When selecting a marketing provider to work with, finding a team with the right talent and culture to fit with your business and marketing objectives is the hard part, but it doesn’t end there. Once you’ve found the marketing specialist or agency equipped to take your business to the next level, the next step is to come to a clear agreement regarding the remuneration model that will best serve your interests.
Talking money is always a little uncomfortable, even in the business world, and it’s not uncommon for marketing specialists and agencies and SMB clients to reach conflict when the topic of payment arises. Small and medium sized businesses with smaller marketing budgets want to maximise their results while minimising their costs, and providers can often feel pressured to cut corners to provide cheaper and faster services.
A key piece of advice to small businesses is to remember that faster and cheaper rarely means effective results. When it comes to marketing, like any product or service, you’ll always get what you pay for. Spending the money now can be the key to revenue gain in the future, and will ultimately save you money if you get it done right the first time around.
Establishing payment rates, terms and key performance parameters upfront with your chosen marketing agency is essential to avoid future conflict and ensure the desired results are achieved. To make this process easier, the Marketing Search team has put together a guide to help you understand the different fee structures and remuneration models for marketing specialists and agencies.
These are the three main models of payment used by marketing agencies:
• Commission based – a pricing structure where the specialist or agency earns a certain percentage of expenditure.
• Fee/cost based – a pricing structure where the specialists or agency earns an hourly rate for work provided.
• Value/performance based – a pricing structure where the specialists or agency earns a profit based on how much value they generate for the client.
These three main pricing models can also be combined along with a performance-based bonus system, which is becoming increasingly popular for Australian SMB’s. We’ve explained each pricing structure in more detail below.
Although there has been a significant shift away from commission-based remuneration models in recent years, the commission remuneration system still remains popular amongst media agencies. This remuneration structure is based on client expenditure, typically meaning the more that agencies spend on media, the more they get paid.
The increasing complexity of the media marketplace and fierce competition means some specialists and agencies have started charging smaller commissions, which is not always in the best interest of the client. Using a commission-based fee structure makes it impossible for the client to get unbiased media advice, while promoting a culture of rebate retention.
This method made much more sense when mass media buying over television and newspaper was the norm, but in today’s digitally driven world, small and medium sized businesses may find it’s not the right payment structure for them.
Fee or cost-based remuneration models compensate specialists and agencies for the number of hours worked and resources used (including project fees and retainers) rather than compensating them for their performance. Cost-based fee structures are becoming increasingly popular with marketing specialists and agencies, which many businesses see as a payment model that encourages average work.
Fee-based remuneration models provide guaranteed income for the specialist or agency, regardless of their client’s business performance or fluctuating marketing budgets, which is good news for the provider but not such good news for the client. While this fee structure does have the benefit of providing greater transparency, it means time is the main currency and guarantees a profit for specialists or agencies, regardless of their results.
A value/performance-based fee structure is increasingly being acknowledged as the fairest and most sustainable remuneration model for marketing specialists and agencies. Under this payment model, the provider only earns a profit based on the value they add to the client’s business, holding providers more accountable to the value they create.
This remuneration model is gaining popularity as it brings a greater sense of business partnership into the provider/client relationship, provides the opportunity for them to create a better profit margin and aligns the provider to the clients goals. It can be difficult to rollout at first and requires ongoing management of the result parameters, which is where the shift towards upskilling of marketers into project management comes into play.
When using a performance-based payment system, providers typically set a base project rate and then receive bonuses for achieving pre-agreed objectives.
The remuneration model you enter with your chosen marketing provider will depend on the type of specialist or agency you’re working with and the requirements of your marketing campaign. Studies have found that the different compensation structures vary significantly between provider types, with commission-based agreements higher in sectors like media planning and buying and lower in more creative fields.
There is no right or wrong answer to which remuneration model you choose. You decision will mostly depend on the priorities of your business, but if you want to move with the times, the general trend is to veer away from commission based structures to fee or value based agreements where accountability is higher.
Whatever fee structure you decide on with your marketing specialist or agency, make sure you have a contract in place that captures all the details of your agreed remuneration model before any resources are committed.
Neil Anderson is the founder and director of MarketingSearch.com.au a privately owned and operated Australian marketing search platform that enables businesses to transform their marketing impact and profitability through provisioning of better agency search & selection , talent sourcing & upskilling and project optimisation services.
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