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marketing management consultants
The latest trends in agency remuneration
TrinityP3 Webinar Series
Presented by Darren Woolley
26 August 2015
marketing management consultants
What we will discuss today
•  Remuneration considerations
•  Remuneration or compensation
•  The various models:
•  Models
•  Strengths & Weaknesses
•  Trends
•  Applications
•  Questions
•  Next sessions
marketing management consultants
Considerations
Simple to understand and easy to administer.
Fair to both advertiser and agency.
Aligning advertiser and agency interests and priorities.
Finalised before agency resources are committed.
Recorded in a ratified advertiser / agency contract.
Flexible enough to accommodate changes in the future.
Involving senior management, with principles clearly
communicated to the teams on both sides.
Capable of standing the test of time and being
understood by any future Marketing Director.
Based on agreed and understood terms and definitions.
Inclusive of specified tracking and review dates.
marketing management consultants
Remunerate or Compensate
Compensation: – noun
1. the act or state of compensating.
2. the state of being compensated.
3. something given or received as an equivalent for
services, debt, loss, injury, suffering, lack, etc.
Remuneration: – noun
1. the act of remunerating.
2. something that remunerates; reward; pay.
marketing management consultants
Remuneration Models
•  Most common remuneration models:
•  Commission & Service Fees
•  Resource Package Fees (Retainer)
•  Variable fees based on actual hours
•  Project Fees
•  Hybrids
•  Latest Trends:
•  Move from cost to value based
•  Return of the commission
•  Incentive based models
marketing management consultants
Commission & Service Fee
Advantages
•  Simple in the case of media
advertising.
•  Easy to calculate and
administer.
•  Parties focused on quality not
cost.
•  A crude form of PBR with a
higher Media spend leading to
greater agency earning.
Disadvantages
•  Based on volume of Media
spend, not scope of work.
•  Inappropriate were Media is not
a major component of the
output.
•  Does not encourage Media
neutral solutions.
•  Cancellations of spend has a
severe effect on agency income.
•  Based on the traditional media commission paid by
the media proprietor
•  Making a come back in digital media
•  Or used in combination with other models.
marketing management consultants
Resource Package Fees (Retainers)
Advantages
•  Agency knows its income and
can resource appropriately.
•  Advertiser knows cost and
can budget appropriately.
•  Encourages more Media
neutral solutions.
Disadvantages
•  Requires the scope of work to
be accurately defined.
•  Does not allow for major
changes in scope of work.
•  Input based and therefore less
accountable.
•  Often time consuming to
negotiate and administer.
•  Ideally based on an agreed scope of work.
•  Based on salary costs of required resources at % of
their annual billable hours by an overhead factor and
the agreed profit margin.
•  Most common remuneration model in the market.
marketing management consultants
Variable Fees based on Actual Hours
Advantages
•  Relatively easy to administer,
provided agencies maintain
accurate timesheets.
•  Reflects advertiser needs and
agency activity.
•  Allows flexibility should scope
of work changes.
•  Allows agency return based
on clearly defined process
and actual deliverables.
Disadvantages
•  Difficult for advertiser to budget.
•  Difficult for agency to resource.
•  Requires accurate time sheet
process and requires audit in
disputes.
•  Lack of accountability with no
incentive for efficiency.
•  Fees are based on actual time spent using an hourly
rate for individual staff.
•  Charge out rates either calculated or ‘market’.
•  More common in marketing services contracts
marketing management consultants
Project Fees
Advantages
•  Easy to control expenditure.
•  Often used to top up retainers
for work outside the agreed
scope.
•  Reflects specific advertiser
needs.
•  Suits integrated or niche
services.
Disadvantages
•  Inclined to encourage a short
term focus rather than longer
term relationships.
•  Agency does not have the same
level of confidence in
remuneration unless scope of
work defined up front.
•  Tends to come at a higher cost
compared to the retainer.
•  Project fees alternative to fixed annual fees,
determined and paid on an individual project basis.
•  Often used for ad hoc projects, paid either on
completion of the individual project or for projects
completed in the month, quarter or year.
marketing management consultants
Input/Costs to Outcome/Value
•  Most of the existing models are input / cost based
that reward volume of work and not effectiveness.
•  The current best practice is to move to an output
based / pricing model that fixes the value based on
output.
•  The leading trend is for a value based
remuneration model where the reward is based on
the value created or contributed.
Input / Cost
Output /
Price
Outcome /
Value
marketing management consultants
Inputs vs Outputs vs Outcomes
Model Positives Negatives
Inputs /
Costs
•  Resource / Head hour
based
•  No direct link to volume
or scope of work
•  Simple to implement
•  Multiple points of
negotiation including
salary cost, overhead
and profit
•  Rewards increased
volume rather than
effectiveness
•  Based on head hours /
timesheets which are
unreliable
Outputs /
Price
•  Based on scope of
work / outputs /
deliverables
•  Price agreed and set
on historical basis
•  Values the output
rather than the cost
•  Makes budgeting
easier
•  Adjusting
remuneration easier
•  Rewards increased
volume rather than
effectiveness
•  Issues arise when work
commissioned then
cancelled
Outcomes /
Value
•  Based on the value
created by the activity
•  Either all or the bulk of
remuneration / profit
•  More like profit sharing
than bonus
•  Links agency
remuneration to
outcomes / value
•  Brings alignment
between suppliers
and marketers if
correctly
implemented
•  Requires measurement
of marketing
effectiveness
•  Difficult to get many
agencies to agree on
measures
marketing management consultants
Performance or Incentive
Benefits:
•  Improved agency performance.
•  Improved advertiser performance.
•  Goal alignment and congruence.
Types:
•  Bonus - additional to the agreed profit margin.
•  Cost recovery - represents all profit.
•  Shared risk and reward - agency puts % of margin
at risk and advertiser meets that % in pool.
•  Earn back - agency puts % of margin at risk to be
paid in results.
marketing management consultants
Performance Criteria
Business Performance (Hard)
•  EG. sales, traffic, profit, market share, volume growth, etc. These can
be measured by the same criteria that the advertiser uses for their
internal bonus systems.
Advertising Performance (Medium)
•  EG: product awareness, ad awareness measures, consumer
measures, attitude ratings, persuasion, purchase intent, awards,
brand equity, image, effectiveness awards, etc.
Agency Performance (Soft)
•  Relates to the evaluation of agency functional areas: account
services, creative and media in terms of: performance, service,
relationship, cost efficiencies, etc.
marketing management consultants
Performance Criteria
Business Performance
•  Sales Volume
•  Volume Growth
•  Relative Brand
Performance
•  Composite
Performance
•  Market/brand share
•  Customer loyalty
•  Brand equity
•  Brand profitability
Advertising Performance
•  Advertising Awareness
•  Brand Image Shifts
•  Attitude Ratings
•  Ad enjoyment
•  Brand personality
•  Predisposition to buy
•  Ad scores
•  Persuasion index
Agency Performance
•  Agency Service
delivery*
•  Relationship
Management*
•  Functional
competencies*
•  Contribution to
‘branding’
•  Project management*
•  Administration*
•  Cost Efficiency*
•  Pro-activity*
•  Collaboration*
* Can be measured, managed and maximised using Evalu8ing. Find out more at www.evalu8ing.com
marketing management consultants
In Summary
•  The market continues to evolve looking for more
effective remuneration models
•  There are popular models but no perfect models
•  There is a trend from cost/input based to value/output
models
•  Important to match the model to the situation
QUESTIONS?
marketing management consultants
TrinityP3 Webinar Series
September 9: Creating transparency and trust in media
September 23: Transforming Production for the 21st
Century
October 7: How many agencies do you need and how to
get there
October 21: Aligning your digital marketing to marketing
November 11: Super charge your agency with incentive
based remuneration
November 25: The challenges for Marketers in a carbon
constrained future
http://www.trinityp3.com/product-category/webinars/
marketing management consultants
For more information contact:
TrinityP3 Pty Ltd
Sydney
+612 9964 9900
Melbourne
+613 9682 6800
Hong Kong
+852 3478 3982
Singapore
+65 6631 2861
people@trinityp3.com
www.trinityp3.com
Trinityp3.com/blog/
@TrinityP3
TrinityP3
TrinityP3.StrategicMarketingConsultants

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TrinityP3 Webinar Series: The latest trends in agency remuneration

  • 1. marketing management consultants The latest trends in agency remuneration TrinityP3 Webinar Series Presented by Darren Woolley 26 August 2015
  • 2. marketing management consultants What we will discuss today •  Remuneration considerations •  Remuneration or compensation •  The various models: •  Models •  Strengths & Weaknesses •  Trends •  Applications •  Questions •  Next sessions
  • 3. marketing management consultants Considerations Simple to understand and easy to administer. Fair to both advertiser and agency. Aligning advertiser and agency interests and priorities. Finalised before agency resources are committed. Recorded in a ratified advertiser / agency contract. Flexible enough to accommodate changes in the future. Involving senior management, with principles clearly communicated to the teams on both sides. Capable of standing the test of time and being understood by any future Marketing Director. Based on agreed and understood terms and definitions. Inclusive of specified tracking and review dates.
  • 4. marketing management consultants Remunerate or Compensate Compensation: – noun 1. the act or state of compensating. 2. the state of being compensated. 3. something given or received as an equivalent for services, debt, loss, injury, suffering, lack, etc. Remuneration: – noun 1. the act of remunerating. 2. something that remunerates; reward; pay.
  • 5. marketing management consultants Remuneration Models •  Most common remuneration models: •  Commission & Service Fees •  Resource Package Fees (Retainer) •  Variable fees based on actual hours •  Project Fees •  Hybrids •  Latest Trends: •  Move from cost to value based •  Return of the commission •  Incentive based models
  • 6. marketing management consultants Commission & Service Fee Advantages •  Simple in the case of media advertising. •  Easy to calculate and administer. •  Parties focused on quality not cost. •  A crude form of PBR with a higher Media spend leading to greater agency earning. Disadvantages •  Based on volume of Media spend, not scope of work. •  Inappropriate were Media is not a major component of the output. •  Does not encourage Media neutral solutions. •  Cancellations of spend has a severe effect on agency income. •  Based on the traditional media commission paid by the media proprietor •  Making a come back in digital media •  Or used in combination with other models.
  • 7. marketing management consultants Resource Package Fees (Retainers) Advantages •  Agency knows its income and can resource appropriately. •  Advertiser knows cost and can budget appropriately. •  Encourages more Media neutral solutions. Disadvantages •  Requires the scope of work to be accurately defined. •  Does not allow for major changes in scope of work. •  Input based and therefore less accountable. •  Often time consuming to negotiate and administer. •  Ideally based on an agreed scope of work. •  Based on salary costs of required resources at % of their annual billable hours by an overhead factor and the agreed profit margin. •  Most common remuneration model in the market.
  • 8. marketing management consultants Variable Fees based on Actual Hours Advantages •  Relatively easy to administer, provided agencies maintain accurate timesheets. •  Reflects advertiser needs and agency activity. •  Allows flexibility should scope of work changes. •  Allows agency return based on clearly defined process and actual deliverables. Disadvantages •  Difficult for advertiser to budget. •  Difficult for agency to resource. •  Requires accurate time sheet process and requires audit in disputes. •  Lack of accountability with no incentive for efficiency. •  Fees are based on actual time spent using an hourly rate for individual staff. •  Charge out rates either calculated or ‘market’. •  More common in marketing services contracts
  • 9. marketing management consultants Project Fees Advantages •  Easy to control expenditure. •  Often used to top up retainers for work outside the agreed scope. •  Reflects specific advertiser needs. •  Suits integrated or niche services. Disadvantages •  Inclined to encourage a short term focus rather than longer term relationships. •  Agency does not have the same level of confidence in remuneration unless scope of work defined up front. •  Tends to come at a higher cost compared to the retainer. •  Project fees alternative to fixed annual fees, determined and paid on an individual project basis. •  Often used for ad hoc projects, paid either on completion of the individual project or for projects completed in the month, quarter or year.
  • 10. marketing management consultants Input/Costs to Outcome/Value •  Most of the existing models are input / cost based that reward volume of work and not effectiveness. •  The current best practice is to move to an output based / pricing model that fixes the value based on output. •  The leading trend is for a value based remuneration model where the reward is based on the value created or contributed. Input / Cost Output / Price Outcome / Value
  • 11. marketing management consultants Inputs vs Outputs vs Outcomes Model Positives Negatives Inputs / Costs •  Resource / Head hour based •  No direct link to volume or scope of work •  Simple to implement •  Multiple points of negotiation including salary cost, overhead and profit •  Rewards increased volume rather than effectiveness •  Based on head hours / timesheets which are unreliable Outputs / Price •  Based on scope of work / outputs / deliverables •  Price agreed and set on historical basis •  Values the output rather than the cost •  Makes budgeting easier •  Adjusting remuneration easier •  Rewards increased volume rather than effectiveness •  Issues arise when work commissioned then cancelled Outcomes / Value •  Based on the value created by the activity •  Either all or the bulk of remuneration / profit •  More like profit sharing than bonus •  Links agency remuneration to outcomes / value •  Brings alignment between suppliers and marketers if correctly implemented •  Requires measurement of marketing effectiveness •  Difficult to get many agencies to agree on measures
  • 12. marketing management consultants Performance or Incentive Benefits: •  Improved agency performance. •  Improved advertiser performance. •  Goal alignment and congruence. Types: •  Bonus - additional to the agreed profit margin. •  Cost recovery - represents all profit. •  Shared risk and reward - agency puts % of margin at risk and advertiser meets that % in pool. •  Earn back - agency puts % of margin at risk to be paid in results.
  • 13. marketing management consultants Performance Criteria Business Performance (Hard) •  EG. sales, traffic, profit, market share, volume growth, etc. These can be measured by the same criteria that the advertiser uses for their internal bonus systems. Advertising Performance (Medium) •  EG: product awareness, ad awareness measures, consumer measures, attitude ratings, persuasion, purchase intent, awards, brand equity, image, effectiveness awards, etc. Agency Performance (Soft) •  Relates to the evaluation of agency functional areas: account services, creative and media in terms of: performance, service, relationship, cost efficiencies, etc.
  • 14. marketing management consultants Performance Criteria Business Performance •  Sales Volume •  Volume Growth •  Relative Brand Performance •  Composite Performance •  Market/brand share •  Customer loyalty •  Brand equity •  Brand profitability Advertising Performance •  Advertising Awareness •  Brand Image Shifts •  Attitude Ratings •  Ad enjoyment •  Brand personality •  Predisposition to buy •  Ad scores •  Persuasion index Agency Performance •  Agency Service delivery* •  Relationship Management* •  Functional competencies* •  Contribution to ‘branding’ •  Project management* •  Administration* •  Cost Efficiency* •  Pro-activity* •  Collaboration* * Can be measured, managed and maximised using Evalu8ing. Find out more at www.evalu8ing.com
  • 15. marketing management consultants In Summary •  The market continues to evolve looking for more effective remuneration models •  There are popular models but no perfect models •  There is a trend from cost/input based to value/output models •  Important to match the model to the situation QUESTIONS?
  • 16. marketing management consultants TrinityP3 Webinar Series September 9: Creating transparency and trust in media September 23: Transforming Production for the 21st Century October 7: How many agencies do you need and how to get there October 21: Aligning your digital marketing to marketing November 11: Super charge your agency with incentive based remuneration November 25: The challenges for Marketers in a carbon constrained future http://www.trinityp3.com/product-category/webinars/
  • 17. marketing management consultants For more information contact: TrinityP3 Pty Ltd Sydney +612 9964 9900 Melbourne +613 9682 6800 Hong Kong +852 3478 3982 Singapore +65 6631 2861 people@trinityp3.com www.trinityp3.com Trinityp3.com/blog/ @TrinityP3 TrinityP3 TrinityP3.StrategicMarketingConsultants