With media commissions becoming virtually non-existent, the two main remuneration models for advertising service providers are retainers or project fees specified in rate cards.
Some advertisers retain all of the resources they need, others have no retainer and a detailed and substantial project rate card, while the biggest group will combine some retained services with some services specified in a rate card or project fees.
But which is the best model, if any?
The issue is what is required by the advertiser and their circumstances.
RETAINERS: These work well if the advertiser has an unmistakable idea of the scope of work to be delivered during the retained period. From the scope of work, a resource plan can be developed, and the direct salary costs can be placed against those resources, with an overhead cost factor applied and a profit margin. However, without a clear scope of work, there is no accurate way to define the necessary resources, and the advertiser often ends up retaining expensive agency resources that they do not require.
PROJECT FEES/RATE CARDS: Rate cards can extend from a lust of head hour rates for different resources to a detailed list of fees for services commissioned on a project base. This ideally suits advertisers that can either not specify a scope of work or have a scope that varies widely and often unpredictably, as the fees charged by the agency vary with the amount of work based on the agreed rate card. The problem with rate cards, especially head hour rate cards, is that they can be complicated to compare and benchmark like-for-like with many variables inherent in the approach.
COMBINATION: The majority of advertisers retain a select range of resources, such as account management or strategy, with other services, such as creative development and production, remunerated under a rate card arrangement. Again, while retainers can be easily compared and benchmarked, the rate card component is more problematic.
In the past 12 months, we have been called in for a number of clients to benchmark and assess a remuneration model. We often find that advertisers have been led down the path of receiving a reduced retainer figure, only to discover during our benchmarking that they are paying a premium through the way the rate card is applied.
The agency created a sense of false economy by reducing the retainer, creating the perception that the cost had fallen. At the same time, they had reduced either the services covered or the quality/seniority of the resources. They then added new services to the rate card, applied head-hour rates, and charged more generously to increase revenue through the rate card.
So, what is the best model? The one that delivers fair remuneration to the service provider for the services or resources provided is transparent, accountable, and easy to manage and evaluate.
Learn more about our TrinityP3 Agency Commercial Assessment Service, where we can ensure you have a suitable agency fee model at a sustainable level for your specific requirements.