Shift to performance-based fees can improve client-agency relationships

WFA survey finds more clients are using the model and seeing value in agencies' work.

A new survey conducted by the World Federation of Advertisers (WFA) finds that the majority of large companies believe that taking a different approach to paying their agency partners could have a positive impact on their client-agency relationship.

With the help of The Observatory International, the global trade association surveyed 42 global and regional marketers with combined communications budgets of more than $84 billion. Of those surveyed, 71% agreed (and 19% strongly agreed), that changing their current remuneration models would “improve” their relationship with their agencies.

Moreover, it found that 81% anticipate continuing to shift towards “performance-based remuneration models with a focus on outcomes,” leading to a downward trend in those who use labour-based or commission-based models. One respondent said it had moved to a model in which 100% of payment is based on the incremental sales generated.

According to the WFA, which has conducted similar surveys in the past, the number of companies opting for an “output-based fees” model has risen from 20% in 2011 to 28% today. Moreover, the number who use a combined performance- and labour-based model increased from 9% to 15% over the same period.

This represents a trend that is ongoing, notes the WFA. Similar surveys conducted in 2011 and 2014 found that the most common model was pure labour-based contracts. As a proportion of contracts, it currently sits at 36%, down from 49% in 2014 and 54% in 2011.

However, different types of agencies have been impacted to varying degrees. Creative agencies have seen a 14% rise in output-based contracts and a 20% drop in FTE-based models since 2011; among media agencies, 44% of respondents offer a performance-based fee or bonus to their agencies on top of a labour fee, up from 16% in 2014.

“The increased recognition of the business contribution that agencies make to their clients is likely to be welcomed by most agencies but only as long as the framework used ensures that both parties interests are considered and balanced,” notes the WFA in a press release accompanying the report. “Businesses must ensure they set realistic and achievable KPIs and there are robust methodologies in place to ensure appropriate measurement.”

On the whole, the WFA found that companies’ perception of the value delivered by their agencies was “very positive.” The number of respondents indicating that they get “genuine value for money” has risen to 87%, up from 67% in 2011.