Agency remuneration: How do you put a price on magic?

Paul Bainsfair

Procurement has become a dominating force in marketing services and many question whether it is healthy for decisions on creative work to be too heavily influenced by price. The IPA booklet published several years ago, Magic and Logic, which describes best practice in many areas of agency-client relationships, bears a closer look.

Once upon a time, ad agencies were paid on commission. Whatever the advertiser spent, the agency would receive 15% of the client's budget. But times change and today the notion of paying your ad agency in this way has almost disappeared -and indeed seems rather bizarre.

Two key factors led to this change in agency compensation. The first was the rising cost of media buying, leading to the hiving of media planning and buying as specialist companies; and pressure on marketers to reduce costs on all fronts. This second factor was the catalyst for the rise of procurement as a discipline. Given that many purchased goods and services are commodities, the practices developed by procurement departments were ill-suited to buying advertising services.