According to the World Federation of Advertisers’ (WFA) Global Agency Remuneration Report, in partnership with The Observatory, 81% of advertisers are said to be planning to increase the use of performance-based remuneration contracts with their ad agencies over the next 12 months.
Research conducted by the WFA with The Observatory explores the current climate of advertisers and agencies and how payment terms are dealt with based on responses from global and regional senior marketing procurement experts from 42 different companies with a total communication spend in excess of $84 billion.
Further to the report, the number of marketers currently using output-based fees as the main remuneration contract has risen to 28%, up from 20% in 2011. In addition, 15% have combined performance with a labour-based payment (up from 9% in 2011).
However, across all types of agencies, on average, less than 20% of the total remuneration is actually linked to performance, stated 80% of the respondents. And for more than half of the respondents, less than 10% of remuneration is related to this.
“Agencies are vital partners for many advertisers and the way they are paid is a critical step in establishing a productive relationship that delivers real return on investment while also offering agencies the chance to be rewarded for the success they help generate. The move to performance-based remuneration recognises that where agencies and advertisers are aligned, the outputs are more likely to be better for both,” said Laura Forcetti, WFA’s global marketing sourcing manager.
Increased recognition of the business contribution that agencies make to their clients is likely to be welcomed by most agencies but only as long as the framework used ensures that both parties interests are considered and balanced. Companies must set realistic and achievable KPIs and put robust methodologies in place to ensure appropriate measurement.
The pace of change over the past seven years has been different among agency types, which you can find out more about here.