That takes the form of reduced percentage rates

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that takes the form of reduced percentage rates, variable commission rates and minimum andmaximum compensation rates. The most recent survey commissioned by the Association ofNational Advertisers, found that only 6 percent of clients pay a commission to their agencies.However, most clients do use the 15% commission as a benchmark to evaluate their currentagency compensation agreement.B.Fee, Cost and Incentive-based Systems—in situations where billings are low, and/or the clientdoes not wish to pay a direct commission; an agreement may be reached in which the agency iscompensated in the way of a fee, cost-plus or incentive-based compensation system.1.Fee arrangements are of two types: afixed-fee methodwhere the agency charges a basicmonthly fee for all of its services and credits to the client any media commissions earned.Under afee-commission combinationthe media commissions received by the agency arecredited against the fee. If commissions are less than the agreed-on fee, client must make upthe difference.2.Cost-plus agreement—under this compensation method the client agrees to pay the agency afee based on costs of its work plus some agreed-on profit margin. This system requires theagency to keep detailed records of costs incurred in working on a client’s account.
3.Incentive-based compensation—while there are many variations on this system, the basicidea is that the agency’s compensation level will depend upon how well it meetspredetermined performance goals for its clients such as sales or market share. Incentive-basedcompensation.Incentive based compensation systemsare becoming more prevalent asmarketers strive to make their agencies more accountable and reduce costs. Some companies,such as Coca-Cola, are moving toward a “value-based” compensation model wherebyagencies are guaranteed only recouped costs, with any profit coming only in certain agreedupon targets are met.C.Percentage Charges—when agencies purchase services from other outside agencies they typicallyadd a percentage in the form of amarkup chargeas their compensation. These markups usuallyrange from 17.65 to 20 percent.D.The Future of Agency Compensation – Companies have continued to make significant changes intheir agency compensation systems.The recent ANA survey showed that nearly half ofadvertisers are using some type of performance-based system versus only 13 percent a decadeago.Companies with large advertising budgets are even more likely to use incentive-basedsystems.Figure 3-8 shows some of the criteria used by for incentive-based compensationsystems. More companies are changing their compensation systems as they move away fromtraditional mass media advertising and turn to a wider array of marketing communication tools.

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Marketing, Advertising, Advertising agency, agencies

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