Ask Bullmore: Should I be paying my agency based on how its work performs?
A view from Jeremy Bullmore

Ask Bullmore: Should I be paying my agency based on how its work performs?

Campaign's agony uncle answers your career dilemmas, including how to you peg your agency's fee to its performance.

Dear Jeremy, Should I be paying my agency based on how its work performs?

Of course you should. Stands to reason, doesn’t it? Work that performs well should be well-rewarded; work that performs brilliantly should be brilliantly rewarded; work that doesn’t perform at all shouldn’t be at all rewarded.

What could be simpler? Well, since you ask – just about any other system of agency remuneration.

If your business is wholly dependent on an immediate consumer response – on clicks or coupons, for example – then by all means agree click or coupon targets with your agency and how much you’re happy to pay for each.

It’s true that the occasional coupon, having lined someone’s sock drawer for over a year, may arrive 18 months after the rest – but it’s as close as you’ll get to a fair and undisputed payment-by-results contract. Even then, how do you cater for contingencies?

Your closest competitor features in a well publicised scandal greatly to your advantage. Why should your agency benefit?

Your seasonal product is hammered by the coldest May since records began. Why should your agency be penalised?

And that’s direct response work – by far the easiest category of work to evaluate.

Now let’s say that your brand is one of the thousands that make up 75% of all advertising expenditure: a repeat purchase, already-familiar brand with adequate distribution.

You probably pretend in the marketing plan that you reveal to your board, and in your rousing climax at your annual sales conference, that you’re Going for Growth! That sounds manly. But if the past five years are anything to go by, you’ll be quietly pleased if you fail to regress.

To hold market share when 85% of marketing expenditure is against you is a worthwhile achievement. To hold volume sales without savage discounting is a worthwhile achievement.

An able agency and an adequate advertising budget can help you with both – but how do you peg your agency’s fee to its performance?

This is how. Since the maintenance of brand equity – the desirability of your brand in the minds of consumers – is one of your key objectives, you first need to obtain an accurate current brand valuation.

Then, assuming an absence of marketing support over the next 12 months, calculate the probable decay of that value. Then, recognising that reputations once in decline tend to decline more steeply, calculate the likely further decay of your brand’s value over a further year.

Then put a number on the gap between your brand’s unpromoted value as predicted and the value you are planning for it to attain (or retain) with advertising support. You now have a metric against which your agency may be expected to deliver.

Furthermore, this model is the first to recognise the obvious truth that the prevention of one percentage point of loss is as valuable to a business as one percentage point of gain. 

Your agency should welcome this proposal. (You might like to talk it through beforehand with your chief executive and procurement people.)

Dear Jeremy, I work in marketing for an FMCG retailer. My family and I are settled in London. Do I really need to do a global role to gain better perspective of our market?

For a century or so, the bigger British companies thought that their chaps (they were all chaps) were fit for the highest office back in the old country only when they’d shown that they could sell things to indigenous folk in the southern hemisphere.

This, of course, meant that they wore pith helmets, which protected them from the sun; and shorts, which didn’t. That’s why this essential stage of executive development was called "getting their knees brown".

I fear you’re working for a company that harbours an equivalent superstition.

Dear Jeremy, Which way should people in marketing vote?

A fine time to ask: you should have voted already. Just be grateful that your own success depends on consumers and not on voters. Each consumer purchase counts. It has the same value, wherever that consumer lives.

The value of the votes cast today will have varied from absolute zilch to transformational. You wouldn’t put up with that in marketing. I wonder why you do when choosing who should govern you? 

Jeremy Bullmore welcomes questions via campaign@haymarket.com or by tweeting @Campaignmag with the hashtag #AskBullmore.