How clients pay their ad agencies has evolved over the years, even decades, into less-standardized methods and models. A rejection of the historical standard 15% commission on gross marketing communications spending has created an increased need for marketplace information on actual rates, and on the models clients use as the basis of their remuneration agreements.

Accordingly, the Association of Canadian Advertisers commissioned Ipsos-NPD Group Canada, Toronto, to conduct the Agency Remuneration Survey 2002. Data collection was through an online survey undertaken between March and July 2002. The 100 client respondents provided remuneration information on 226 agreements with marketing communications agencies. Respondents reported business relationships with 142 marketing communications agencies and/or divisions within agency networks.

It must be emphasized that the survey results cannot be projected, nor are they representative of the total marketing communications universe. All data should be interpreted as directional rather than definitive. ACA invites members to contact the association for consultation on agency remuneration practices and actual costs that are being paid. We can provide additional analysis from the database to match your specific profile and criteria.

Several key observations and implications surfaced during a review of the survey findings.

The trend to multiple agencies continues. Four in 10 respondents reported using three or more agencies and/or divisions within agencies in 2002, up from three in 10 using three or more agencies in 1998, and two in 10 in 1991. While there are many clients who have consolidated their (advertising) business within a single agency, there is an expanded range of business needs that have trended toward multiple agency use.

As advertisers move beyond traditional mass-media advertising, adding other channels of marketing communications to the marketing mix, they seek expertise from a wide variety of specialists, which may or may not be resident within the same agency. With more multiple agency relationships working for a common advertiser, the issue of integrated marketing communications becomes a challenge.

‘Advertising’ agencies sell their expertise as specialists by providing a full service that includes integrating all marketing communications activities. And there are many clients who see the advantages and employ this model. However, there appears to be a significant number of respondents who have opted to assign business across a number of agencies and therefore have to manage the integration challenge with a model that requires effort internally.

The contribution of integrated marketing communications specialists becomes more critical as the complexity of the communication channel structure expands.

There is an increasing propensity to formalize the client-agency agreement. Almost nine in 10 agreements with marketing communications agencies were in written form – either as a formal contract or a letter of agreement. Previous ACA surveys indicated a continuing propensity to formalize the agreement between the advertiser and the agency with a written letter or formal contract with eight in 10 respondents indicating the use of a letter or contract, up from seven in 10 in 1985, and four in 10 in 1977.

The discipline of formalizing the relationship with a written letter or contract helps to establish clarity of roles and responsibilities as well as goal alignment. This has long been touted as a critical success factor in any client-agency relationship.

Profitability reviews are not the dominant practice – yet. Client account profitability discussions occur in four in 10 agreements. These findings are counter-intuitive to the perceived increased demand for accountability and ROI from marketing communications investments. It is expected that these results will significantly change in the years ahead, since advertisers benefit when they better understand the value-cost ratio.

An objective of profitability reviews is to create a better relationship between client and agency. When all participants understand the cost structure and which people are creating value for the business, steps can be taken to create a working remuneration model that is ‘best for you.’

There is no one remuneration model that stands as ‘best practice.’ Previous ACA studies have indicated a progressive trend toward fee-based agreements, with only three in 10 reporting use of a commission model in 1998. Commission models were easy to benchmark as they were based on only one variable – size of the advertising budget.

While the survey base of respondents (historical studies) is not directly comparable to the survey base of agreements (2002 study), the indicators are similar, with seven in 10 using a model other than a budget-based commission method. Additionally, the fee-based models are varied in their rate structures with retainer, blended or variable hourly rates being the common options. The variables for benchmarking fee-based models become significantly more complex as the nature of work that is performed for the client can place different demands on the various agency resources.

Depending on the scope of business requirements, a commission or budget-based model might well be more appropriate than a fee, for all of its advantages of simplicity and budget control. It is crucial to remember that the best remuneration model is one designed to meet the needs of both the individual client and agency.

Susan Charles is the ACA’s VP, Member Services. She can be reached at (416) 964-3805, and by e-mail at scharles@aca-online.com.