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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About Matt Bergantino