Tag Archives: staffing plan

What Is the Basis for Variable Commission Rates?

15 May

dreamstime_m_35343815Until the late 1980s, agency remuneration models that were based upon commissions charged on ad spend were typically universally applied across media types. As alternative media channels began to expand, agencies began to charge variable commission rates, based upon media type.

The question to be asked is “Why?” and, is this approach still appropriate?

Presumably, planning, buying, and monitoring certain types of media required more time on the part of agency personnel and or certain experience levels, thus the higher rates. It is fair to question whether or not that premise still holds true. The most obvious area to question is the higher commission rates charged for programmatic advertising, which utilizes automated technology to execute and monitor media buys as opposed to traditional, manual buying methods.

Unfortunately, advertisers that employ a commission-based agency pay-model typically don’t see agency staffing plans or time-of-staff reporting. Thus, the ability for an advertiser to assess the resource level required to plan and place its media mix is limited at best.

Another concern regarding the variable commission rate pay-model is the potential for the higher rates charged for certain media types to bias an agency’s media mix recommendations. The possibility that an agency would approach the allocation process with the goal of optimizing its revenue, rather than the advertiser’s media investment certainly exists.

So, what should advertisers do? The answer is straightforward. Require their media agency partners to submit formal staffing plans, with an estimate of hours and utilization rates by employee/ position along with their annual commission rate schedule… just as they would with a retainer or labor-based fee compensation method. Further, advertisers should require agencies to provide monthly time-of-staff reporting, so that both parties can assess the resource levels, staff seniority and experience required to execute the scope of work.

With clear insights into an agency’s staff investment, advertisers can now knowledgeably adjust their remuneration programs, if needed. The goal, as always, is to equitably compensate media agency partners to effectively plan and execute an advertiser’s media program, while eliminating bias and optimizing working media levels.

Advertisers would be wise to heed the words of Oliver Markus Malloy, the German American novelist and to analyze the impact and efficiency of their variable commission rate compensation programs more closely:

“We live in this bubble of ignorance. Most people know nothing about history, or the historical context of the traditions they still follow today. People do things without knowing why they’re doing them.” 

Time for a Financial Review?

26 Jul

knowledge and ignorance puzzle pieces signdreamstime_xs_53502419


No triple bid.

No staffing plan.

No reconciliation.

Fixed fee

100% advanced billings.

Slow job cost reconciliation.

Poor Agreement language.

Old Agreement.

No examples / templates.

No breakout of retainer vs. out-of-scope fees.

No agency reporting of costs / hours.

Programmatic supply chain not understood.

Use of in-house agency services, no rate sheet.

Use of in-house agency services, not reconciled.

Freelance billed at full retainer rate.

Interns billed at full retainer rate.

Credits held.

Low Full Time Equivalent basis.

High Rate per hour.  No fee detail.  Non arms-length use of affiliate.

Mark-up applied.

Float.  Kick-back.  Favored expensive suppliers.

Duplicate charges.

Time reported doesn’t match time system.


Luxurious Travel.


That’s the short list.

Don’t let this happen to your critical marketing dollars.

Update and lock down financial terms in Agreement.

Tighten up definitions.

Enhance Agency reporting required.

Perform routine spot checks.

Follow the money to the ultimate end user.

Vet Agreement with ANA template.

Ask the Experts.

Maintain consistence of control and visibility across the Marketing supplier network.

Maintain trust but validate Agency financial activity.

Strengthen the Agency relationship through understanding and alignment.



The 3 Keys to Successful Agency Relationships

4 Sep

There are a lot of very capable advertising agencies and no shortage of experienced, intelligent marketing professionals on the client-side.  So what distinguishes successful client-agency relationships from those that fail to yield the desired results?  Based upon my experience it comes down to three key elements: People, Process and Perspective.

Other than scale and talent, often there is little that distinguishes one advertising agency’s service offering from the next.  They offer a comparable array of resources delivered through professionals representing a consistent range of agency functions.  Yet some client-agency relationships withstand the test of time, producing memorable work and significant in-market results, while others struggle to synchronize their efforts that result in failure to produce the desired results.    As a rule, individuals and business entities enter into relationships committed to the notion of success.  However, in a people business such as professional services, achieving success requires more than commitment and good intentions.

Constructing an effective team begins with assembling the right people with the cumulative experience and skills necessary to address the client organization’s market challenges and opportunities.  Assigning roles and responsibilities to each team member will assist in improving the group’s efficiency and productivity while minimizing conflict.  Over time, it is important to hold a team together to leverage the group’s shared learning, brand knowledge and market insights to achieve incremental gains year-over-year.  As we all know, in an industry marked by high employee turnover, this is often easier said than done.

Implementing a sound process to guide both the team’s efforts and resource investment decisions is a critical component to a successful relationship.  The process plays an important role in assisting the team in executing their tasks in an efficient manner, maintaining a goal orientation and providing feedback on the team’s progress to key agency and client-side stakeholders.  In the end, an effective process will mitigate risks (i.e. legal, financial, in-market performance) and improve transparency for all members of the team while enhancing the cumulative contributions of each team member.

“A bad system will beat a good person every time.”  – W. Edwards Deming

Having a shared perspective is a necessary component of all successful relationships.  This does not mean that the client and agency must agree on everything.  Differing opinions and the ability to discuss the merits of disparate points-of-view is an essential element of producing break-through work.   Undoubtedly, a shared perspective involves clarity around a brand’s position, its target audience and an understanding of what moves the needle when it comes to demand generation.  However, it also involves a knowledge of and respect for each organization’s culture and values.  These crucial insights help drive team interactions and assist in resolving conflict when disputes inevitably arise.

Of note, client-agency agreements represent the ideal venue for establishing the “rules of the road” for aligning people, process and perspective.  A well-constructed letter-of-agreement (LOA) will clearly define an agency’s roles and responsibilities, identify key deliverables and layout the criteria for assessing performance.  Additionally, LOAs should incorporate an agency staffing plan which identifies agency personnel by name and title with their utilization levels.  This is a pre-requisite for assembling and “locking-in” a team and, in conjunction with the scope-of-work, forms the basis for the agency remuneration agreement.  The LOA should also establish the processes and controls that will govern all aspects of the relationship thus providing both parties with clarity around the advertiser’s expectations, particularly when it comes to accountability and transparency.

Finally, it is important to remember that the LOA is a living document which must be socialized among key constituents within the client and agency organizations and must be reviewed and reconciled on a regular basis to insure that both parties are conducting themselves in an appropriate manner.  Many advertisers consider it astute to engage an independent consultant to conduct a contract compliance audit to assess agency performance and gain valuable insights that  improve both the return on advertising investment and the relationship.

Interested in learning more about the “3 P’s” and their role in “Building a High-Performance Agency Network?”  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at [email protected] to schedule a complimentary consultation.

Value-Based Agency Compensation Models; Viable or Not?

23 Mar

moneyIt wasn’t until the mid-to-late ’80’s that the advertising industry’s century old reliance on commission based agency compensation systems began to evolve. The reasons for this evolution are not as important to the discussion surrounding agency remuneration as is the fact that multiple compensation approaches were spawned to replace the traditional commission-based approach.

One coveted, yet highly elusive approach, value-based compensation, provides a base fee sufficient to cover the agency’s costs of servicing a client and links their ability to generate a profit to the advertiser’s in-market performance.

The notion of an agency “having skin in the game” has long been discussed. Generally speaking, both advertisers and agencies have agreed that this type of approach could drive positive results for the advertisers business and for the agencies bottom lines.

Unfortunately, the industry has failed to settle on a workable methodology for constructing a value-based agency remuneration system that is considered fair and balanced to both parties. Why? There are several trends that impact advertiser/ agency relationships that have made this a difficult proposition:

  • The length of client/ agency relationships has continued to decline, as perhaps have both parties commitment to those relationships.
  • A typical Chief Marketing Officer’s average tenure with an organization is less than two years, creating a number of “continuity” impediments to forming and maintaining a productive relationship with their agency partners (CEO tenure is not much better).
  • The move away from full-service agencies, driven largely by the advertising agency move to unbundle their services has resulted in most advertisers having a fragmented, diverse agency network making it difficult to clearly attribute responsibility for in-market results.
  • The Marketing function is not as highly regarded by many organizations today as it once was, which has negatively impacted the view of marketing services providers in general and advertising agencies in particular.

Perhaps, advertisers and agencies can take a positive step in the right direction by first linking compensation to agency performance.  Linking an agency’s remuneration to their ability to effectively satisfy the deliverables identified within a contractual statement of work and to deliver a level of service commensurate with the staffing plan has many benefits.  Primarily, this approach aligns agency compensation with advertiser expectations and allows for a clear, fair assessment of performance, eliminating the ambiguity that is often associated with attributing credit for success or failure within a value-based compensation system.

Structured properly, agency delivery against the client’s expectations will drive in-market results while satisfying client-side Financial and Procurement Teams desirous of performance based vendor remuneration. It can also serve to strengthen the relationship between the client and the agency.  The following article from AdAge sheds additional light on the topic of value-based compensation.

%d bloggers like this: