12 Ad Agency Compensation Agreement Tips


Negotiating agency compensation agreements … how you start out is how you finish!

Unprofitable client accounts usually start out that way as a result of the initial agency compensation negotiations. We are usually so excited about the new client opportunity and so overly anxious about alienating the client in the negotiation process, that we tend to give away the farm at the outset!

This is without doubt the most critical time in this new client/agency relationship. It is during this period you have the opportunity to define whether this is a client relationship that will be profitable and add value to the agency or whether you are going to set yourself up for what is commonly referred to as a “nightmare client!”.

If you ignore the warning signs and hope they will solve themselves, believe me when I tell you they will not. In fact that will only escalate into larger issues that will ultimately help cause the demise of the relationship. You have to have the hard conversations at this point rather than even more onerous one’s a few months down the line.

Now there may be some clients that your agency covets so much that you make a conscious decision to lose money just to have them on your agency roster. If that’s the case remember why you made the decision, especially a few months down the line when you are reviewing client profitability reports. No need to execute the account team.

On the other hand, if your intention is to make a fair profit on this piece of businesses, then make that a priority from the start and negotiate accordingly. If your financial projections assume a certain level of profitability this is the time to set yourself up to make those numbers.

 Here are 12 tips agency compensation agreement tips to help you through the process:

  1. Establish the real spend/budgets. That way you can budget and resource accurately
  2. Discuss client expectations. During these discussions you will soon know what you are in for and if you are going to be able to make it work.
  3. Define the Scope of work expected:
    • Client service levels
    • Suitable blend of resources to adequately support the account
    • Timing, seasonality, continuity of work, planning cycles etc
    • Metrics, measurement and anticipated results. (Cost per lead, cost per customer, cost per sale etc.)
  4. Briefing procedures. Documentation, process, sign offs etc
  5. On boarding costs. What is the on-boarding process and who will cover the costs of that? How much is the agency expected to contribute to get up to speed?
  6. Agency review schedule and approach. How often, what format and who will attend? Will there also be a client review portion of that review?
  7. Blended rate? Rate card? Assumptions and triggers for change. What fee basis are you going to be working against? What work does it cover? When might additional work revert to rate card etc?
  8. Fee plus bonus? Are you able to negotiate a retainer fee to cover your costs plus an agreed profit level, and will there be a performance bonus too?
  9. Travel & out of pocket costs. What are acceptable, approvals, claim procedures, disputes? etc.
  10. Errors and omissions. In the case of an error or omission how will it be handled? What compensation is reasonable and how do you both determine what’s reasonable?
  11. Liability insurance. What level of cover is required and are there any specific risks that need to be addressed? Running sweepstakes and games is a perfect example of this.
  12. Regional, franchisee support etc. Is this required, how it is coordinated, who approves the costs incurred and how are they billed?

These are just a few of the questions and issues you need to address at the outset of a new client relationship. Failing to do so, or worse still, avoiding them will only lead to a self fulfilling prophecy. You are setting your agency up to fail!


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