The American Association of Advertising Agencies conducted a year-end poll of its members on important topics facing its industry. The question that intrigued me was this one:
How should advertising agencies be compensated?
- Agencies should bill for their time—26%
- Profit participation—pay for performance—16%
- A hybrid of hourly rates and incentives—55%
- No opinion—3%
Forget for a minute how 3% of the respondents could have “no opinion” on such a vital topic as how an agency should be compensated.
Only 16% said that pay should be based on performance, or what we call Value Pricing. The majority simply fall back to the status quo of hourly rates and incentives.
The problem with the hybrid answer is that the “incentive” is simply based upon an hourly rate basic price, which has nothing to do with value.
I have no basis for comparison of these results with prior year’s, but it does provide us with a vector of how much work there is left to be done to change the attitudes and beliefs of agencies.
I’m proud to be part of this initiative, undertaken with the endorsement of the 4As.
Hopefully, we will be able to make progress on the above responses before next year’s survey.