When it comes to compensating agencies, there are four main methods that companies use: commission plans, consultant, external facilitator and production facilitator. Commission plans were popular in the 1990s, but have since been replaced by retainers or fixed rates. This is because retainers offer many advantages, such as allowing customers to accurately budget for their marketing expenses and allowing the agency to forecast revenue. Withholding charges are set on an annual basis and billed monthly.
This “carry over” method of accounting for time has been successful over time. Retainers also foster positive client-agency relationships by allowing the agency to act quickly on client requests or opportunities without waiting for budget approval. In exchange for the commitment, the agency may offer reduced rates. Project-based compensation is another popular method. This is when the agency and client agree on a fixed flat rate with defined expectations and scope based on estimated hours and rates.
The benefit of this model is that the client is informed about the cost and schedule of the project and is familiar with the agency team in charge of the process. However, if projects change or estimates are out of place, the agency may bill the client for additional costs. The Retainer compensation model is generally a static monthly fee for an “hour period of the agency's marketing service”. The customer can change their request or change priorities, but if the needs exceed the monthly advance, then the change orders can be added to the monthly advance. The flat or direct fee method is when the agency charges a basic monthly fee for all its services and credits the client for any media commissions earned.
Costs are determined by the tasks expected to be performed by the agency, the staff required, and hourly rates. Ultimately, it's up to the client and the agency to decide how they will price their rates during their partnership. Proponents of commission systems argue that it is easy to manage and maintains an emphasis on factors not related to price, such as quality of advertising developed for clients. However, if an agency is slow or inefficient, as a client you are paying for it and the agency is paid with or without results.