A Down Under Look At Advertising Agency Compensation.
Here is some real fine thinking on the ‘art’ of advertising agency compensation from my book on pitching and presenting: The Levitan Pitch. Buy This Book. Win More Pitches. Do yourself, and even me, a favor and buy the book right HERE.
For a very experienced expert opinion on compensation (or as the down unders say: remuneration), I turned to Darren Woolley, Manging Director of Australia’s TrinityP3 for his views on something of great import for agency CEO’s that often wake up in the middle of the night screaming…
“Show me the money.”
FYI: Darren is one of 20 advertising search agency consultants in the book that offered their perspective on what agencies do right and wrong when pitching for new business.
TrinityP3.
Trinity P3 is an independent strategic marketing management consultancy based in Melbourne, Australia. Trinity P3 works across continents and has 40 of Australia’s top 100 advertisers using its services. The company assists marketers, advertisers, and procurement with agency search & selection, agency engagement & alignment, and agency monitoring & benchmarking to ensure maximum performance in efficiency and effectiveness of their advertising and marketing budgets.
Darren started as a scientist, got into advertising as a copywriter, and ended up a creative director. After 15 years in advertising, he realized when marketers and their agencies work well together, amazing things happen. He established TrinityP3 in 2000 as an independent marketing management consulting company that provides marketers and advertisers with benchmarks, training, and advice on how to maximize the value of their marketing budgets.
Regardless of your word choice (and you will see that it is important), how agencies get paid and then make a profit needs to be considered during the agency selection process. Too often agencies wait until they win an account to find out if the account will be profitable.
PL: You work across Asia. Are agencies compensated differently in each country? Is Asia different than Europe or the U.S.?
Darren: The basic methodologies for agency compensation are the same. The application varies across various markets due to culture and government legislation. As you may know, in Brazil, media and creative are legislated to remain together, and the commission system therefore continues to dominate. In India, the commission system is also more common than other markets. But increasingly, the dominant model is the resource-based model as either a retainer or project basis.
The other big difference is the term used. In the UK, and markets previously colonized by the UK, it is called remuneration. While US and US influenced markets call it compensation. While many think the two are synonyms, the fact is they reflect different philosophies. To compensate is to make good for damage or loss. While to remunerate, is to reward for output of effort. To provide the difference, you would never say, “The middle-aged executive purchased a new sports car to remunerate for his flagging libido.”, would you?
But I think that the use of each reflects a very different underlying philosophy to the payment of agencies for their services and efforts.
PL: What compensation systems are your advertiser clients using?
Darren: The majority of clients are moving to or sticking to a resource based model using direct salary costs multiplied by the overhead and profit multiple, and divided by the number of annual billable hours in the year. In fact, it is so common that we created a smartphone business app that calculates the cost of resource per hour using this approach or can calculate the salaries from the hourly rate. It is called the TrinityP3 Resource Rate Calculator and is available in all smartphone app stores. This is not an ad, as the app is free.
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