The full Ad Age white paper "What small and midsize businesses need to know about marketing: Your questions answered" is available to download for free.
NEW YORK (AdAge.com) -- The tectonic shifts taking place in marketing and advertising whereby brands can now live or die by 140-character tweets are enough to humble even the largest multinational corporations. But what of the smaller marketers, those businesses in smaller markets with smaller budgets? Their needs are no less critical, their challenges are no less daunting, and their questions about how to excel in an ever-evolving media landscape are no less valid.
Ad Age Insights surveyed several of Ad Age's Small Agency Diary bloggers, who are leaders in the world of smaller clients with big concerns. We asked each of them the same five questions, including how to measure return on investment, leverage social media, budget for a marketing plan and what skills and talent are most important to look for at an agency. Their candid answers are the basis of a new white paper, "What small and midsize businesses need to know about marketing: Your questions answered." And in those answers are directives all marketers, both large and small, can learn from and build on.
Here is an excerpt on how a small-business owner can determine the best agency-compensation plan that fits their needs.
What agency-compensation alternatives
are available for small and midsize clients?
CEO, PJA Advertising and Marketing
If you don't know what marketing problem you have and where to start, it can make sense to define a limited engagement with a marketing consultant. You might as well pay a small amount to find out the most effective solution. For the vast majority of situations, companies create specifications for a project and ask agencies to bid against it. And most of those agencies will prepare an estimate based on time and materials. This can be perplexing for a company when it tries to compare a wide range of pricing from different agencies. You're not just evaluating price. Consider the quality of the team, its knowledge of your business, the success of its work and its level of passion to help you.
Since a lot of small agencies are dealing with start-ups or clients who might have more flexibility in paying their partners, it seems like we are in a better position to explore alternative compensation arrangements. Performance-based incentives can be tricky to arrange and measure, but the idea makes sense. With traditional compensation, agencies get paid the same for an idea that doesn't move the needle at all as they do for an idea that brings a huge increase in sales.
For some clients, we are willing to take stock in lieu of cash, which also gives us a vested interest in the long-term health of the brand. I wouldn't say we work any differently for a client depending on how it pays us, but we do like the idea of having skin in the game, and more clients lately seem to appreciate the risk/reward angle.
An agency should be paid for what it does when it does it. Clients should not pay for what they don't need. We charge reasonable prices based on approved budgets. We carefully monitor and report on managing our clients' marketing plans and budgets over the year. We do a review at the end of each client's fiscal year to assess whether there should be adjustments in compensation. We are in relationships we value, and we don't mind investing in our clients.
The Brownstein Group
Many agencies/clients talk about their willingness to consider alternative compensation structures, but when it comes down to implementing them, it seems there's always something complicating the efforts. That said, there are a few results-based alternatives, such as pay-for-performance (this is often suggested for public relations and digital ad campaigns); fee plus bonus (where retainer fees are exceeded by bonuses paid for meeting goals); and project-based compensation (where an agency is engaged and paid on a transactional basis).
We love working on a time and materials basis. I really believe this is a fair model for both agency and client. If budgets are accurately communicated up front, an agency can plan accordingly and remain profitable, and the client gets great value. Alternately, designating a flat fee based on the value of a project is always interesting, but it ultimately feels less than honest for one side or the other. No client wants its agency working on a 600% margin, and no agency deserves to be working for weeks without fees.
Co-founder and account director, Shine Advertising
There is no cookie-cutter compensation model, just as there is no one-size-fits-all campaign idea. That said, we have used alternative models, such as basing compensation on key metrics. This can be anything from awareness and traffic to even leads and sales. The closer the metric to the overall sales figure (read: more things beyond an agency's control), the less the agency will likely be willing to risk (and/or the bigger the voice the agency will want to have in how you run your business). Further, if an agency exceeds the defined metrics, it is expected that it will receive a bonus compensation beyond what a client would have paid in a typical fee-only relationship. This is where we see most clients back out. Their budgets are their budgets; while it makes sense that if an agency exceeds an agreed-upon goal it should receive additional compensation, budgets typically don't work that way.