In the previous tip I gave you my reasons for moving away from FTE’s. Now I would like to suggest an alternate way of thinking about fees.
I believe that Agencies should link compensation to Client sales. Agree that X% of incremental sales over an agreed to baseline go directly to the Agency.
Here is why:
The value of the Idea is monetized.
Most people will agree that better ideas lead to better results. It is then fair that the creator of the Idea gets to share in the results. And, for both Client and Agency, the upside is not capped.
It aligns Agency and Client Objectives.
Agencies will have a clear incentive to focus on Client Brands and not let their attention drift to other things. Importantly, the Agency will finally have some “skin in the game”.
It is very easy to administer.
Payment can be made on any regular basis, as agreed to by both parties. An independent third party can audit sales and make sure payments are accurate.
It is flexible.
There is no reason why this approach cannot be combined with a scope of work and FTE based fee. What percentage of the fee is fixed and what is variable should be agreed to by both parties.
Pioneering companies are already moving in this direction.
Given how tough the financial environment has been for Agencies, they have very little to lose and everything to gain.