REMUNERATION – IS IT REALLY SO BAD?
Thursday, August 19th, 2010When Thomas Cook demanded a £1m upfront fee for the right to buy their media, it was a sign that at least one client had become fed up with the lack of transparency in how media agencies got remunerated for their services. Media agencies were strangely quiet in the ensuing debate, keen to keep their covert agency deals under wraps. But many others leapt in to chastise Thomas Cook for their approach, which admittedly is not a brilliant long-term solution. Rather like the Indian restaurants that double their prices and then offer a 50% discount, this type of arrangement does little to enhance trust.
Many other agencies then resurrected the condemnation of the payment by time methodology and sought to push the contribution of their agency to the overall success of the business. In theory this appears like a fairer way to establish a correlation between input and output. Yet few agencies want a basic fee that doesn’t even cover its costs and hence the potential for payment by results is normally only ever applied to the ‘profit element’ of an agency’s fee.
Putting aside the complexity of working out the specific extra contribution delivered by the agency in terms of isolating it verses any other factors, there are a whole host of questions that are begged. Why is the contribution of one agency greater than the marketing people, who briefed, oversaw and sold the campaign internally ?
Why is an agency’s contribution better than another agency, who didn’t get the job (and the fees) – if the agency managed to help lift sales by 10%, who is to say that another agency might have lifted them by 20%?
If an agency is genuinely part of a team of agencies, who worked in an integrated fashion, this makes isolating the contribution of one agency over the others even harder and probably not in a client’s interests.
The chances are that you would spend more time arguing the toss over who did what and quantifying the effect than you would ‘doing the doing‘.
A better approach is for clients to ask what they want out of an agency. What motivates an agency? What is the best way to achieve getting the most out of an agency? An accurate analysis of this is unlikely to result in a strong correlation between money and performance. True, agencies hate getting ripped off … just like clients. So avoiding any mutual ripping off is important. The way that agencies grow is by getting more and more business – by doing great work that works. That is a far more satisfying way to make money rather than fleecing a client.
Two key principles shine out.
1. Transparency. Only with an open approach to remuneration, will both sides trust each other.
2. Fairness. It is in the client’s interests to motivate agencies and it is in agencies’ interests to do great work. This is only really possible if agencies are allowed to make a reasonable margin.
