Large companies overwhelmingly want to switch the way they pay ad agencies to a model based on outcomes, a new global study shows.

Research by the World Federation of Advertisers, in partnership with management consultants The Observatory International, said 71% of companies agree with the statement, “I feel that changing my current agency remuneration models would improve the relationships that I have with my agencies”. That percentage includes 19% who strongly agreed.

The study ‘Global Agency Remuneration 2018’ found 81% of respondents thought the current shift towards performance-based payment, and an increased focus on results would continue. This will mean the continuing decline of payments based on how much work is carried out, as well as commission-based payment models.

One respondent said they had moved to “100% of payment based on incremental sales generated”.

The research looked at how advertisers are changing the way they pay agencies of all types and in all markets. Results are based on answers from global and regional senior marketing procurement experts from 42 different companies, responsible for budgets in excess of $84 billion in total.

The number of respondents who now say they are using results-based payment models has risen to 28%, up from 20% in 2011, when the WFA carried out a similar survey. Another 15% say they combine performance with labour-based payment – up from 9% seven years ago.

But, across all types of agencies, on average, under 20% of total payment is linked to performance for 80% of respondents.

The report’s authors point out that the increased recognition of the business contribution agencies make to their clients would be welcomed by most, but fairness and having a workable payment model depends on establishing clear, achievable and measurable KPIs.

The good news for agencies is that 87% of respondents felt they are getting genuine value for money from agencies ­– up from 67% in 2011. But clarity over charges remains an issue, with 52% of respondents saying agency costing models are not fully transparent.

And getting enough detail on the of work required is a problem, with only 31% of respondents saying they get a highly detailed scope from their marketing counterparts. This is the cause of the vast majority of problems over fees, researchers found.

Sourced from the World Federation of Advertisers