What’s the best way to pay your agencies?


Types of remuneration agreement vary from advertiser to advertiser and from agency to agency.  And while the industry continues to evolve and search for new remuneration models, there are  any number of alternatives from traditional hourly rates or fixed fee retainers. 

Here are a few choices you may like to contemplate for as you negotiate or evolve your existing agency agreements:

Fixed Fee or Retainer

As the title suggests – a fee or retainer is negotiated for a specific project or time period and is usually paid out in equal monthly instalments. All media, production and any other associated costs are usually billed to the client at cost, with no mark-up.

Hourly fee – fixed or blended 

Fees are calculated by the amount of time expended by the agency multiplied by one composite hourly-rate, reflecting the various agency resources required to deliver services. All media, production and any other associated costs are usually billed with no mark-up.

Variable Hourly fee

In this case, fees are calculated by the amount of time spent by defined agency positions or titles, multiplied by an hourly rate for each position. All media, production and any other associated costs are usually billed to the client at net, with no mark-up.

Fixed Commission

The agency is paid on a fixed percentage of expenditures with suppliers for services such as media or production. Commissions can be based on net or gross expenditures

Sliding Scale Commission

The agency is paid using a commission structure that varies based on the level of spending with the media or other suppliers.

Value Based Remuneration

Agency remuneration is established based on the value (rather than the cost) of the services provided by the agency. Agency staff time, costs and profits are not usually requested or reviewed as part of the fee negotiation.

PBR (Performance Based Remuneration)

PBR is based on the degree of achievement against mutually determined goals and results. This is not a ‘bonus’ and involves both risk and reward so the agency receives higher or lower remuneration based on the degree of achievement.

Bonus

This payment differs from PBR in that the agency is guaranteed full payment and then rewarded incrementally based on certain areas of agreed performance.

If some of this has sparked more confusion than inspiration, our colleagues at Trinity P3 in Australia have developed an agency fee decision tree which can help you decide on the approach that’s best for you and your business.

For more on agency remuneration agreements or for help planning, negotiating, or updating your agency agreements, get in touch

STEPHAN ARGENT

Stephan Argent is Founder and Principal at Listenmore Inc offering confidential advisory to marketers looking for truly independent insight and advice they can’t find anywhere else. Read more like this on our blog Marketing Unscrewed / follow me @StephanArgent

Photo: Thomas Hawk

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