Most marketing and advertising agencies receive fixed or labor-based payment for their work, rather than commission-based payment, according to recent research from the Association of National Advertisers (ANA).
The report was based on data from a survey conducted in December 2016 and January 2017 of 82 marketers with knowledge of 1,167 client-agency compensation agreements.
Respondents were asked whether they use six common types of marketing/ad agency compensation structures: commission fixed rate (a percentage of media billings and markup on production costs); commission sliding scale (payment varies based on the level of media spending); fixed/output-based fees (set payment is negotiated for a specific project/time period with additional costs billed at net); value-based fee (price is established based on the value, not the cost, of the services and work provided by the agency); labor-based fee (price is determined by the amount of labor time multiplied by a negotiated hourly labor rate); and sales commission (agency compensation is a percentage of the brand's sales).
Marketers say 68% of their agency compensation agreements have a fee structure (fixed or labor-based), 12% have a commission structure (fixed or sliding scale), and 20% are structured based on other methods (value, etc.).
Compensation structure varies significantly by agency type, the analysis found.
For example, 24% of compensation agreements with media planning/buying agencies are commission-based, whereas just 6% of compensation agreements with creative agencies are commission-based.
Ayaz Nanji is an independent digital strategist and a co-founder of ICW Content, a marketing agency specializing in content creation for brands and businesses. He is also a research writer for MarketingProfs. He has worked for Google/YouTube, the Travel Channel, AOL, and the New York Times.
LinkedIn: Ayaz Nanji