Agency Executives On Changing Compensation Models

ACAs agencies adopt programmatic practices, their compensation models are also evolving to accommodate emerging technologies, new client needs and transitioning costs of operations.

Though several agencies that AdExchanger spoke to were willing to weigh in on the changes they’ve observed, many brand executives declined to detail their own shifting compensation models, citing the sensitivity of that information. But they do endorse the programmatic model.

“We believe automated marketplaces are critical to delivering on guest expectations now and in the future,” said Kristi Argyilan, Target’s SVP of media and guest engagement. “We’re excited by the capabilities accessible data and ad tech enable.”

Agency execs from 360i, Jack Morton Worldwide, 3Q Digital, Ready Set Rocket and Huge offered some insight into how pricing models are changing, and shared their thoughts on how to find the best way to adapt to the new system. improve upon the ongoing evolution.

Click below to read their responses.

Jared Belsky, President, 360i:

“There is a lot of disruption in agency compensation, and it is both good and bad. The good happens when there is mutual alignment between desired behaviors and compensation. I see three major trends on the media side of compensation. First, medium Agnostic: Ensuring that the compensation structure does not incent you to spend more programmatically, as opposed to on email or search. Second, communications Planning and Strategy: In too many cases, media strategy – or communications planning – is given short shrift.  In those cases, we see clients get into a situation months down the road after a deal is sealed where there is not enough senior thought leadership on the business. And finally, paying Up for Analytics: Reporting is not analytics. Analytics is not reporting.  Reporting typically is included in base relationships. What we are seeing, which is great, is an increase in client willingness to pay up for analytics.”

Bill Davies, COO, Jack Morton Worldwide 

“First, we’re seeing that collaborations between clients and agency partners are focused more on optimizing program results in line with overall client business objectives. Second, we’re seeing more AOR [agency of record] relationships without retained work. Clients are willing to commit to an agency, but then are only willing to pay on a project basis. It makes it difficult on the agency side to dedicate resources and balance workload. Finally, the biggest opportunity that we see from the agency side is the RFP process. This is an area where we see the most discrepancy between what a client asks for and what a client actually wants. We still find that in that initial RFP stage, clients tend to either ask for too much or don’t give enough information for the agency to respond in a smart, all-encompassing fashion.”

Scott Rayden, Chief Revenue Officer, 3Q Digital

“There are three areas that I believe are going to drive a change in how agencies are compensated in the search performance-marketing world. [First,] as clients and agencies bring more technologies into play, the blended cost of marketing goes up. This results in more fees for clients and (often) smaller margins for the agency. Moving forward, I see a strong need for agencies and technology partners to spend more time working through pricing structures together. [Second], the days of having teams manage spend on a few channels is over. We are starting to see a big shift in the ability for other channels [beyond Google] to drive performance. Each channel requires different methodologies to succeed. This means agencies need to have more expertise and spend more time in other channels, which will drive the cost of support up while margins are trending down. Higher agency minimums, blended media rates across all channels, even starting to break out campaign hours, strategy hours and communication hours are things I’ve seen happening in our space. [Third], agencies will need to adopt pricing models that account for the work they do involving technology, data and behavioral science. This means shifting from just a percentage-of-spend model to more project-, hourly-based work.”

Lauren Nutt Bello, Partner and VP of Client Services, Ready Set Rocket

“One of the biggest challenges we’re seeing in relation to comp models is the challenge in delivering an estimate before we’ve had a chance to dive into the strategy that will inform the production components. Based on this, we’ve shifted engagements into two separate parts. The first is a proper discovery/definition engagement to ensure we have a comprehensive understanding of client objectives and needs from a platform, business and marketing perspective to drive the full digital strategy. That strategy would drive the execution. The other piece that’s shifted is around resetting expectations for media management fees. When you’re managing performance and programmatic media, the typical 15% fee model for other media channels doesn’t make sense. We allocate resources on a daily basis to dive into numerous platforms to optimize campaigns based on various conversion metrics. Unless the monthly spend is substantial, a 15% fee does not cover the costs of these resources. We have shifted to a model of a minimum number of hours per month to manage a campaign to account for the time necessary to effectively manage and optimize this type of media, instead of an arbitrary percentage based on spend.”

Matthew Waghorn, Director of Communication Planning, Huge 

“When you look at the old way of buying digital media, it was highly labor intensive, whereas now we’ve got trading desks like Xaxis and Cadreon. And there are investment costs, certainly, but the amount of expense on salary vs. cost per impressions bought, that ratio has been blown out of the water with programmatic. You can buy so many more impressions at such scale now for half the resources. But everyone’s married to buying cheap impressions, so it creates a race to the bottom. When you think about agency commissions being sliced because they want to remain competitive, I suppose you could say that if costs become so automated within programmatic buying then [returns] cannot accrue the same commission levels that digital might normally have. So agencies now have to be compensated in planning work fees and upfront retainer costs to offset that. That might be an eventuality.”

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