15% agency commission: reduced to a pipe dream

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The standard agency commission was once 15% of media billings. The operative word being once. Several factors led to a change in agency compensation:

– rising cost of media buying, hiving of media planning & buying as specialist units

– clients buying media directly

– the perception that agencies recommend expenditure in a medium that would best benefit them by ignoring emerging new media

– the pressure on marketers to reduce costs on all fronts

– the emergence of brand consultants and their way of compensation (hourly rates or project fees)…and so on.

Add to it the disunity among advertising agencies and you have clients abandoning the commission system gladly. Even when the commission system was in vogue, it was a ‘free-for-all system’ of agency commission. Agencies were only too willing to reduce the commission to abysmal levels to out-muscle a rival agency.

All this and more was brought alive in a recent article on the AAAI Elections, in which it was said:

The AAAI has been pilloried for its slow reaction to new industry developments. Even its supporters admit it is perhaps too hung up on the globally outmoded 15% commission model.

Everyone acknowledges that poor compensation cannot sustain an agency business – it only leads to a vicious cycle of inability to hire good talent, resultant poor service, complaints about lack of ‘value add’  and the inevitable agency pitch.  But we all accept a sub-optimal option: retainer fee. If the fee is just, allows for investments in talent and is linked to clear performance guidelines & results, it’d be great. The basis for a retainer fee varies from case to case and its not uncommon to arrive at an arbitrary number as fee – usually the lowest an agency will agree to. Even among advertisers of repute and global standing, a rock bottom fee is common (some of the numbers I have heard – for brands that have been built on great advertising ideas, is truly shocking). It all makes you wonder how an agency can sustain servicing an account at that kind of compensation for long.

Sure, the 15% agency commission had it’s flaws, but at least it was an agreed standard. The pitch got queered for reasons mentioned above. Sadly, it appears that the advertising industry will not even make an effort to get back to the old system as standard practice. And the current fee system will continue, only making life difficult for agencies.

Dear 15% agency commission, nice knowing you. You have been abandoned by your own ilk. Do they have a better option? You tell me.

Also read a similar plea on online advertising: Bring back the 15% Agency Commission, Redux.

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  1. You have rightly pointed the contributing factors which has lead to this situation.

    As a media-seller I too have come across some interesting client-agency deals, which to my belief also impacts the science behind the media.

    It isn’t uncommon today for big brands to work with leading media agencies(including the ‘m’ ones) on a retainer basis. In some cases have felt that there is no conscious effort to map the media as per the brand’s requirements. When one has a fixed income coming and only that- the best thing is to do a convenient media plan that gets signed without much ado.

    Another malice is about 15% or more being paid back to the client- which is part of an agency pitch. Primarily due to shops that have sprung up offering ‘advertising solutions. Then the media is asked to subsidize the agency’s cost by offer of extra incentives.

    And in increased case of buying pitches – where there has been cases of blanket offers to buy the media at x%lesser than the prevailing operating media costs- which are then effected by efforts ranging from networking to outright threatening (…if u dont give..u will not be considered..)

    And there is no end to it, benchmarks keeps getting revised. More than quality- its the rate-quantifying factor which becomes key parameter.

    Pardon me if i have gone off-tangent 🙂 A very wonderful post by you.

  2. I have noticed that some markets give additional backside to the buyers above and beyond the standard 15% agency commission. Why is it so hard to get stations and or buyers to admit that we are getting additional back side on our buys? I just want to know what an expectable amount of backside to request for when I bring a new player to the market place. If I bring an extra 1.5 million to the table is it not posh to ask what addition incentive there is for me to advertise with station X over stations Y?

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