Compensation made simple
- There are basically three ways to pay your agency. Each has its advantages
and disadvantages. They are:
- Retainer
- Advance against billings
- Project basis
- Retainers:
With retainers, you agree to a program, and pay the agency
for each month's program in advance at the first of each month. Typically, both
parties will monitor the retainer, and jiggle it every quarter or six months so
it reflects the actual amount of work being done.
- The advantages of the retainer are that:
- You know exactly what your program will cost, and you can budget for it.
- You know (or should know) exactly what work will be done for you each
month, so you can keep track of how the agency is doing.
- The agency knows what its income and assignments will be, so it can assign
the right people to your account.
- The agency has the financial leeway to become a strategic partner with
you. In retainer arrangements, the agency generally guarantees that it will not
work with one of your competitors. That means you have the benefit of all the
agency's ideas and ability to implement them.
- The disadvantage of a retainer is that it is an argument waiting to happen.
The agency often feels it is giving the client more than the value of the
retainer, and the client rarely feels it is getting its money's worth.
- Advance against billings:
An advance against billings is half a
retainer. You pay a portion of the month's program, generally 50 percent, in
advance. The agency bills you at the end of the month for the work actually
done, minus the advance.
- The advantages of an advance against billing arrangement are:
- You pay only for the work that is actually done.
- Your payments are keyed to work done on specific projects, so arguments
are less likely to happen.
- Your cash outlay at the beginning of the month is smaller, and you have 39
days to pay the balance, which lets you use cash better.
- Project basis:
In a project basis arrangement, the agency works for
you on a job-by-job basis. When the job is completed, the relationship is over
until the next project begins.
- The advantages of working on a project basis are:
- The agency's cost can be micro-managed.
- You can use the agency to complement your in-house staff.
- The disadvantages of working on a project basis are:
- You get the benefit of the agency's creative only for the project
underway.
- The agency can work for companies in the same business as you.
- There is no synergy created from a long-term working relationship.
