Some 66% of marketers in the federation survey said they wanted
to link agency income more closely to their own performance, but
the low percentage of those getting there shows how hard it is to
implement.
"The slowness to adopt is for a number of different reasons,"
said Steve Lightfoot, senior manager-global marketing procurement
at the World Federation of Advertisers. "Advertisers make it too
complicated -- with some using up to 18 metrics, which is obviously
way too many. You need to find sensible, achievable metrics that
will motivate an agency, and agree on ways to measure them."
"Not all agencies are willing to adopt the performance-based
model because they don't want to put too much of their earnings at
risk," Mr. Lightfoot added.
Another issue is how to bundle roster agencies together and
create performance measures that are relevant across the board. "If
you want your agencies to work together, you should have
performance compensation across the roster," Mr. Lightfoot said.
"But how realistic is it for media to impact sales if the creative
strategy is crap?"
Finding two or three joint metrics and one or two specific
targets for individual agencies would be a better approach, he
suggested.
The 2014 survey, which was carried out in conjunction with media
management consultancy ID Comms, comprises data from 43 member
companies operating in 12 different sectors and representing more
than $100 billion in annual ad spend.
It found that the largest share of pay models, 49%, were still
based on labor, although that figure fell from 55% in 2011. The
second most popular model was fixed fees for a specific project or
period, at 24%, followed by performance-based fees.
The federation laid out ten guidelines for marketers that want
to try:
1. Begin with the basics. You have to start
with competitive agency rates and transparency on cost before you
can build other models.
2. Get senior marketing, procurement and
finance support. Performance-based models can affect more than just
the financial dynamics of your agency relationship.
3. Make the pay-based compensation component
big enough to motivate the agency.
4. Develop relevant key performance indicators
with the agency, make sure they're measurable -- and then make sure
you measure them.
5. Link agency
bonuses with your own key performance indicators. Aligning
objectives brings agencies closer to your business, where they can
do their best work.
6. Keep it simple so that you can get on with
the business of creating great work.
7. Give agencies incentives for working well
together.
8. Decide whether you should use the same model
for all your agencies, or different ones.
9. Consider the what-ifs. What if the agency
very nearly achieves the target, for example, but narrowly
misses?
10. Understand that agencies need profits in
order to run effectively and attract great talent.
