Fees continue to be the dominant method of payment for advertising agencies, despite the discussions surrounding value-based compensation, according to a new survey from the ANA (Association of National Advertisers). Seventy-five percent of all compensation plans use the fee-based model, while the value-based method accounts for less than one percent.
Respondents to the survey also report that the use of traditional commissions has steeply dropped, being replaced by fee and sales commissions:
· Traditional commissions accounted for only three percent of all compensations plans, as opposed to 16 percent in 2006/07.
· Sales commissions, where the agency is compensated a percentage of the sales for the brand(s) it is managing, are gaining momentum, used with 15 percent of all compensation plans.
· When considering only packaged goods marketers, sales commissions are used with 41 percent of agency compensation models.
“Brands consistently seek optimal ways to compensate agencies for the time, energy and creativity invested in their work,” said Bob Liodice, President and CEO of the ANA. “As the marketing profession seeks greater accountability, our industry must take a step back and evaluate what compensation method best clarify helps to determine return on investment.”
The 15th Triennial Trends in Agency Compensation study is the foundation for the book of the same name, now available as a free download to ANA members and for purchase by nonmembers at www.ana.net/publications.
While both the 2006/07 and 2010 surveys show that 47 and 46 percent of the respondents are using performance incentives, respectively, in 2010 usage is up by larger marketers. Of those who spend more than $30 million annually, 70 percent employ performance incentives with at least one of their agencies. This practice drops considerably with smaller advertisers, as only eight percent of those under $30 million in annual advertising spend are using performance incentives.
· The two most popular criteria for these incentives are agency performance reviews (78 percent) and sales goals (72 percent).
· Market share goals are the third most popular criteria used to evaluate performance for incentives, rising from 24 percent in 2006/07 to 34 percent in the 2010 survey
· Despite the recent tough economic climate, 14 percent is the average profit of respondents who receive cost and profit information from their agencies, the same as was shown in the 2006/07 survey. This profitability aligns with what respondents considered to be acceptable profit margins (12 percent) and what they felt the agencies, on average, would like to be earning (16 percent).
Triennially for the past 45 years, the ANA has fielded this comprehensive agency compensation trend survey among client-side marketers. David Beals, president and CEO of Jones Lundin Beals, worked with the ANA to analyze the findings of the survey, and is the author of the 15th edition of the Trends in Agency Compensation book that is now available for purchase from the ANA. This survey was conducted online in the first quarter of 2010. Seventy-five ANA member companies responded to the survey with more than 1,000 client-agency relationships considered.
About the ANA
Founded in 1910, the ANA (Association of National Advertisers) leads the marketing community by providing its members with insights, collaboration, and advocacy. ANA’s membership includes 400 companies with 9,000 brands that collectively spend over $250 billion in marketing communications and advertising. The ANA strives to communicate marketing best practices, lead industry initiatives, influence industry practices, manage industry affairs, and advance, promote, and protect all advertisers and marketers. For more information, visit www.ana.net.
