Common Payment Models

"The agency is remunerated for the time that it takes to service the programme. It is possible to build performance incentives into this approach. 

This is the most common approach preferred by agencies."

This approach is often considered the most common, due to its flexibility. It is also likely to be preferred by the agency. The first step the agency will take is to draft a staffing plan against the Scope of Work showing what personnel will be required and at what percentages averaged across the programme period. The percentage of time they will spend on the programme, times each employee’s hourly or daily rate, is used to calculate a total cost for each employee. The values for all the employees are combined, then the total is divided by the number of months of the programme. The result is the monthly retainer fee.

This approach may also include a performance-related bonus attributed to campaign-specific results (see Approach 1 above). The key difference here is that you will need to decide if the ‘bonus’ is a nominal portion of the agreed fee (for e.g., 10-15%) payable for achievement of campaign KPIs, or an incremental fee that is payable on overachievement. It is possible to do both. There are no industry benchmarks for either.  

1. Any length of programme and engagement but particularly long-term programmes where having influence over the staffing plan will be important in maintain the right client/agency relationship.
2. When exact deliverables are unknown and will be developed in partnership with the agency. 

This is a relatively uncommon approach though it may be used in long-term creative agency/client relationships. The first step is in determining the campaign objectives and the agencies KPIs. Then you should determine if these are fair, achievable and within the control of the agency. Finally, you will need to develop a measurement plan for each KPI. 

If you plan to use this method, the details of the compensation plan should be developed in collaboration with the agency. 

1. When campaign objectives and agency KPIs are clearly outlined in advance of contracting.
2. When the agency can be solely responsible for the achievement of the KPIs.
3. When the agency can impact other decisions that would affect its ability to achieve the KPIs, for e.g., the media mix and final media plan. 
    

1. When the programme partners whose integration could affect agency performance and goal achievement.
2. When the campaign does not include paid media, for e.g., creative development only, or the utilisation of owned channels.  
    

This approach is also often used in long-term agency/client relationships where both parties can agree to a flat rate for each deliverable, for e.g., a website, one television commercial, with the knowledge of some historical data that helps them determine if they will derive value. It is also more common in programmes where there are a high number of deliverables. 

The first step is to do an audit of your historical agency fees and determine what the deliverable cost may have been. Develop an estimate for each deliverable (with an upper and lower threshold for negotiation). Remember that you must compare the same types of deliverables when estimating costs. For e.g., if your expectation is that the agency will do a live-action three-day shoot for the TV ad, you cannot benchmark the cost estimate using an animated online video.  

1. When the agency is required to develop concepts for and produce assets building on existing strategy and creative ideas.
2. When you have enough market experience to be able to benchmark the appropriate rate card for each type of execution, for e.g., a live action TV spot, a print ad.
3. When your goal is to finalise the contracting expediently.
4. When informing and approving the staffing plan is not a priority. 
    

1. When the agency needs to develop the campaign strategy and high-level creative ideas prior to developing executional ideas.
2. When the programme requires developing a campaign visual identity and thus there is no ‘template’ from which the agency will be developing assets. 
    

1. See approaches 2 and 3
2. When incentivizing achievement is likely to result in a different approach from the agency. 
    

1. See approaches 2 and 3
2. When the agency has limited capacity to affect the KPIs. 
    

This approach is most used when there is a large marketing budget, and it is allocated as either ‘working budget, for e.g., paid media, or ‘non-working budget’, for e.g., agency fees and production.

There is no formal industry standard for what percentage should be allocated to the agency. This is for two primary reasons; 1) Every media budget requires a different level of creative and production effort to fill, for e.g., USD 10 million could be spent on only TV with the impressions requiring 2 x 60 second television commercials. Or it could be spent on social media where the number of pieces of content that need concepting and producing could easily be in the hundreds.

While this approach is included here for completeness, it is not recommended. 

1. When the media budget is already known at the onset of the engagement with the creative agency.
2. When the media budget is large and includes a range of different types of media, generally with budgets exceeding USD 1 million.
3. When the programme engagement period is a minimum of one year.  
    

1. When the media budget has not been allocated at time of contracting the creative agency.
2. When the programme is short-term or conceptual only.