Many clients prefer the fee or cost plus systems because they receive a

Many clients prefer the fee or cost plus systems

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Many clients prefer the fee or cost-plus systems because they receive a detailed breakdown of where and how their advertising and promotion dollars are being spent. However, these arrangements can be difficult for the agency, as they require careful cost accounting and may be difficult to estimate when bidding for an advertiser’s business. Agencies are also reluctant to let clients see their internal cost figures.
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Forms of Agency Compensation Fee, Cost, and Incentive-Based Systems Incentive-Based Compensation The incentive-based system means the agencies are compensated above their basic costs, if they achieve or exceed results as measured by agreed-upon metrics. The costs are determined by the tasks that the agency is expected to perform, staffing required, and hourly rates. While there are many variations, the basic idea is that the agency’s ultimate compensation level will depend on how well it meets predetermined performance goals. Recognizing the movement towards incentive-based systems, many agencies have agreed to tie their compensation to performance. Agency executives note that pay for performance works best when the agency has complete control over a campaign.
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Forms of Agency Compensation Percentage Charges Another way to compensate an agency is by adding a markup of percentage charges to various services the agency purchases from outside providers. These may include market research, artwork, printing, photography, and other services or materials. Markups usually range from about 17- 20% and are added to the client’s overall bill. Since suppliers of these services do not allow the agency a commission, percentage charges cover administrative costs while allowing a reasonable profit for the agency’s efforts. Example: Research costs 100,000 Percentage charge of 17% 17,000 Total bill 117,000
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Time for a Change in the Agency? The art and the copy parts of advertisements have, for a long time, been segregated. If you were a designer, you were not also a copywriter at the same time, even if you may have been good at both. This is why you generally have a copywriter and a designer/art director working together. However, it has recently been posited that perhaps advertising agencies should begin to think about merging the two, or at least not keeping them permanently separate. Jonathan Burley, chief creative officer at CHI & Partners, thinks that mixing teams up and throwing different people together regardless of their specialty can produce new, interesting, and unexpected results. Burley says that “ our new system requires a willingness to financially invest in a diverse creative department and a healthy disrespect for the way things have always been done,” admitting that it may be a style that is uniquely suited to the company in which he currently works and may not necessarily work for every company. What are your thoughts about the traditional agency structure? Is it good as it is? Why should it remain? Or why should it change? Do you agree with Burley? Burley, Jonathan. "The Necessary Demise of the Creative Team." Campaign. Haymarket Media Group, 14 Apr. 2016. Web. 17 Apr. 2016.
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