Performance-Related Fees (PRFs) are an essential element in fostering strong relationships between advertisers and their media agency partners. For PRFs to remain effective, however, they must be properly managed by both parties.
There are three critical aspects in PRF management that advertisers should follow and some straightforward principles that can ensure you create fair, motivating remuneration models. These are detailed in our guide “Performance Related Fees in Media Agency Agreements“.
Key focus areas for effective performance-related fee management:
1. Annual reviews: regularly evaluate variable PRF components to ensure they align with your business objectives. Involve your agency in this process, allowing them to voice concerns or suggest changes.
2. Client budgeting and accountability: both advertisers and their agency partners should have a clear understanding of financial expectations and responsibilities. Clients must allocate funds for potential bonus payments, and there should be an established cap on these payments.
3. Regular measurement and adjustment: engage a third-party consultant to monitor productivity and conduct service evaluations. Identifying and addressing any issues early on allows agencies to adjust and improve throughout the year. Ideally, these evaluations should occur at least every six months.
Top tips for equitable, motivating agency remuneration
Establishing the right level of performance-related Fees is a critical step for advertisers looking to motivate their media agencies. This is the key to empowering agencies to deliver exceptional performance and become advertisers’ long-term business partners. Brands looking to bake good practice into remuneration should be guided by the following five key principles.
- SIMPLICITY: the remuneration model should be easy to understand, administer, and communicate
- FAIRNESS: ensure that the model benefits all parties, aligning both advertiser and agency interests and priorities
- MOTIVATION: incorporate a significant performance-related component into agency fees, incentivising exceptional work and discouraging underperformance
- CERTAINTY: include the remuneration model in your contract, but maintain flexibility for the model to evolve alongside the partnership and the digital landscape
- SCRUTINY: secure commitment from leaders on both sides to oversee and adhere to the remuneration model
Proper PRF management is crucial for fostering a healthy, productive relationship with your media agency. By focusing on these key areas and adhering to the five principles detailed here, you can create a mutually beneficial partnership that drives success for both parties.
Get in touch with the Ebiquity team to further discuss these important updates and take proactive steps to reduce wasteful practices.