Performance digital is redefining our entire industry. The way in which people consume media and interact with brands is driving change and everyone is running to keep up. So, how should you structure your remuneration for growth and innovation to drive the best value from your agencies in the future?
‘Convergence’ – the point at which interaction with a brand meets transaction is getting ever closer. Cost and connectivity are driving this. The benefits of asset and service co-location are undeniable, the more connected service propositions are, the better brands can exploit the convergent world in which they sit and the more effectively businesses can scale. What’s interesting is that scale does not necessarily confer connectedness. Only those businesses with the right infrastructures and operating models will actually be able to deliver in this increasingly global and connected world.
Outcomes, not inputs
We all understand that Digital Performance drives outcomes: sales, brand interactions and salience. However, the media industry has long been defined by the cost of inputs, both people and media. Typically 95 per cent of client budgets are flow-through costs spent with third parties with the balance spent on the people and time spent optimising this. Today these can be more accurately tracked and benchmarked than ever before.
The important trend that we are seeing here is the willingness and desire of clients to link performance to output driven Performance Related fees (PRFs). This means replacing the classic media buying PRF with ones based on a combination of service and e-commerce sales for example. Usually this means operating up to a percentage of the fee base and integrating a malus and a bonus element. Hitting target allows the agency to earn on target income, excellence is rewarded with upside and underperformance erodes the pre-determined fee base.
Well-structured compensation models are incredibly empowering for client/ agency relationships and in the digitally connected world that we operate within, this is absolutely critical; because focusing on performance drives results.
Managed appropriately, performance compensation models that reward an agency on a geared basis against delivery of sales over a certain level can be initially unsettling. However, as long as limits are in place to restrict the creation of demand against the capacity of a brand to deliver product, and the executive management of the client understands the spirit of the agreement, these mechanisms can deliver genuinely business transformative results.
In a world where everything is increasingly connected – scale is important, but agility and the ability to collaborate via data, in the real world, are absolutely paramount.
Rather than asking the question how many people are working on an account and how cheap you can buy them, client procurement teams should be asking how they ensure the quality of the people they’re working with and the outcomes that they will generate for your business.
Future success will focus on the talent of the people working on your account. It will become vitally important that clients look at how their agency is keeping up in this fast-changing digital world. How are they investing in their people to ensure they are continually best-in-class enabling innovation to thrive? Fundamentally these are the skills that will ultimately differentiate agencies - it’s our talent that will drive the value of the future.