Performance and Value Based Remuneration for advertising agencies
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Transcript of Performance and Value Based Remuneration for advertising agencies
marketing management consultants
Performance & Value Based Remuneration ���
for advertising agencies
TrinityP3 Pty Ltd
2013
© Copyright 2013
marketing management consultants
What is Performance Based Remuneration?
• This is when some or all of the agency remuneration is paid based on one of more pre-agreed performance metrics.
• These metrics usually fall into one of three categories:
1. Soft – relationship or service scores
2. Medium – marketing or brand metrics
3. Hard – financial or value based measures
marketing management consultants
What is Value Based Remuneration?
• This is when agency remuneration moves away from a cost base (retainer and hourly rates) or spend (commissions and mark ups) to being based on a determination of value.
• These value measures usually fall into one of two categories:
1. Outputs – This is where a price or value is placed and agreed on delivering a specific output.
2. Outcomes – This is where the agency is paid a fee linked to the value created.
marketing management consultants
How does PBR work?
• Usually some or all of the agency profit margin is put ‘at risk’ with the opportunity for the agency to earn this, plus more, back based on the performance criteria.
• Eg. Agency ‘risks’ 10% of profit for the opportunity to earn 20% back.
• The performance criteria is weighted based on the perception of the agency’s ability to influence the outcome.
• Eg. Relationship 40%, Marketing Metrics 40%, Financial 20%.
marketing management consultants
How does VBR work?
• This is where a price is set for the delivery of a specific output by the agency based on the value the marketer places on that output.
• Eg. A fixed, agreed fee for the agency to produce a website, an advertising concept or a print advertisement.
• Or the agency is paid a fee based on the contribution to creating measurable value for the brand or business.
• Eg. A fee per lead or sale, fee linked to market share or sales volume.
marketing management consultants
When should you use PBR?
• PBR can be used for almost any agency or marketing supplier relationship.
• The requirement is to identify some aspect of the agency’s performance that is critical to success and create measurable criteria.
• Eg. Media buying efficiencies, On-time, on budget performance.
• Ideally this would be tracked either continuously or at regular intervals (monthly, quarterly etc) with feedback to the agency.
• Objectives for delivering the bonus should be reasonably achievable to act as an incentive.
marketing management consultants
When should you use VBR?
• VBR can be used either when the agency is providing specific tasks or deliverables which can be ‘valued’ and priced, (Value Pricing).
• Eg. Campaign or project work.
• Or when the agency has a significant input to the strategic direction and there is a reasonable correlation between the work of the agency and the measurable value created, (Value Creation).
Eg. Direct response is the best example of this.
• VBR can be used alongside PBR. They are not mutually exclusive.
marketing management consultants
What are the steps for PBR?
• Identify the agency performance attribute you wish to encourage and reward.
• Discuss and agree with the agency a measure and methodology, (One measure – KISS).
• Have the agency offer or suggest a level of ‘at risk’ component from their current remuneration and at least double this for the upside.
• Measure and provide feedback on a regular basis and pay quarterly or six monthly if possible.
• Review and adjust targets annually based on performance.
marketing management consultants
What are the steps for VBR?
• Identify the approach to be used (or both) value pricing and value creation based on circumstances.
• For value pricing, identify the elements of the agency outputs to be priced.
• For value creation, identify the areas where the agency significantly contributes to value.
• Look historically for the cost of each area.
• Develop a model to replicate the level of remuneration based on either current or desired results.
marketing management consultants
The case for not using relationship in PBR
• In the first slide we identified soft measures such as relationship as a criteria for performance based remuneration.
• There is behavioural economic evidence that financial rewards for individuals are counter-productive to driving performance.
• In most cases, performance payments for the agency do not impact the agency resource beyond senior account management.
• While relationship management is important, we DO NOT recommend it be linked to payments.
marketing management consultants
Performance or Value?
Performance Based
• Rewards the agency for improving their performance.
• Can be used on any marketing supplier relationship.
• Can be used with Value Based Remuneration.
Value Based
• Links agency remuneration to the value of the task or the value created.
• Is ideally used where the agency task is defined or correlates with results.
• Can be used with Performance Based Remuneration.
marketing management consultants
For more information contact…
TrinityP3 Pty Ltd Sydney
+612 8399 0922 Melbourne
+613 9682 6800 Hong Kong
+852 3478 3982 Singapore
+65 6631 2861
[email protected] www.trinityp3.com
@trinityp3 www.trinityp3.com/blog/ TrinityP3 Darren Woolley