I found this fascinating blog quote regarding agency compensation:
Media costs are market determined, so they’re easy to value. An hour of time is easily measured by a clock. But, how is the brightness of an idea measured, or the effectiveness of communication? These are really fuzzy, non-touchable things to measure. In the land of lawyers they’re called “intellectual property,” and payments for them are generally determined through royalties and licenses.kilgannonsays.wordpress.com, Kilgannon Says, Mar 2010
Just yesterday I was with a great client of ours debating how our agency fees should be valued. He noted that when we first started working with him two years ago our compensation was based on a much heavier level of traditional media use. He very politely argued that now, since we have moved away from so much traditional media, the fee doesn’t make sense. I responded saying how ironic it was that, since we moved away from the traditional media, we were actually investing more time and effort into his account. Neither of our thoughts were valid points. His tied our value to traditional media commissions. Mine tied our value to the clock. As an ancient wise man once said, what does that have to do with the price of tea in China?
I love the story about the plumber who shows up at a home for an emergency repair. He spends five minutes fixing a very large pipe leak in the kitchen. After his five minutes of work he hands the homeowner a bill for $150. The homeowner is exasperated and accuses the plumber of highway robbery, stating that the repair only took him five minutes and how dare he charge that much for such a quick repair. The plumber calmly replies, “I just saved your kitchen flooring, which appears to be worth thousands, not to mention your water bill, which would have been very high had I not known what to do quickly. Are you paying me for the five minutes, or for my ability to solve your problem?”
As agencies we spend most of our working hours helping clients solve their problems. This usually means helping them generate more customers, more leads, and more sales. But even with today’s amazing online technology and the ability to measure consumer movement and actions, there is still a lot of intangible effectiveness that can result from an agency’s problem-solving efforts. Like the ability to pick the right musical background for a radio spot that increases it’s stickiness. Or being able to negotiate lower printing costs for a mailer that, in turn, increases the project’s ROI. Or how about not only coming up with the big idea, but then making sure it’s delivered through every brand touch point from website to floor graphics, to business cards, to POP to traditional media?
An agency’s value should be based on their ability to quickly and accurately determine the problem, develop a strategic solution, and deliver appropriate results. That’s what the plumber had. That’s what the customer was paying for. And that makes sense. So, maybe we should change our name to Brandtailers Plumbing?
I agree, I think agencies should be paid on their effectiveness to solve a problem. But the correct problem should be used as measurement.
Let’s assume a company hires an agency to increase sales. The agency does some great work to bring more traffic to the site. But customers don’t buy the product. I think the agency did its job very well. It’s the company who isn’t doing what it should.
Anyways, I think that performance based pay is the best way to pay for anything, disregarding time and all extraneous factors.