Warc Briefing: Agency Remuneration
Definition: Agency remuneration typically comprises commissions, fixed fees, payment by results or a combination of these.
History and future outlook
Traditionally, advertising agencies in developed markets were paid a commission by media owners, calculated as a percentage of the value of the ads they placed for advertisers.
The most common commission rate was 15% of the gross cost of the advertising buy, or 17.65% of the net cost. Over time, however, media planning and buying became a specialist discipline, handled in isolation from the creative or strategic side of campaigns.
As a result of this unbundling, clients in most markets priced media and creative operations separately, and a greater variety of remuneration packages developed. These can be categorised into commission based, overheads-based and value-based. They include:
- Fixed commissions, usually based on a rate of 15% or lower, still exist, though many agencies are moving away from them.
- Variable commissions depend on elements, such as the size of the budget.
- Fixed fees are normally based on the time spent by the agency on work for clients. Agency and advertiser agree on the rate charged for the work of each member of the agency team and use this to negotiate an annual fee.
- The hybrid approach features both fees and commissions. Sometimes hybrids involve a "base fee" for the agency that covers basic costs and a "bonus" or reward once the campaign has aired.
- Payment by results (PBR) provides an incentive for agencies since they get rewarded for the work that generates revenues for client. Typically, agencies will receive an extra fee or commission when agreed targets are achieved.