Changing payment model would improve marketing procurement relationships

11 February 2019

Almost three quarters of large companies have said changing the way they pay ad agencies would improve relationships, according to a study.

A survey of global and regional senior marketing procurement professionals from 42 companies, responsible for combined budgets in excess of $84bn, found 71% of companies in favour of such a change.

The Global Agency Remuneration 2018 report, carried out by the World Federation of Advertisers and consultancy The Observatory International, said 81% of respondents expected a “continued shift towards performance-based remuneration models with a focus on outcomes”.

“This will mean the continuing decline of payments based on how much work is carried out, as well as commission-based payment models,” said the study.

It quoted one respondent who had moved to “100% of payment based on incremental sales generated”.

The proportion of respondents using results-based payment models has risen to 28% from 20% in 2011, when the WFA carried out a similar survey.

One in seven (15%) said they currently combine performance with labour-based payment – up from 9% in 2011.

However, for eight in 10 respondents (80%), an average of less than 20% of total payment was linked to performance.

The report said agencies would welcome the increased recognition of the business contribution they make to their clients, but such a model would need to be fair and would depend on establishing clear, achievable and measurable KPIs.

Nine in 10 (87%) respondents felt they were getting genuine value for money from agencies ­– up from 67% in 2011. Yet 52% of respondents believe agency costing models are not fully transparent.

Receiving sufficient detail on marketing work was also a problem for respondents, with only 31% saying they get a highly detailed scope from their marketing counterparts.

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