The agency’s compensation level depends upon how well they meet the predetermined performance goals for its clients such as sales or market share.
Agency agencies may be compensated in a variety of ways including:
Commissions from Media
The agency is compensated based on the time or space it purchases for its client.
The commission has traditionally been 15% (16 2/3% for outdoor) but now is often negotiated downward.
Many advertisers have moved to a negotiated commission system that takes the form of reduced percentage rates, variable commission rates and minimum and maximum compensation rates.
Read: Types of Advertising Agencies
Fixed-Fee method
The agency charges a basic monthly fee for all of its services and credits to the client any media commissions earned.
Under a fee-commission combination, the media commissions received by the agency are credited against the fee. If commissions are less than the agreed-on fee, the client must make up the difference.
Cost-Plus Agreement
Under this compensation method, the client agrees to pay the agency a fee based on the costs of its work plus some agreed-on profit margin.
This system requires the agency to keep detailed records of costs incurred in working on a client’s account.
Read: Specialized Services-Advertising Agencies
Incentive-Based Compensation
This type of Advertising Agency Compensation Methods is becoming more prevalent as marketers strive to make their agencies more accountable and reduce costs.
Value-Based Compensation
Agencies are guaranteed only recouped costs, with any profit coming only in certain agreed-upon targets are met.
Read: The Promotional Mix
Percentage Charges
When agencies purchase services from other outside agencies they typically add a percentage in the form of a markup charge as their compensation.
These markups usually range from 18 to 20 percent.
Leave a Reply