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Performance & Value Based       Remuneration   for advertising agencies	          TrinityP3 Pty Ltd               2013    ...
What is Performance Based Remuneration?	 •  This is when some or all of the agency remuneration is paid    based on one of...
What is Value Based Remuneration?	•  This is when agency remuneration moves away from a cost   base (retainer and hourly r...
How does PBR work?	•  Usually some or all of the agency profit margin is put ‘at risk’ with   the opportunity for the agen...
How does VBR work?	•  This is where a price is set for the delivery of a specific output   by the agency based on the valu...
When should you use PBR?	•  PBR can be used for almost any agency or marketing supplier   relationship.•  The requirement ...
When should you use VBR?	•  VBR can be used either when the agency is providing specific   tasks or deliverables which can...
What are the steps for PBR?	•  Identify the agency performance attribute you wish to encourage   and reward.•  Discuss and...
What are the steps for VBR?	•  Identify the approach to be used (or both) value pricing and   value creation based on circ...
The case for not using relationship in PBR	•  In the first slide we identified soft measures such as   relationship as a c...
Performance or Value?	Performance Based           Value Based•  Rewards the agency for   •  Links agency remuneration to  ...
For more information contact…	@trinityp3                    TrinityP3 Pty Ltd                                        Sydne...
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Performance and Value Based Remuneration for advertising agencies

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http://www.trinityp3.com/
Performance and Value Based Remuneration for advertising agencies
TrinityP3 Pty Ltd

© Copyright 2013

What is Performance Based Remuneration?

This is when some or all of the agency remuneration is paid based on one of more pre-agreed performance metrics.

These metrics usually fall into one of three categories:
Soft – relationship or service scores
Medium – marketing or brand metrics
Hard – financial or value based measures

What is Value Based Remuneration?

This is when agency remuneration moves away from a cost base (retainer and hourly rates) or spend (commissions and mark ups) to being based on a determination of value.

These value measures usually fall into one of two categories:
Outputs – This is where a price or value is placed and agreed on delivering a specific output.
Outcomes – This is where the agency is paid a fee linked to the value created.

How does PBR work?

Usually some or all of the agency profit margin is put ‘at risk’ with the opportunity for the agency to earn this, plus more, back based on the performance criteria.
Eg. Agency ‘risks’ 10% of profit for the opportunity to earn 20% back.

The performance criteria is weighted based on the perception of the agency’s ability to influence the outcome.
Eg. Relationship 40%, Marketing Metrics 40%, Financial 20%.

How does VBR work?

This is where a price is set for the delivery of a specific output by the agency based on the value the marketer places on that output.

Eg. A fixed, agreed fee for the agency to produce a website, an advertising concept or a print advertisement.

Or the agency is paid a fee based on the contribution to creating measurable value for the brand or business.

Eg. A fee per lead or sale, fee linked to market share or sales volume.

When should you use PBR?

PBR can be used for almost any agency or marketing supplier relationship.

The requirement is to identify some aspect of the agency’s performance that is critical to success and create measurable criteria.

Eg. Media buying efficiencies, On-time, on budget performance.

Ideally this would be tracked either continuously or at regular intervals (monthly, quarterly etc) with feedback to the agency.

Objectives for delivering the bonus should be reasonably achievable to act as an incentive.

When should you use VBR?

VBR can be used either when the agency is providing specific tasks or deliverables which can be ‘valued’ and priced, (Value Pricing).

Eg. Campaign or project work.

Or when the agency has a significant input to the strategic direction and there is a reasonable correlation between the work of the agency and the measurable value created, (Value Creation).

Eg. Direct response is the best example of this.

VBR can be used alongside PBR. They are not mutually exclusive.

What are the steps for PBR?

Identify the agency performance attribute you wish to encourage and reward.

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Transcript of "Performance and Value Based Remuneration for advertising agencies "

  1. 1. Performance & Value Based Remuneration for advertising agencies TrinityP3 Pty Ltd 2013 © Copyright 2013 marketing management consultants
  2. 2. What is Performance Based Remuneration? •  This is when some or all of the agency remuneration is paid based on one of more pre-agreed performance metrics. •  These metrics usually fall into one of three categories: 1.  Soft – relationship or service scores 2.  Medium – marketing or brand metrics 3.  Hard – financial or value based measures marketing management consultants
  3. 3. What is Value Based Remuneration? •  This is when agency remuneration moves away from a cost base (retainer and hourly rates) or spend (commissions and mark ups) to being based on a determination of value.•  These value measures usually fall into one of two categories: 1.  Outputs – This is where a price or value is placed and agreed on delivering a specific output. 2.  Outcomes – This is where the agency is paid a fee linked to the value created. marketing management consultants
  4. 4. How does PBR work? •  Usually some or all of the agency profit margin is put ‘at risk’ with the opportunity for the agency to earn this, plus more, back based on the performance criteria. •  Eg. Agency ‘risks’ 10% of profit for the opportunity to earn 20% back.•  The performance criteria is weighted based on the perception of the agency’s ability to influence the outcome. •  Eg. Relationship 40%, Marketing Metrics 40%, Financial 20%. marketing management consultants
  5. 5. How does VBR work? •  This is where a price is set for the delivery of a specific output by the agency based on the value the marketer places on that output. •  Eg. A fixed, agreed fee for the agency to produce a website, an advertising concept or a print advertisement.•  Or the agency is paid a fee based on the contribution to creating measurable value for the brand or business. •  Eg. A fee per lead or sale, fee linked to market share or sales volume. marketing management consultants
  6. 6. When should you use PBR? •  PBR can be used for almost any agency or marketing supplier relationship.•  The requirement is to identify some aspect of the agency’s performance that is critical to success and create measurable criteria. •  Eg. Media buying efficiencies, On-time, on budget performance.•  Ideally this would be tracked either continuously or at regular intervals (monthly, quarterly etc) with feedback to the agency.•  Objectives for delivering the bonus should be reasonably achievable to act as an incentive. marketing management consultants
  7. 7. When should you use VBR? •  VBR can be used either when the agency is providing specific tasks or deliverables which can be ‘valued’ and priced, (Value Pricing). •  Eg. Campaign or project work.•  Or when the agency has a significant input to the strategic direction and there is a reasonable correlation between the work of the agency and the measurable value created, (Value Creation). Eg. Direct response is the best example of this.•  VBR can be used alongside PBR. They are not mutually exclusive. marketing management consultants
  8. 8. What are the steps for PBR? •  Identify the agency performance attribute you wish to encourage and reward.•  Discuss and agree with the agency a measure and methodology, (One measure – KISS).•  Have the agency offer or suggest a level of ‘at risk’ component from their current remuneration and at least double this for the upside.•  Measure and provide feedback on a regular basis and pay quarterly or six monthly if possible.•  Review and adjust targets annually based on performance. marketing management consultants
  9. 9. What are the steps for VBR? •  Identify the approach to be used (or both) value pricing and value creation based on circumstances.•  For value pricing, identify the elements of the agency outputs to be priced.•  For value creation, identify the areas where the agency significantly contributes to value.•  Look historically for the cost of each area.•  Develop a model to replicate the level of remuneration based on either current or desired results. marketing management consultants
  10. 10. The case for not using relationship in PBR •  In the first slide we identified soft measures such as relationship as a criteria for performance based remuneration.•  There is behavioural economic evidence that financial rewards for individuals are counter-productive to driving performance.•  In most cases, performance payments for the agency do not impact the agency resource beyond senior account management.•  While relationship management is important, we DO NOT recommend it be linked to payments. marketing management consultants
  11. 11. Performance or Value? Performance Based Value Based•  Rewards the agency for •  Links agency remuneration to improving their the value of the task or the performance. value created.•  Can be used on any •  Is ideally used where the marketing supplier agency task is defined or relationship. correlates with results.•  Can be used with Value •  Can be used with Performance Based Remuneration. Based Remuneration. marketing management consultants
  12. 12. For more information contact… @trinityp3 TrinityP3 Pty Ltd Sydney +612 8399 0922www.trinityp3.com/blog/ Melbourne +613 9682 6800TrinityP3 Hong Kong +852 3478 3982Darren Woolley Singapore +65 6631 2861 people@trinityp3.com www.trinityp3.com marketing management consultants
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