How Does Your Agency Get Paid?

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AdAge calls Crispin a pioneer in forging a new compensation model in which agencies truly partner with their clients, up to and including getting paid for an idea that really works.

“The discussion is beginning to shift from ‘What does it cost to generate work and services a client wants?’ to ‘What is the value of the services and materials the agency is creating for the client?”‘ said Ronald Urbach, partner, Davis & Gilbert. “Innovation is reaching a critical mass.”

Here are two great examples of how agencies get screwed when they get compensated only for time billed:

Goodby, Silverstein & Partners, San Francisco, which developed the “Got Milk?” campaign in 1993, reaped no extra benefits from the millions of dollars in licensing fees and royalties generated after the campaign’s launch. McCann Erickson created the concept for client Staples’ plastic Easy Button, a $4.99 gadget that’s sold more than 1 million units since its launch in January 2005, but received no financial reward beyond its original fees.

My understanding is that, traditionally, agencies got paid by skimming off the media buy and that the creative idea was essentially free. Of course, creative has always been a way–the way–to stand out from the crowd and attract big clients.
This business model breaks down in the interactive world since there’s no media buy to skim. It costs nickels and dimes to set up a Web site, so most i-agencies charge by the hour. That’s a fine way to make money, but timesheets turn creative ideas into just another commodity. A good idea–like Got Milk–is worth so much more than the 2,000 hours it took to develop.

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  • http://www.brentter.com Brent

    This idea is nothing new, don’t get me wrong, I think it would be a great idea for clients to compensate agencies for good campaigns that bring in added revenue, however you must also look at it from the other side. If a campaign fails, does that mean the agency now pays the client for their mistake?
    If so I think that could but hinder and hurt campaigns.. you’ll get those that are already meek becoming even more conservative for fear of releasing a bomb… then you’ll have the other side of the tilt with execs releasing ads that are shock ‘n’ awe campaigns.. potentially crippling their own company/futures.

  • daveednyc

    Yes, but at the same time, if agencies assumed more of the risk for their campaigns, clients might be more willing to take a chance. Also it puts more onus on the agency to deliver good work, with the potential to reap a helluva lot more revenue than they currently get.
    I’m not convinced clients will relinquish that kind of control, however.

  • Duval

    I think this is a terrific idea for true partnerships, but a naïve one for reality. How many great (or even simply good) ideas have died at the hands of client-side managers / decision makers who lack vision, faith or taste? For every Nike, HP or (fill in the blank) out there, there are tenfold more clients who daily demand that the logo be bigger, the shrimp fly more majestically, the CEO be featured, etc. etc. etc. When bad mandates are made to good work, who takes the blame when it fails?
    And heaven forbid, should it work … how does that impact creativity’s future? (Not for its own sake, mind you, but for those times when a good idea trump a promotional offer…)
    To that end, such a system would seem to reward short term results over long-term (brand building, PR, damage control, company identity shifts, etc.) results that are far harder to quantify (and therefor compensate).

  • http://www.adscam.typepad.com George Parker

    If agencies want to get paid this way… Let them go into show biz… Then between their Platinum Discs, they can wait table or tend bar. Besides which, the people who come up with the actual ideas… The Creatives, wouldn’t see squat from this kind of deal. Meantime, the Howard Drafts would order a new Aston Martin.
    Cheers/George

  • http://adpulp.com David Burn

    I thought ideas came from account service?
    That’s what account people keep telling me.

  • True

    I am a big supporter for basing agency compensation on performance.
    I think Duval makes some good points above…most agency-client relationships are so dysfunctional and client-driven, the best ideas rarely get out the door.
    Makes it even more important for an agency to choose their clients as much as a client chooses their agency.

  • http://www.sposto.com James Sposto

    Remember, folks, we’re talking about interactive agencies here. We don’t get the residual benefit of value from the media buy. What’s hard is that time doesn’t = value – if I come up with a great idea (in other words, know where to strike the hammer) and that hammer hit only costs $1000 to do – as opposed to an idea that would cost $1,000,000 to execute.) Where is my reward?
    I don’t want to make it in production (I will anyway) but production should be irrelevant to the concept.
    When we are contracted to come up with an idea, that’s fine, we charge enough, and know that we will also make money on the production (big or small).
    The problem is, when we want to be proactive and present concepts not in response but in anticipation of client needs (or because we’re just so damned creative and want to do something COOL before someone else does) we don’t get the reward of commission for winning the business.
    I want to do the George Clooney model – pay us a big fee just because we are us – and then the concept can be “free” because we will make “scale” for the actual acting.
    Damn – WE NEED AGENTS – An agency with an agent, call CAA.
    Pull around my Aston Martin.
    (By the way, our creatives – and everyone else here, get a profit-based bonus, so we can all get an Aston…if we are profitable enough.)

  • Shelley

    I am a freelance “creative”. I am just wondering if there are any ideas on how I should be paid by my prospective client. I am currently in discussions with a very well known company that provides it services world-wide and has revenues in excess of $100M U.S. per year, that I contacted and they are very interested in my creative ideas (3 ideas for TV ads). My ideas are basically only copy righted by the fact that I emailed them to myself prior to sending them to the company. The company is very interested and has asked that I get a lawyer (entertainment lawyer) or agent to act on my behalf. Do I really need an agent or entertainment lawyer? And if so – where do I find one and how much do they charge – anyone know??

    • http://twitter.com/pivoture pivoture

       If they are prompting you to use an entertainment lawyer, do so. At the very least – ask an entertainment lawyer this question. They should provide you with a free consultation. Spending money on all A’s (attorney’s and accountants) is a widely practiced tactic in business because they serve their purpose effectively. Which, beyond gaining you credibility and professionalism, they should give you a professional advantage that pays off in the form of higher fees. And remember, strike while the iron is hot. Opportunity is fleeting. 

  • http://twitter.com/pivoture pivoture

     Traditional agency / client dynamics are evolving past this, but ultimately, it’s the large clients who control the fee scale, since their media buys are often millions of dollars – and they want to effectively manage their ROAS. Agencies need to create more value by creating the consumers – rather than serving as a cog in the machine.