agency performance for many. DARREN: What’s the problem with that, Stephen? Negotiating hard to get the best rates, seems like a good idea. STEPHEN: It is, if all you are wanting to do is buy cheap media. But it can work against you as a marketer, with the agency focusing on low-cost, poor performing media inventory. DARREN: Okay, point made Stephen. So, what is the alternative? STEPHEN: Instead of focusing on media cost, performance-based agency fees should be focusing on incentivising performance. DARREN: Makes sense. But in what way? STEPHEN: In the case of direct response media, agencies can be paid directly for driving either leads or sales. DARREN: True, but what if the media objective is raising awareness? STEPHEN: Then Darren, if awareness is the objective, then monitoring increases in brand awareness is the measure. DARREN: Would you pay a performance bonus for this, Stephen? STEPHEN: You could Darren, but the reality is, planning and buying media to raise awareness is really core to a media agencies task. Far better to use performance-based fees to reward the agency for driving tangible revenue growth. DARREN: Such as sales, right Stephen? STEPHEN: Correct Darren. Performance fees are best used to reward the media agency for creating business value. After all, maintaining good relationships, negotiating and buying media effectively and the like are really what you should expect from any good agency. DARREN: So, when you talk about performance, you mean media performance leading to a business outcome? STEPHEN: That’s right. And in media, there are an ever increasing number of ways media agencies can contribute to business success, so there are an increasing number of ways you can reward you media agency with a performance-based fee model. DARREN: Thank you Stephen. And make sure you subscribe to Media Minutes. A weekly snack on all things media. Until then. I’m Darren Woolley, and he’s STEPHEN: Stephen Wright TOGETHER: And this is Media Minutes.