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Advertising Agency Compensation

This document discusses different methods that advertising agencies use to charge clients for their services. The main compensation methods are the commission system, where agencies receive a percentage of media spending; fee arrangements, where clients pay a pre-negotiated flat fee; cost-plus agreements, where fees are based on costs plus a margin; and incentive-based compensation, where agencies can earn bonuses for meeting performance goals. The commission system was traditionally most common but is becoming less so, while clients increasingly demand incentive or goal-based payment structures from their agencies.

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Baisakhi Bhowmick
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105 views9 pages

Advertising Agency Compensation

This document discusses different methods that advertising agencies use to charge clients for their services. The main compensation methods are the commission system, where agencies receive a percentage of media spending; fee arrangements, where clients pay a pre-negotiated flat fee; cost-plus agreements, where fees are based on costs plus a margin; and incentive-based compensation, where agencies can earn bonuses for meeting performance goals. The commission system was traditionally most common but is becoming less so, while clients increasingly demand incentive or goal-based payment structures from their agencies.

Uploaded by

Baisakhi Bhowmick
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ADVERTISING AGENCIES

METHOD OF COMPENSATION
Advertising Agency
• Independent business organization
specialized in advertising works
which undertakes the work of
planning, preparing and executing
advertising campaign for its clients.
• Body of experts who specialized in
advertising.
Compensation Methods

• The Commission System


• Fee Arrangements
• Cost-Plus Agreements
• Incentive-Based Compensation
• Percentage Charges
The Commission System

▪ Traditional method
▪ Agency usually receives 15 percent
▪ Commissions are paid by the media
▪ Commission system is controversial
▪ System is becoming less common
▪ Simple and easy to operate
Fee Arrangements

▪ Fixed fee method


▪ Client and ad agency negotiate a
flat sum to be paid to the agency
for all work done.
▪ Agency estimates cost
▪ Client either accept or negotiates
for a lesser amount.
Cost-Plus Agreements

• Fee basis on the cost of its work


• When media billings are relatively low and a
great deal of agency service is required by the
client.
• Happens in case of industrial products and
introduction of new products.
• Client agrees to pay the agency fee based on
the costs of its work plus some agreed on profit
margin.
Incentive-Based Compensation
• Many clients demanding to their agencies.
• Agencies ultimate compensation level will
depend on how well it meets predetermined
performance goals.
• Goals include sales or market shares
• Evaluation of the quality of the agencies
creative work
• Compensation through Media commission,
fees, bonuses, or combination of these
methods.
Percentage Charges

• Agency purchase service from


various outside providers.
• They will not allow the agency a
commission, administrative cost
and reasonable profit for agencies
work.
• Such all is added to the bill.
THANK YOU

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