- Advertising agencies are increasingly adopting performance-based pay tied to ROI around their effort, according to AdExchanger.
- The traditional agency business model has been based around billable hours for each employee working on an account.
- One high profile example is We Are Unlimited, Omnicom’s newly created dedicated agency for its McDonald’s account. The RFP from McDonald’s specified performance-based compensation for the winning agency.
Making agency compensation tied directly to results rather than just work performed, or at least billed, could go a long way in placating brands that have developed a measure of mistrust in their agency relationships. Digital marketing with highly measurable results, including technology like programmatic ad buying and selling, makes performance-based compensation possible.
The advertiser/agency model has been under a great deal of strain the last couple of years. Last year saw a record number of accounts go under review including major brands that are among the largest spending advertisers worldwide like P&G and Unilever.
Several factors are behind the trend, including that some of the more entrenched and traditional agencies have faced issues adapting to the digital marketing world. Putting more pressure on brand/agency relationships was a report earlier this year from the ANA that exposed agencies were receiving media rebates that weren’t getting passed along to their brand clients. At the same time, brand chief marketing officers face growing pressures as their role increasingly includes responsibility for overall revenue, putting many top marketers in a tenuous position, with getting fired a real likelihood.