Fees continue to be the dominant method of compensating digital agencies, with high proportions of both fixed and labor-based fees. However, these fees are increasingly being supplemented by performance incentives according to a new survey from the ANA (Association of National Advertisers). While digital agency compensation trends are generally similar to overall agency trends, the survey found that unique challenges such as ensuring the right resources at the right cost-value are impacting digital agencies.
As the economy continues to recover, marketers are still pressing for fee efficiencies and performance commitment while pushing for cost control and accountability. Respondents to the survey report that the primary driver of cost control is a fee adjustment:
–> Seventy-three percent of respondents who changed their compensation agreements restructured/reduced their fees.
–> Forty-three percent of respondents adjusted their digital agency compensation last year and 50 percent of respondents plan on doing so this year.
–> Nearly a quarter surveyed (23 percent) changed or restructured performance incentives in the past year, and 29 percent are planning to change/restructure existing performance incentives.
“Digital marketing continues to be an increasing vehicle of choice for marketers. As such, marketers are telling us that digital agency compensation must adjust in kind to fully capture the opportunities available for this high growth arena,” said Bob Liodice, President and CEO of the ANA. “The increasing use of digital agencies and performance incentives represent important areas of evolution for the client-agency relationship.”
While the digital landscape is still rapidly changing and maturing, investment in digital marketing continues to grow:
More than two out of five surveyed utilize five or more digital agencies (44 percent), a notable increase from the number of respondents who used five or more agencies in 2009 (39 percent) and in 2007 (23 percent).
The structuring of digital agency fees is trending toward a combination of retainer and project fees with an increase from 37 percent in 2009 to 66 percent in 2011 of marketers that employ an annual retainer/project fee combination method
“The use of performance incentives with digital agencies has lagged compared to traditional ad agencies, which is surprising given the inherent measurability of digital media,” said David Beals, President and CEO of R3:JLB, who worked with the ANA on this research. “However, this survey indicates that the use of incentives with digital agencies is now catching up to the rest of the world, and I would expect to see a continued increase in coming years.”
Respondents reported that the manner in which services are provided is fractured due to the rapid development of the digital landscape. Outside agencies are preferred for specific services such as “search engine marketing buying” and “online advertising media buying/planning,” as well as “creative development/execution of mobile/third screen advertising/applications.” Many companies are also utilizing a combination of in-house and external teams for “brand or corporate website strategy,” “social networking,” and “management and analysis of digital analytics and metrics” initiatives.
The ANA launched its first survey of Trends in Digital Agency Compensation in 2005 in order to establish benchmarks regarding marketers’ agency engagement and compensation best practices in the area of digital marketing. This survey is conducted on a biennial basis in order to keep its members up to date on the most current digital agency practices. This study has been conducted in 2005, 2007, 2009, and 2011. Sixty-eight client-side marketers responded to this year’s Trends in Digital Agency Compensation survey, which was conducted online in the first quarter of 2011.
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 10,000 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.
