Is your agency remuneration fair?
Anja De Landsheer
One of the common reasons we hear from advertisers to pitch their business, is the fact that they find their agency ‘too expensive’. When questioning the respective agencies, we tend to hear the opposite: ‘too much pressure on our margins’.
Bad debts make bad friends. So a fair, mutual beneficial remuneration model helps create successful relationships. But how do you judge what is fair? Benchmark to evaluate.
1. Hourly rates are a starting point
An effective remuneration benchmark goes beyond the latest info on agencies’ hourly rates. Hourly rates are a starting point but do not say anything about the final price level. An efficient agency with high hourly rates can ultimately be cheaper than an agency with low hourly rates.
Use comparable deliverables and thus output to judge real value for money.
2. Take into account your operational model
The way both parties will collaborate is a crucial part of the remuneration model. Remuneration and efficiency in collaboration are intimately linked.
Work together to optimise/customise your mutual governance model and how your teams will work together in an efficient and effective way. List the relevant tools and collaboration platforms upfront and take these into account when evaluating their remuneration.
If your internal approval flow requires 3 levels of hierarchy: no problem. If it’s part of your company’s culture, it is what it is so ensure your agency can anticipate this in their fees. It will lead to less frustrations for both parties involved.
3. Be specific and manage expectations
A well-defined scope & budget will limit the misunderstandings around expected output for the agreed remuneration at a later stage. We meet, for example, quite a number of advertisers who ask for ‘strategic input’ from their agency without a clear communication on what this means from their perspective. For some, ‘strategic input’ is limited to a competitive review every 2 months, for others, it means close and regular involvement in the brand’s business in order to co-think about solutions.
This clarity will help you to ensure strict compliance to the budget from your agency.
In summary: fairness is based on received / perceived value from both sides. One size does not fit all when it comes to crafting your remuneration model.
A good understanding of what your options are is the basis to choosing a transparent and honest basis for your relationship with your agency.
If you want to know more about whether or not your remuneration model is fair and how it compares to the market for similar needs, contact us for a chat.