Agency compensation: towards a deliverable driven project model

As was the case in previous years, Adweek Europe was held in London last week, and hilariously, it took place in the same week that the UK started its formal EU divorce proceedings known as Brexit.

Calling the event a European event was a bit of a stretch, not only due to its location (London), but also because, as far as I can tell from all the different sessions, about 90%+ of all Adweek content was delivered by Brits. So perhaps Adweek Europe needs its own Brexit as it might drive more European participation.

Adweek Europe featured a panel on the future of agencies chaired by Grey London CEO Leo Rayman. Panelists included Jon Wilkins, Executive Chairman of Accenture creative agency Karmarama; Camilla Harrisson, Anomaly London’s CEO; Mark Eaves, founder of Gravity Road and Matt Lodder, managing director EMEA at R/GA. Spot the mainland European in this list… (hint: there isn’t one).

The discussion eventually went to the thorny topic of agency compensation, as there had been UK industry research saying that two-thirds of agencies would be “happy” to work with a pay-for-performance model.

At the same time, there are those that have serious concerns regarding the “P-for-P” trend. The key issues frequently raised by agency heads (and it was no different on this panel) is that agencies tend to over-service their clients (anything to keep them happy and not want a pitch) so profitability goes down, and that the measurement tools and data for the performance part can be inconclusive.

The problem is that all agencies and most marketers still tend to think in long term client-agency relationships. And I think it might be time to throw that Mad Men era thinking overboard. It is time to completely rethink the client-agency compensation model. What clients want today is a list of stuff that doesn’t really fit into a singular comp model anymore. So why not group it differently, and charge differently, too?
There is the high-end stuff like major, national or even global creative and branding platforms. Then there is a whole bunch of on-going creative output that sits “underneath” this platform. This can range from derivative executions and versions to adaptions to and across all sorts of content and distribution platforms (video, print, social, outdoor, PR, etc.).

Then there is the “salesy stuff”: activities that directly or almost directly are related to selling product or services (promotions, CRM, e-commerce, email marketing, etc. but also instore materials).
Then there is marketing tech, measurement and insights, production, media planning, buying and management, PR. The list is long and will vary from brand to brand, year to year.

The large agency holding companies can probably tick the box for all of these (and perhaps even a few more). But where they and their clients go wrong, or perhaps put better, where they have failed to innovate their thinking is how these services are contracted and compensated between clients and agencies.

I think the answer should no longer be an all-encompassing mega agency (holding company) contract. I think the future might be more about short term agreements on specific deliverables with a beginning, middle and end. That way, the assessment of the agency’s performance will be much easier to determine.

So out with the multi-year agency holding company contracts, and in with a pay for performance model tied to specific projects on a deliverable-by-deliverable basis. At Flock we have managed quite a large number of agency pitches, evaluated many agency contracts and designed innovative and business focused agency performance models. We have done so for agency holding company solutions, creative agencies, media and digital agencies, production agreements, in fact we can’t think of an agency discipline that we have not helped redesign across all of our clients. These are of course all confidential and proprietary, but if you contact us we will be happy to walk you through some of the different options, models and ideas. It is time to rethink your current set-up!

[Maarten is a featured contributor to MediaPost, this article was originally published here]