Thanks to a combination of challenging global trading conditions, the increasing proportion of ad spend that’s digital, an industry-wide talent crunch, and the growing importance of Retail Media, it has never been a better time for advertisers to review the performance-related component of the fees they pay to their media agency partners.
Ebiquity and FirmDecisions have just launched a new guide to performance-related fees in media agency agreements to help advertisers review and – where necessary – reset PRFs.
PRFs are based on agency performance in meeting specific goals, targets, or key performance indicators. Set right, PRFs motivate agencies to deliver better performance and foster stronger, advertiser-agency partnerships, aligning both parties’ interests. The best remuneration models are fair and balance both parties’ needs, typically with a base element (60-80%) and a variable element (20-40%). The base fee covers agency personnel, operating overheads, and profit margin, while the variable fee is tied to performance.
KPIs for PRFs generally fall into three categories: business, productivity, and agency services. Weightings need to be balanced and should not disproportionately rely on one area. PRFs work best when they evolve over time to maintain relevance to a client’s business objectives. It is essential to manage PRFs properly, with regular reviews and clear communication.
To establish effective PRFs, the new Ebiquity guide sets out five key principles advertisers should follow: Simplicity, Fairness, Motivation, Certainty, and Scrutiny. By incentivising media agencies to drive their clients’ commercial performance, PRFs help agencies become genuine business partners, fostering a culture of incremental improvement, and delivering better value for both parties.
