Tom Denford: pay agencies more for better performance

Advertisers that want the best agency talent on their accounts and the most motivated team need to be bold.

In a recession agencies may have been happy just to have your business but as the economy improves they’ll want a bigger piece of the action when they deliver real business advantage.

performance-related-pay-300x258The traditional means of delivering this has been payment for performance (PFP), with each brand and agency working together to determine the metrics that will be used to assess their contribution to business success.

But a recent survey conducted by the World Federation of Advertisers and ID Comms found that the incentives being offered are, in our opinion, too small.

Based on responses from WFA members representing more than $100bn in annual marketing spend, it found the average incentive was just 14 per cent of agency income.

Our experience tells us that to be effective at significantly influencing agency behaviours, the rewards on offer need to be at least 20 per cent of total income, ideally pushing 30 per cent.

At this level of potential reward, brands benefit from an agency that’s more focused on value-creating behaviours and thus better aligned to driving the clients’ business KPIs.

Being bold with PFP will become increasingly critical because in the last six months the conversations we’ve been having with global advertisers have evolved. Instead of having a recession-geared conversation on how to save agency costs, the whole outlook has changed.

The new conversation is about how marketing (and the company’s marketing service agencies) can work together to generate top-line growth.
This changes the way that agencies are used and the way marketers are likely to reward their agency partners in order to hit those tough new growth targets.

The good news from the WFA/ID Comms survey is that uptake of performance-related payment methods is increasing (now 15 per cent of all payment models used) with a further 37 per cent of those surveyed saying they planned to implement performance incentives, 36 per cent said they wanted to explore value-based compensation and 66 per cent said they wanted to link agency income more closely to their own business performance.

However, if these PFP wannabes offer too small a reward then they won’t reap the full benefits of the risk they are taking. An agency that’s correctly rewarded when things go right is more likely to respond to attempts to incentivize the right behaviours, significantly boosting marketing ROI.

If the rewards are big enough then the advertiser and therefore the agency will be able to attract the very best talent to their business.
Media (and other marketing specialisms) are still people businesses and the best talent can make a huge difference to the value that an agency generates.

The most talented people want to work in more accountable cultures, with objective client feedback and where success is celebrated and rewarded.

Advertisers that instigate PFP but don’t put enough reward on the table are unlikely to benefit from such gains but those that do will earn competitive advantage because their agency will be keen to earn the additional profit that hitting mutually agreed targets generates.

Agencies that perform well against these key measures will be more successful and see that reflected in their ability to earn greater profits.
That allows them to focus their people better on delivering client business objectives.

The bottom line for marketers is that you need to be bold and hold out the promise of more money to the agency that delivers better business results.

Those that can offer this will benefit from better agency performance, better agency talent and increased marketing ROI.

Tom Denford ID CommsTom Denford is co-founder of ID Comms, the global media management consultancy.

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