What is agency compensation? What does it take?

Answers: AGENCY COMPENSATION

Agency agencies may be compensated in a range of ways including:

A. Commissions from Media��
The agency is compensated based on the time or space it purchases for its client. The commission is typically 15% (16 2/3% for outdoor), and sometimes have been negotiate downward. The commission system has be the target of criticism for a number of years as critics argue that it ties agency compensation to medium costs and encourages agencies to rely too much on expensive, commissionable medium such as network small screen and avoid noncommissionable media. Many advertisers enjoy moved to a negotiated commission system that take the form of reduced percentage rates, variable commission rates and minimum and maximum compensation rates. A recent survey by the Association of National Advertisers found that smaller number than 10 percent of clients pay their agencies a 15% commission. However, most clients do use the 15% commission as a benchmark to evaluate their current agency compensation agreement.

B. Fee, Cost and Incentive-based Systems��
In situations where on earth billings are low, and/or the client does not wish to foot a direct commission, an agreement may be reached surrounded by which the agency is compensated in the channel of a fee, cost-plus or incentive-based compensation system.

1. Fee arrangements are of two types:

A fixed-fee method where on earth the agency charges a basic monthly charge for all of its services and credits to the client any medium commissions earned. Under a fee-commission combination the medium commissions received by the agency are credited against the fee. If commissions are smaller amount than the agreed-on fee, client must formulate up the difference.

2. Cost-plus agreement��
Under this compensation method the client agrees to pay the agency a allowance based on costs of its work plus some agreed-on profit side-line. This system requires the agency to keep detailed documents of costs incurred in working on a client��s portrayal.

3. Incentive-based compensation��
While there are abundant variations on this system, the rough and ready idea is that the agency��s compensation even will depend upon how well it meet predetermined performance goal for its clients such as sales or flea market share. Incentive-based compensation. Incentive based compensation systems are becoming more prevalent as marketers are hope to make their agencies more in charge and reduce costs.

C. Percentage Charges��
When agencies purchase services from other outside agencies they typically append a percentage in the form of a markup charge as their compensation. These markups usually extent from 17.65 to 20 percent.