Programmatic's Impact On Agency Compensation Model

Programmatic buying and other technology-focused approaches to buying and purchasing media have begun to complicate agency compensation models. Brands and their agency partners are looking to simplify the processes.

Dave Beals, president and CEO of JLB + Partners, from the ANA Advertising Financial Management Conference in San Diego, California, said programmatic media services continue to drive up the use of traditional media commission models. In fact, of those using commissions, about 30% of respondents participating in a study released Tuesday by the Association of National Advertisers (ANA) said they use commissions to compensate for programmatic.

As programmatic creeps into television media buys and other traditional media channels, it will continue to change agency compensation models. Beals said changes in production formats will also influence the compensation model as more brands integrate social media into the mix, he said.

Programmatic uses human resources and technology, making it easier to return to a traditional commission to compensate agencies as they and their clients move at such a rapid pace. "With everything else going on it's difficult to sort out how much of the programmatic cost is based on industry labor and how much is based on technology," he said.

Most agencies now tell brands to cover them on the commission and they will throw in the technology.

The Association of National Advertisers (ANA) released the 17th edition of the "Trends In Agency Compensation" report Tuesday detailing how after reaching its all-time low of 3% for compensation models cited by respondents in 2010, media commissions shifted to the preferred model among 12% in 2016.

"Even in the traditional media services space most marketers will use a labor-based fee to cover their agencies for traditional media, about 27% to 29%, media planning and buying," Beals said. "That has less to do with technology and more to do with media agencies buying across different clients. It's easier to compensate with a commission than sort out how hours were spent by how many buyers at the agency."   

For the better part of the last century, most agencies were compensated via a traditional 15% compensation on media and product spend, he said. In the 1970s and the 1980s marketers began to gravitate away from commissions because some was a reaction to "windfall profits at agencies" and others a reaction to more complex forms of emerging media, among other reasons. For the most part agencies were compensated based on labor where the client lays out a scope of work and the agency proposes a staffing plan. 

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