Wednesday, February 11, 2009

Instead Of Reducing Your Agency’s Fee, Why Not Make Them Earn It?

According to Advertising Age, 48% of marketers are looking at reducing their agency’s compensation this year, while 72% are planning to reduce their commercial production budgets.

On the one hand, it makes perfect sense. We are, after all, in recessionary times.

But, on the other hand, you have to wonder if cutting costs is the wisest way for marketers to save money?

In the digital marketplace, advertising is becoming more accountable, both on the media and creative sides of the bottom line. Instead of paying less, perhaps marketers should be discussing paying their agencies more?

The only catch being that the agency has to earn it.

Digital technology’s return path data supplies information that can hold an agency accountable while proving the worth of its efforts. If agencies are willing to put some of their fee into play by being paid for outcome rather than effort, marketers should be willing to pay more for success.

At least that’s the thinking behind the Viewer Time Spent Compensation model.

The way agency fees traditionally work is that an agency charges a fee for concept development. Usually, it’s an hourly fee times the number of people working on creating the concept.

Let’s say the concept is a 30-second spot.

Obviously, the more of the 30 seconds that are watched by the targeted audience, the better for the advertiser. So the more they should be willing to pay the agency that created it.

Digital return path data measures the amount of time spent with a commercial.

Viewer Time Spent Compensation monetizes this second-by-second data so that the longer the agency involves the viewer, the more the agency makes.

This allows advertisers to reward agencies for doing well rather than penalizing them because of the recession. By rewarding your agency for greatness, your agency will put their best people on your business. Reduce their fee upfront and whom do you think you’ll be getting?

As for reducing production dollars, the recession argument again makes perfect sense. Add to that a fragmenting viewing audience, and of course, you can justify fewer dollars for production.

But let’s not forget that a fragmented audience is also a more targeted audience. What fragmentation is really doing is eliminating the wasted media dollars a marketer is currently paying.

Now that the digital marketplace allows advertisers to better find those that are interested in their product, does it makes sense to cut production dollars, in other words, to lessen the quality of their message?

What marketers could do is use return path data to make some of the production dollars contingent on results. Again, it would require basing results on what can be measured – view duration.

Like with the agency, the longer the viewer is involved in the commercial, the more the production company will make.

Yes, but will production companies work this way?

No. Not all.

But the good ones will. Why? Because for the first time, marketers will be paying for their services based on how good they are rather than a day rate.

The average up-front savings for a marketer using Viewer Time Spent Compensation is anywhere from 25% - 40%. Yes, they may end paying more in the long run. But that’s only if the advertising actually did what it was created to do – involve the viewer.

Interestingly enough, we’ve already chatted with the top 10 production companies in the business about working this way.

How many said yes?

10 out of 10.

So what we would say to marketers is yes, go ahead and renegotiate with your agencies. But instead of de-motivating them with reductions, inspire them to greatness.

Tell them that the more brilliant they are, the more they will make.

If you don’t know of any agencies or production companies that will work this way, give me a shout.

I’d be glad to pass on their names.

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