Compensation Of

Advertising Agencies
BY
VISHNU.R
&
VISHNU VIJAYAN

Different ways of compensation

Commissions from media.

Fee arrangements.
Cost plus system.
Incentive based compensation.
Percentage charges(markups)

1.Commission from media

A traditional method.
Agency receives a specified
commission from media on any
advertising time or space it
purchases for its clients.

2.Fee arrangement
Fixed fee method:
the agency charges a basic monthly fee
for all of its services
Fee-commission combination:

In a fee-commission combination, the

agency charges a fixed monthly fee for the
services it offers to its clients and the
media commissions earned are retained by
the agency.

3.Cost plus agreement

Under a cost-plus system, the client
agrees to pay the agency a fee
based on the costs of its work plus
some agreed-on profit margin (Often
a percentage of total costs).
The cost-plus system is generally
used when the media billings are
relatively low and a great deal of
agency service is required by the
client.

MARK UPS

Buy service from outside sources like

photographs or video films
It is a percentage of purchase cost

Incentive based compensation

Most scientific way to pay an agency

Based on result
More effective results gives higher
compensation
It is difficult to measure ad effectiveness

Agencies lose clients

Poor performance or service

Poor communication
Personality conflict
Declining sales
Changes in policies
Changes in strategies

Agencies gain clients

Referrals
Presentation
Public relations
Image and reputation