Apr
27

Value based remuneration for agencies

Procter & Gamble Co.Image via Wikipedia

Well a major brand is rocking the OTL boat – Coke 'suggests' that agencies get rewarded based on value .

Traditionally, defining the value of an assignment has been the job of the agency, which tells its client how many people and how much time it'll need to accomplish a given project. Under its new model, Coke will determine the value of assignments based on a range of factors including the work's strategic importance, the talent involved and whether other agencies could duplicate the work — if they could, it's worth less.

After those factors are used to set the value of a project, the agency's performance and the business results that follow determine what, if anything, the agency deserves to be paid beyond its upfront costs (which, in practice, are sometimes inflated). If all targets are hit, the agency could make as much as 30% on a project; if all targets are missed, the agency won't make any profit at all.

 However later in the article ittalks about P&G and their approach – which seems different

 
Procter & Gamble Co. is moving more brands toward a model that makes a single agency lead contractor over the rest of a brand's far-flung marketing-services roster, which includes maintaining control over hiring, budgets and payments for other agencies.

Now this is completely different – a new skillset of management of sub contractors.  This is not the traditional core skillset of an agency.  BUT it could be a new business model for agency groups – and a nice new revenue stream if you have project management and cost control skills.

This should have some knock-on effects

  • Budgets migrate to direct channels and digital
  • Pitches more tightly managed
  • Procurement more closely involved in existing agency relationships
  • Pricing reviews (and possible knock-on to media buying…?)
  • Agencies tracking internal costs
  • Improved job-bag systems
  • Cost management jobs being created at agencies
  • Lead agency role moving from OTL to digital agencies

What else?

Reblog this post [with Zemanta]

Related posts:

  1. Opensource for Creative Agencies – manifesto?
  2. Why can’t Web 2.0 apply to creative agencies?
  3. US survey of clients and agencies
  4. Losers – how agencies risk going down the pan in the recession
  5. Britain’s top track private companies

Tags: , , , ,

Posted by rebecca 3 New Business Pipeline, 8 Analysis and Feedback, Advertising, Finance & Accounting, New Business Model, Strategy Subscribe to RSS feed
  • Oliver Stanton

    Hi,

    Yes we’re all looking for new models. Remuneration through results was floated at a meeting yesterday. Worth considering, but then when you have no control over the sales process/discount structure it doesn’t make a lot of sense.

    Agencies claim growth but it’s the client that usually puts the time in. However a scheme that doesn’t front-load the budget must be welcomed by client.

    Anyway a pitch that promise real value with real returns – a rarity. But other industries do it all the time.

    Wish we’d done it with Nokia though…

  • Oliver Stanton

    Hi,

    Yes we’re all looking for new models. Remuneration through results was floated at a meeting yesterday. Worth considering, but then when you have no control over the sales process/discount structure it doesn’t make a lot of sense.

    Agencies claim growth but it’s the client that usually puts the time in. However a scheme that doesn’t front-load the budget must be welcomed by client.

    Anyway a pitch that promise real value with real returns – a rarity. But other industries do it all the time.

    Wish we’d done it with Nokia though…

  • http://creativeagencysecrets.com/ rebecca

    Thanks Oliver – you’ve pretty much covered off all the main points.
    One concern I have is with small brands if you are wildly successful will they be able to afford to pay you?

    I like the proposition Purple Pilchard makes
    http://www.purplepilchard.co.uk/we_believe.html

    not quite payment by results alone. But it is compelling.

    I interviewed the MD Ian Hills last year.
    http://creativeagencysecrets.c.....-pilchard/

  • http://creativeagencysecrets.com rebecca

    Thanks Oliver – you’ve pretty much covered off all the main points.
    One concern I have is with small brands if you are wildly successful will they be able to afford to pay you?

    I like the proposition Purple Pilchard makes
    http://www.purplepilchard.co.uk/we_believe.html

    not quite payment by results alone. But it is compelling.

    I interviewed the MD Ian Hills last year.
    http://creativeagencysecrets.c.....-pilchard/

blog comments powered by Disqus