ROI and Risk/Reward: Compensation Basics

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In this course, we will review the factors shaping the demand for risk/reward compensation; discuss what elements need to be in place before agreeing to such a program; outline some rules for …

In this course, we will review the factors shaping the demand for risk/reward compensation; discuss what elements need to be in place before agreeing to such a program; outline some rules for risk/reward agreements; and offer a methodology for risk/reward calculation.
We’ll also discuss other methods of ROI measurement in use by businesses, and recommend those methods best suited to agency-client collaboration.

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  • 1. ROI and Risk/Reward:
    Agency Compensation Basics
    Second Wind
    University of Advertising
  • 2. Course Description
    In this course, we will review the factors shaping the demand for risk/reward compensation; discuss what elements need to be in place before agreeing to such a program; outline some rules for risk/reward agreements; and offer a methodology for risk/reward calculation.
    We’ll also discuss other methods of ROI measurement in use by businesses, and recommend those methods best suited to agency-client collaboration.
    © 2010 Second Wind University of Advertising
    2
  • 3. © 2010 Second Wind University of Advertising
    3
    What is ROI?Return on Investment
    In advertising and marketing, what companies earn back from advertising expenditures.
  • 4. Companies are increasingly demanding accountability from their advertising and marketing partners.
    Moves agencies from vendor (execution) to consultant/advisor role
    Increases perceived value of agency services in clients’ eyes
    Generates and grows a partner relationship with agency clients
    Higher-value agency profit center
    © 2010 Second Wind University of Advertising
    4
  • 5. © 2010 Second Wind University of Advertising
    5
    Why the demand for ROI?One Reason:
    “Half the money I spend
    on advertising is wasted;
    the trouble is I don’t know
    which half.”
    Attributed to American retailing legend John Wanamaker
    (Also attributed to William Hesketh Lever, First Viscount Leverhulme)
  • 6. Eight Marketing ROI Methods:
    Media Measurement (reach, frequency, GRPs, etc.)
    Communications Measurement (readership, awareness, recall)
    Econometrics (Web-Based, too!) (cost-per-action, cost-per-sale, cost-per-lead, etc.)
    Statistical Measurement (complicated and requires access to several years of client data)
    Benchmarking (goals set and measured against current or historical data)
    Objectives-based Planning (attaining very specific goals within set periods)
    Behavioral Measurement (customer behavior before, during and after a campaign)
    © 2010 Second Wind University of Advertising
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  • 7. © 2010 Second Wind University of Advertising
    7
    Most of these methods are not valuable in
    risk/reward agency compensation.
    Ideally, stick to Objectives-based, Benchmarking and Behavioral measures, all of which can be tested and tracked by the agency with access to client data.
  • 8. What is Risk/Reward Agency Compensation?
    Clients ask agencies to be paid based on how programs perform
    Success-based payment - agencies are paid if programs perform; the better they perform, the more the agency is rewarded
    Agencies “share the risk” - if clients lose, so do agencies
    © 2010 Second Wind University of Advertising
    8
  • 9. Four keys to incentive or risk/reward based compensation
    © 2010 Second Wind University of Advertising
    9
  • 10. Four Keys to Incentive or Risk/Reward based Compensation:
    Take the deal to the client; do not let them set terms, but propose your own.
    Ensure that you can at least break even with your proposal.
    Base the reward on measurable criteria that is comfortable for client and agency.
    Oversight - Participate in or control the measurement process to ensure “fair play.”
    © 2010 Second Wind University of Advertising
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  • 11. New styles of risk based
    © 2010 Second Wind University of Advertising
    11
  • 12. New styles of risk-based:
    Profit-sharing:
    The agency is paid a percentage of profits generated by a marketing effort.
    Example: New York agency Anomaly teamed with Michigan State Lottery to sell ad space on the backs of lottery tickets in exchange for 10 percent of revenue from the ad sales.
    © 2010 Second Wind University of Advertising
    12
  • 13. New styles of risk-based:
    Independent:
    The agency gains client permission to execute for-profit client-marketing-related programs, where the agency risks all costs in exchange for full profits.
    Example: Agency Crispin, Porter & Bogusky manufactured and sold “Subservient Chicken” action figures with permission of client Burger King.
    © 2010 Second Wind University of Advertising
    13
  • 14. © 2010 Second Wind University of Advertising
    14
    Want to learn more?
    Review a complete course description or enroll at:
    www.univofadvertising.com
    Enter code SLD20 and save 20% on any University of Advertising course!
  • 15. About University of Advertising
    Second Wind created the University of Advertising to provide on-demand training for agency professionals seeking to advance their advertising careers and become more valuable to their agencies. Since 1988, Second Wind has trained over 20,000 agency professionals and certified thousands through its highly recognized Certified Seminar series. Now, Second Wind is delivering this training right to your desktop.
    © 2010 Second Wind University of Advertising
    15
    Start improving your skills today with U of A!