• by Joe Mandese  @mp_joemandese, June 21, 2011

Fixed and labor-based fees continue to be the dominant method of compensating digital agencies, according to just-released findings of a new member survey from the Association of National Advertisers.

The survey, however, found that fees are increasingly being supplemented by performance incentives.

"As the economy continues to recover, marketers are still pressing for fee efficiencies and performance commitment, while pushing for cost control and accountability," the ANA report found.

Respondents reported that the primary driver of cost control is a fee adjustment:

*73% of respondents who changed their compensation agreements restructured/reduced their fees.

*43% of respondents adjusted their digital agency compensation last year and 50% of respondents plan to do so this year.

*Nearly one-quarter surveyed (23%) changed or restructured performance incentives in the past year, and 29% are planning to change/restructure existing performance incentives.

"Digital marketing continues to be an increasing vehicle of choice for marketers. As such, marketers are telling us that digital agency compensation must adjust in kind to fully capture the opportunities available for this high-growth arena," stated Bob Liodice, president and CEO of the ANA. "The increasing use of digital agencies and performance incentives represent important areas of evolution for the client-agency relationship."

The report also noted that digital-marketing services continue to grow among the members surveyed. More than two out of five respondents said they utilize five or more digital agencies (44%), a notable increase from the number of respondents who used five or more agencies in 2009 (39%) and in 2007 (23%).

The structuring of digital agency fees is trending toward a combination of retainer and project fees, with an increase from 37% in 2009 to 66% in 2011 of marketers that employ an annual retainer/ project fee combination method.

"The use of performance incentives with digital agencies has lagged compared to traditional ad agencies, which is surprising, given the inherent measurability of digital media," stated David Beals, president and CEO of R3:JLB, who worked with the ANA on this research. "However, this survey indicates that the use of incentives with digital agencies is now catching up to the rest of the world, and I would expect to see a continued increase in coming years."

Respondents reported that the manner in which services are provided is fractured, due to the rapid development of the digital landscape. Outside agencies are preferred for specific services, such as "search engine marketing buying" and "online advertising media buying/ planning," as well as "creative development/execution of mobile/third screen advertising/applications."

Many companies are also utilizing a combination of in-house and external teams for "brand or corporate Web site strategy," "social networking," and "management and analysis of digital analytics and metrics" initiatives.

The ANA said it launched its first survey of Trends in Digital Agency Compensation in 2005 in order to establish benchmarks regarding marketers' agency engagement and compensation best practices in digital marketing. The survey is conducted on a biennial basis.