CPG firms shift agency payment models

2 August 2010
NEW YORK: Consumer packaged goods companies have proved the most eager to move their agencies onto remuneration systems which are tied to sales.

The Association of National Advertisers, the trade body, surveyed 75 of its members, with more than 1,000 client–agency relationships coming under consideration.

Overall, three-quarters of these agreements were still premised on fees, with value-based structures accounting for just 1%.

Elsewhere, traditional commission arrangements were in place in only 3% of cases, which marked a decline from 16% recorded in 2006/07.

Sales commission, where agency remuneration is linked to brand revenues, is gaining ground, and is now featured in 15% of compensation plans.

Among consumer packaged goods manufacturers, this climbed to 41%, with corporations such as Procter & Gamble and Coca-Cola having led the way in implementing new models.

The proportion of respondents employing some form of incentives stood at 46%, largely flat when compared with 2006/07.

However, 70% of brand owners with annual media budgets of $30m or above have adopted this approach, falling to 8% for firms with lower rates of expenditure.

Performance reviews were the most widely-used tool in this area on 78%, with metrics that centred upon sales data on 72%.

Market share objectives received a score of 34%, an uptick from 24% in the last round of research conducted by the ANA.

The average profit margin for agencies was 14%, the same level as in 2006/07, despite the onset of the recession.

Moreover, this total split the ideal target of 12% for clients, and the figure of 16% which the panel believed creative, media and digital shops would like to be earning.

"Brands consistently seek optimal ways to compensate agencies for the time, energy and creativity invested in their work," said Bob Liodice, president/ceo of the ANA.

"As the marketing profession seeks greater accountability, our industry must take a step back and evaluate what compensation method best clarify helps to determine return on investment."

Data sourced from ANA; additional content by Warc staff
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