The information, provided in the pamphlet Agency Remuneration: A best practice guide on how to pay agencies ñ published by the IPA, ISBA, MCCA AND PRCA ñ looks at all the ways an agency can be rewarded for its work, and their advantages and disadvantages. It concludes with 10 steps for clients and agencies to agree on the scope of the agency’s work and the best methods of payment. This guide should be on a mandatory reading list for both clients and agencies because ñ as it succinctly points out ñ it is in everybody’s interests for an agency to be rewarded properly for its work and for a client to pay the right amount for what it hires an agency to do.
The origin of the production of this guide lies in the fact that the old commission basis for agency remuneration has gradually withered as media independents have sprung up, and as the marketing mix and role of the agency has widened.
For B2B agencies, the commission-based remuneration model was never a totally satisfactory one, since most clients have never had the media spend to make a 17.65 per cent mark-up on net media spend an adequate reward for the work we put in.
Furthermore, B2B agencies were always more used to offering diverse services including branding, design, DM, web and interactive media. We have usually, therefore, worked on hybrid models of varying sorts, but in the past all too often based on resource package fees (retainers), together with media commission. Or, more frequently for example, a retainer to cover strategy, planning and account and project management; plus creative project fees to cover the creative resource required for each project.
The problem with this arrangement lies precisely in the advantages and disadvantages of both methods. Although it allows agencies to plan the resources and manpower they need to provide the planning and strategy within the account, the creative resources are required only on a short-term project basis. Therefore the agency doesn’t have the assurance that this resource will always be needed. This in turn undermines the agency confidence to plan its manpower requirements properly.
This is why many agencies have turned to freelance creative outsourcing to provide the creative element for their offering, often with poor results. Even with the best will in the world, freelancers will never know the client like the permanent staff. They never ‘own’ the client like the inhouse creatives and though they may be super-talented, will rarely produce the consistently high-quality brand-sensitive work that someone who knows the client inside-out would. It is possible that some of the tarnished reputation that B2B creative work has been associated with, stems from this sort of arrangement.
What is worse (as we have noted at ABBA) and worryingly on the increase, is the arrangement where all remuneration is based on a project-by-project basis, with no thought of developing any sort of long-term relationship. Often, each project is tendered out to the agencies that are on the client’s ‘preferred supplier’ roster. A mini-pitch results. That is what the agency becomes simply a supplier of marketing materials, with little or no encouragement either to provide proactive advice or to be concerned for the implications of each project on the clients’ brand or their business success.
It is understandable how such arrangements come into being. Perhaps it is a result of an over-enthusiastic, and misguided, procurement department. Or possibly, because the client’s own marketing department has no ability to scope out budgets for the year, but is given ad-hoc projects from sales or product development teams.
Working like this is, in the long-term, a wasteful use of specialist agency resources and does not get the best out of what a proper agency relationship can provide. It is rarely cost-effective, because the client usually ends up paying for an agency’s learning curve over and over again. Even more insidiously, it chips away at the brand, every time a piece of work or a project is developed with no profound understanding of what the brand values and brand promise of the company and its products should be.
This article is a plea to clients and agencies to try to follow at least some of the ’10 steps’ that the Agency Remuneration Guide outlines and at least scope out the work for the year as far as possible.
